Dollar slumps, yen strengthens 

• Dollar slumps after Flynn resigns as national security adviser

• Japan shares fall as yen strengthens; Hong Kong equities swing

Japanese stocks fell, taking the momentum out of a global rally after U.S. benchmarks surged to a fresh round of records, while the dollar extended losses as Donald Trump’s national security adviser resigned.

The dollar deepened losses against most major currencies after Michael Flynn stepped down amid concerns over the White House national security adviser’s Russian contacts. Japan’s Topix slipped as the yen strengthened. Shares in Hong Kong swung between gains and losses as investors weighed data on China’s producer prices. The Australian dollar rose after business conditions jumped to the highest level in more than nine years.

Concern over the developments in Trump’s administration overshadowed optimism for an improving U.S. economy under the president’s policies that sent the S&P 500 Index to an unprecedented high on Monday. Flynn resigned amid deepening controversy over allegations of improper contact with Russian officials, upending the global strategic team of a president propelled to office largely on promises to protect the U.S. against foreign terrorism.

“The news dampens slightly the expectations for a smooth implementation of various policies,” said Minori Uchida, head of global market research at Bank of Tokyo-Mitsubishi UFJ. But he added the dollar selloff may be limited. “Market expectations on Trump are about his economic policies, and while Flynn’s post is significant, it isn’t directly related,” he said.

What’s coming up in the markets:

• Investors will turn their attention to Federal Reserve Chair Janet Yellen’s testimony in Congress on Tuesday in Washington. Traders are pricing in a 30 percent chance the Fed lifts rates at its March 15 meeting, little changed from the probability seen at the start of this year.

Here are the main moves in markets on Tuesday:

Currencies

• The Bloomberg Dollar Index fell 0.2 percent at 1:12 p.m. in Tokyo, after a 0.2 percent gain on Monday and last week’s 0.7 percent advance. The yen added 0.3 percent to 113.43 per dollar, after falling 0.5 percent on Monday. The Korean won jumped 1 percent.
• The Australian dollar strengthened 0.5 percent. The business conditions index — a measure of hiring, sales and profits — jumped in January, a National Australia Bank Ltd. survey showed. Business confidence showed the best result in almost three years, and a gauge of employment rose to the highest level since 2011.

Stocks

• The MSCI All-Country index was flat at 441.32, near its all-time high of 442.70 reached in May 2015. The measure advanced over the previous four days. The MSCI Asia Pacific Index was also little changed, trading near the highest since July 2015.
• Japan’s Topix slipped 0.6 percent. South Korea’s Kospi index fell 0.3 percent. Singapore’s Straits Times Index dropped 1.2 percent, the most since November.
• Hong Kong’s Hang Seng was flat, after a four-day gain, and the Shanghai Composite Index declined 0.2 percent. China’s producer prices increased the most since 2011, raising concern about tighter monetary policy.
• Contracts on the S&P 500 fell 0.1 percent, after the benchmark index closed up 0.5 percent at a record 2,328.25 on Monday. The Russell 2000 Index and Nasdaq also rose to all-time highs, as did Apple Inc. shares.

Bonds

• The yield on 10-year Australian bonds advanced three basis points to 2.74 percent, after those on similar-dated Treasury notes climbed three basis points in the previous session. Treasury yields were flat at 2.44 percent on Tuesday.

Commodities

• Oil futures rose 0.3 percent to $53.06, after snapping a three-day rally on Monday. Investors weighed rising U.S. crude stockpiles against output cuts from OPEC and other producing nations.
• Gold was 0.3 percent higher at $1,228.68, following a 0.7 percent drop in the previous session.
• Copper extended a rally, climbing 0.2 percent to the highest since May 2015, after the world’s two biggest mines halted some operations.

Source: Bloomberg – Stock Rally Falters, Dollar Drops as Flynn Resigns: Markets Wrap

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