GLOBAL MARKETS-"King dollar" benefits from European risks, growth fears
* Brexit uncertainty hits pound, euro, buoys dollar
* MSCI Asia Ex-Japan index down 0.5 pct
* U.S. dollar hits new 16-month high
* Weak China data, U.S. Fed rate hike expectations weigh
* Oil prices surge on Saudi production cut plans
(Updates prices, adds charts)
By Sujata Rao
LONDON, Nov 12 (Reuters) - The dollar surged to nearly17-month highs on Monday against a basket of major currencies asinvestors sought out the liquid and high-yielding currencyagainst a backdrop of global growth worry and rising politicalrisk in Italy and Britain.
A 2-percent oil price jump initially supported Europeanequities but the gains fizzled rapidly as fears grewfor Italian lender Carige whose shares were suspended afterreports of a capital hole. While Shanghai was lifted one percent by regulators' promiseto simplify share buybacks , MSCI's world equity indexwas down 0.3 percent and Asian markets broadlyweakened following Friday's weak Wall Street close.
Investors fretted about signs of slowing growth in Chinawhere e-commerce giant Alibaba was the latest to raisealarm bells, with the slowest ever annual sales growth duringits Singles Day shopping event.
Many also reckon that U.S. President Donald Trump could turnup the heat over trade, further damaging China's economy.
All that, coupled with European political risks, conspiredto push the dollar 0.6 percent higher against a basket ofcurrencies. Sterling fell 1 percent while theeuro, which comprises more than 50 percent of the dollar index,fell 0.7 percent to its lowest since July 2017.
"King dollar has staged a return," Valentin Marinov, head ofG10 FX strategy at Credit Agricole, said, adding that investorshad piled back into the dollar after last week's U.S. FederalReserve meeting confirmed a rate-tightening path. "Euro and pound are both hurt by political risk and that isaggravating underperformance versus the dollar," Marinov said.
In Britain, Prime Minister Theresa May was forced to abandonplans for an emergency cabinet meeting to approve a Brexitagreement, the Independent news website reported, stoking fearsthat the government might not be able to secure a deal thatsatisfied both the European Union and members of the ruling
party. The opposition Labour Party said that if May's Brexit dealwas voted down in parliament, it would push for a nationalelection and possibly also another referendum. Latest futures data showed net short sterling positionsregistered their biggest weekly rise in 1-1/2 months.
Deutsche Bank analysts, however, predicted more pain,telling clients: "not enough risk is priced into sterling giventhe parliamentary problems ahead".
For the euro, Italy was the main focus, with Rome facing aTuesday deadline to submit a revised budget to the EU, though ithas so far refused to cut the draft budget deficit, setting thestage for a collision with Brussels.
Markets were also spooked by reports that Banca Carige would need around 400 million euros ($451 million) toplug a hole in its capital base and Italy's deposit protectionfund could fill only part of it. That raises the spectre of a banking crisis in the eurozone's third-biggest economy, keeping Italy's bond yield spreadover Germany - the risk premium attached to Italian assets -around the psychologically key 300 basis-point mark. Italian bank shares fell 0.6 percent.
Bernd Berg, global macro strategist at Woodman AssetManagement, predicted the euro would tumble below $1.10 from thecurrent $1.126 "as renewed eurozone and Brexit angst and adiverging economic outlook with a strong U.S. economy versus aweakening eurozone economy will trigger further euro sellingpressure."
All of this has been good news for dollar bulls, who havebenefited from safe-haven flows. Against the Japanese yen the dollar gained 0.3 percent, touching its weakest since Oct.4, while it also rose 0.4 percent to the Swiss franc.
Speculators' net long dollar positions rose last week to thehighest since January 2016, calculations by Reuters andCommodity Futures Trading Commission, show.
U.S. trade is likely to be thinned by the Veterans Dayholiday, with Treasury bond markets shuttered. Futures for theS&P500 were flat while the Dow Jones was marginally lowerand the Nasdaq was indicated 0.2 percent firmer after sharp falls on Friday.
The other big move was in commodities, where Saudi Arabia'senergy minister took some pressure off last week's oil pricedrop, saying on Sunday that Riyadh could reduce supply to worldmarkets by 500,000 barrels per day in December, a globalreduction of about 0.5 percent. That jolted Brent crude futures up more than 2.07percent to a high of $71.88 per barrel.
However, the supply cut may prove to be a temporary solutionto falling prices as global growth slows, with two of theworld's biggest economies - Germany and Japan - expected toreport a contraction in output in coming days. "Supply-side surprises appear to be the main culprit, butconcern that global demand is slowing may also be creeping intomarkets and weighing on risk appetite," the ANZ analysts said.
(Reporting by Sujata Rao, additional reporting by AndrewGalbraith in Shanghai and Tom Finn in LondonEditing by Andrew Heavens)
andrew.galbraith.thomsonreuters.com@reuters.net ; Twitter: ))Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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