Dollar up on failed Turkey coup; SoftBank`s ARM bid boosts shares
July 18, 2016, 2:56 pm    

The dollar strengthened against the yen on Monday as investors unwound safety trades after a failed coup in Turkey, while SoftBank Group`s $32 billion deal to buy British chip designer ARM Holdings lifted European equities.

U.S. stock index futures ESc1 1YMc1 were up, indicating Wall Street would open higher after closing flat on Friday.

Turkish shares .XU100 fell 4.8 percent but the lira TRYTOM=D3, which hit a three-week low against the dollar on Friday as news of the coup attempt broke, rose nearly 2 percent as authorities widened a purge of the armed forces and judiciary.

Investors had initially bought safe-haven assets such as the yen, gold and U.S. Treasuries on reports of the coup but these trades were largely reversed on Monday.

The yen JPY= fell 0.7 percent to 105.60 per dollar and the euro EUR= rose 0.1 percent to $1.1046.

"The scenario looks a bit calmer now ... so we`re back to thinking about the sort of policy outlook that had the yen falling against the dollar last week," said Jeremy Stretch, head of currency strategy at CIBC in London.

Gold XAU= fell 0.8 percent to about $1,326 per ounce on investors` revived appetite for risky assets, having earlier fallen as low as $1,323.70 in Asian trade.

Crude oil, which dipped as the Turkish army said on Friday it had seized control in a country bordering Syria, Iraq and Iran, fell again on Monday. Brent crude LCOc1, the international benchmark, was down 46 cents at $47.15 a barrel but above Friday`s low of $46.65.



European shares gave up most early gains but were still slightly higher on the day, led by a surge of almost 45 percent in ARM Holdings. SoftBank (9984.T) will pay 17 pounds a share for ARM - a premium of more than 40 percent to Friday`s closing price.

ARM (ARM.L) traded at 1,694 pence, up 43 percent. Japanese shares were closed for a holiday.

"An increase in inbound M&A was one of the obvious consequences of Brexit and weakened sterling but few expected it to manifest itself so quickly or at so large a scale," Dan Ridsdale, analyst at Edison Investment Research, said in a note.

Tour operators Thomas Cook (TCG.L) and Tui (TUIT.L) fell 1.5 and 2.2 percent respectively, as analysts saw the Turkish coup attempt potentially reducing demand for travel there.

The pan-European STOXX 600 index was up 0.2 percent. The Euro STOXX volatility index .V2TX, broadly a European equivalent of the U.S. VIX "fear gauge", edged up 2 percent on Monday but was still near its lowest for seven weeks.

Phoebus Theologites, co-founder of multi-fund investment company SteppenWolf Capital, said this reflected, among other things, a perception that any negative impact of Britain`s vote to leave the European Union would not be apparent immediately.

MONETARY EASING

MSCI`s broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS added 0.2 percent, having reached its highest in almost nine months last week. Australia rose 0.5 percent. Chinese shares .SSEC fell, led lower by real estate and construction shares after data showed growth in house prices slowed last month.

Yields on U.S. Treasuries, which were also in demand on Friday as the Turkish coup bid unfolded, fell again. Ten-year yields US10YT=TWEB stood at 1.57 percent, down 2.6 basis points.

German 10-year yields DE10YT=TWEB, the euro zone benchmark for borrowing costs, fell 2.7 basis points to minus 0.09 percent.

Core government bond yields have been falling across the developed world, with many turning negative, in anticipation of monetary easing to help ignite weak growth and inflation.

The European Central Bank meets this week and while no change is expected this time, further steps are seen likely in September.

Investors also expect easier policy from the Bank of Japan and the Bank of England while markets price in little chance of any hike in U.S. interest rates this year.



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