Second Trump term sparks stock gains while dollar dip

The dollar drifted lower, and stocks were cautiously positive on Monday as investors awaited a flurry of policy announcements in the early hours of Donald Trump's second presidency and eyed a potential rate hike in Japan later in the week.

Trump takes the oath of office at noon Eastern time (1700 GMT) and promised a "brand new day of American strength" at a rally Sunday.

He has stoked expectations that he will issue a series of executive orders right away. In a reminder of his unpredictability, he launched a digital token on Friday, which soared above $70 before sliding to around $50 as traders became uneasy.

Monday is a U.S. holiday, so the first market responses to his inauguration may be felt in foreign exchange and then in Asian trade on Tuesday.

U.S. equity futures were a fraction weaker in the Asia session, while the dollar, which has rallied since September on strong U.S. data and as Trump's ultimately successful political campaign gained momentum, eased slightly.

European and FTSE futures were broadly flat. Japan's Nikkei rose 1.2%.

"My sense is a lot is in the price," said Nick Ferres, CIO at Vantage Point Asset Management in Singapore. "We are still running a low net equity exposure overall because our sense is that the magnitude and speed of the rise in yields and the dollar is now challenging for equity valuations."

Potential U.S. Tariff Hikes Weigh on Trade Flows

The dollar is up more than 8% on the euro since September and at $1.0306, is not far from last week's two-year high. But with so much priced in, some analysts feel a more gradual start to U.S. tariff hikes may draw out some sellers. The S&P 500 posted its best week since Trump's election.

Trump has threatened tariffs of as much as 10% on global imports and 60% on Chinese goods, plus a 25% import surcharge on Canadian and Mexican products, duties that trade experts say would disrupt trade flows, raise costs, and provoke retaliation.

The Canadian dollar touched a five-year low of C$1.4486 per dollar on Monday, and the Mexican peso hit a 2-1/2 year low of 20.94 per dollar on Friday.

Bitcoin dipped in the early part of the Asian day but remained above $100,000. Benchmark 10-year Treasury yields closed out Friday at 4.61%, up nearly 100 basis points in four months.

China is in focus as the target of the harshest potential trade levies. Investors recently cheered better-than-expected Chinese growth data and a Friday phone call between Trump and Chinese President Xi Jinping that left both upbeat.

Hong Kong's Hang Seng rose 2.4%, and China's yuan rallied.

"Basically, everyone is waiting for these trade negotiations to begin and see what kind of attitude Xi Jinping takes with Trump," said Ken Peng, head of Asia investment strategy at Citi Wealth in Singapore.

"That relationship between the two gentlemen has become very important as a leading indicator of policies."

China, Japan, and Global Markets in Focus

The yuan is expected to gradually adjust to any shifts in trade policy and touched a two-week high of 7.3088 to the dollar. The Australian dollar, sensitive to trade flows and China's economy, has recovered from five-year lows and could test resistance at $0.6322 if Trump's policy changes fall short of market expectations. It was last at $0.6214.

Japan's yen rallied last week as remarks from Bank of Japan policymakers were seen as hints that a rate cut is likely on Friday. It was last slightly stronger at 155.97 per dollar, with markets pricing about an 80% chance of a 25 basis point rate hike.

In commodities, gold hovered at $2,706 an ounce, and Brent crude futures dipped on expectations that Trump may ease curbs on Russia's energy sector in return for a truce in Ukraine.