Rate-hike bets buoy dollar as markets digest US tax plan
NEW YORK (Reuters) – The dollar climbed to a one-month high on Wednesday as bets firmed for an US interest-rate hike in December, while world stocks edged up as Republicans rolled out their US tax-reform plan.
US Treasury yields rose to months- and years-long highs, fueled by a stronger-than-expected reading on durable-goods orders that suggested inflation may be picking up.
Republicans in the US Congress and the White House called for slashing tax rates on businesses and the wealthy as part of a new tax plan that offers few details about how to pay for tax cuts without expanding the federal deficit.
“Unveiling the plan is one thing, and getting it passed is another,” TD Ameritrade director of trading Victor Jones said.
Bets on a near-term interest-rate increase firmed following comments from Federal Reserve Chairwoman Janet Yellen, who said on Tuesday that the US central bank needs to continue gradual rate hikes despite broad uncertainty about the path of inflation.
Perceived chances of a hike at the Fed’s December meeting rose to 83% from 72% on Monday, according to the CME Group.
The hawkish rate sentiment helped fuel gains in US financial shares, which gained 1%. The S&P 500 tech sector rose 0.7%, helped by a 7.6% surge in shares of Micron Technology after the chip maker’s quarterly report.
On Wall Street in early afternoon trading, the Dow Jones Industrial Average rose 15.08 points, or 0.07%, to 22,299.4, the S&P 500 gained 3.12 points, or 0.12%, to 2,499.96, and the Nasdaq Composite added 37.69 points, or 0.59%, to 6,417.85.
“The renewed interest in technology coupled with the likelihood of higher interest rates spurring an interest in financials, then the news on tax reform progressing, are all positive catalysts,” said Alan Lancz, president of investment advisory firm Alan B. Lancz & Associates Inc. in Toledo, Ohio.
The pan-European FTSEurofirst 300 index rose 0.42%, and MSCI’s gauge of stocks across the globe gained 0.03%.
European banks rose 2% and hit their highest in seven weeks.
The dollar index rose 0.4%, with the euro down 0.41% to $1.1743.
“It really is an extension of the rally kicked off by the Fed last week,” said Mazen Issa, senior foreign-exchange strategist at TD Securities in New York, referring to its meeting where the Fed signaled it may raise rates for a third time this year.
Data showed new orders for key US-made capital goods increased more than expected in August, pointing to strength in the economy despite an anticipated drag to growth from hurricanes Harvey and Irma.
Benchmark 10-year notes last fell 19/32 in price to yield 2.2961%, from 2.229% late on Tuesday.
Yields on the two-year note, the most sensitive to expectations of rate increases by the Fed, rose to 1.483%, the highest since November 2008.
US crude rose 0.4% to $52.10 per barrel, while Brent was last at $57.93, down 0.9% on the day.
Spot gold dropped 0.5% to $1,286.83 an ounce.