Dol­lar charges to 14-year high, bonds in full swing

Solid US data, Yellen com­ments fuel rate-hike bets

Kuwait Times - - BUSINESS -

LONDON: The dol­lar scaled to its high­est level in al­most 14 years against a bas­ket of cur­ren­cies yes­ter­day, while US bond yields were set for the big­gest fort­nightly rise in 15 years on bets US in­fla­tion and in­ter­est rates are headed higher. A grow­ing per­cep­tion that the eco­nomic poli­cies of US Pres­i­dent-elect Don­ald Trump will push up con­sumer prices helped put the dol­lar on track for its big­gest two-week rise against the Ja­panese yen in al­most 30 years. Euro­pean shares nudged lower in early Euro­pean trade , while Ital­ian bonds bore the brunt of sell­ing in re­gional debt mar­kets, with bor­row­ing costs set for their big­gest two-week rise since the 2012 euro­zone debt cri­sis.

In Asia, MSCI’s broad­est in­dex of Asia-Pa­cific shares out­side Ja­pan slipped 0.4 per­cent to hover just above four-month lows touched ear­lier in the week. It looked set to log its fourth straight week of losses. The dol­lar’s rise against the yen raised hopes of an earn­ings boost to Ja­panese ex­porters, lift­ing Ja­pan’s Nikkei av­er­age to a 10-month high. The blue-chip stock in­dex closed 0.6 per­cent higher. Data on Thurs­day sug­gest­ing the US jobs mar­ket is tight­en­ing and in­fla­tion is gain­ing trac­tion have bol­stered a view that US growth and in­fla­tion could ac­cel­er­ate if the Trump ad­min­is­tra­tion cuts taxes and in­creases fis­cal spend­ing.

Last week’s un­ex­pected US elec­tion re­sult has prompted in­vestors to ditch their once rock-solid con­vic­tion that growth in de­vel­oped economies will re­main tepid be­cause of tough com­pe­ti­tion from emerg­ing mar­ket economies with lower wages. That has led to a repric­ing of as­sets, wit­nessed most no­tably in cur­rency and bond mar­kets. “What we’re look­ing at is a broad shift of in­vest­ment back to the US,” said Richard Cochi­nos, Citi’s head of G10 cur­rency strat­egy in London. “There are ex­pec­ta­tions for tax cuts next year - which were part of the Trump cam­paign’s prom­ises and then there’s also the idea of what type of fis­cal boost are you go­ing to have. That’s what’s driv­ing as­set prices it’s peo­ple’s ex­pec­ta­tions for the fis­cal im­pulse next year,” he said.

BONDS RUM­BLED

The 10-year US Trea­sury yield rose to 2.34 per­cent, its high­est since De­cem­ber. It is up about 55 ba­sis points over the last two weeks-the big­gest fort­nightly rise in 15 years and the sec­ond big­gest in al­most 30 years. In Europe, Ital­ian 10year bond yields rose 8 ba­sis points to 2.12 per­cent, rack­ing up 44 bps over the last fort­night in its big­gest surge since May 2012. Italy has been at the sharp end of the rout as in­vestors fret about the po­lit­i­cal reper­cus­sions of a ref­er­en­dum next month that could fur­ther desta­bi­lize a coun­try bat­tling a bank­ing cri­sis and a weak econ­omy. Ris­ing bond yields across the globe also re­flect a re­assess­ment of the Fed­eral Re­serve’s pol­icy path down the road, be­yond a likely rate hike in De­cem­ber.

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