Rate-hike bets buoy dollar as markets digest tax plan in US

Oil slips back from 2015 peaks; gold hits month low

NEW YORK, Sept 27, (Agencies): 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,” said Victor Jones, director of trading at TD Ameritrade.

Bets on a near-term interest rate increase firmed following comments from Federal Reserve Chair 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 percent from 72 percent on Monday, according to the CME Group.

The hawkish rate sentiment helped fuel gains in US financial shares, which gained 1 percent. The S&P 500 tech sector rose 0.7 percent, helped by a 7.6 percent surge in shares of Micron Technology after the chipmaker’s quarterly report.

On Wall Street, the Dow Jones Industrial Average rose 15.08 points, or 0.07 percent, to 22,299.4, the S&P 500 gained 3.12 points, or 0.12 percent, to 2,499.96 and the Nasdaq Composite added 37.69 points, or 0.59 percent, 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 percent and MSCI’s gauge of stocks across the globe gained 0.03 percent.

European banks rose 2 percent and hit their highest in seven weeks.

The dollar index rose 0.4 percent, with the euro down 0.41 percent to $1.1743.

Benchmark 10-year notes last fell 19/32 in price to yield 2.2961 percent, from 2.229 percent late on Tuesday.

Yields on the 2-year note, the most sensitive to expectations of rate increases by the Fed, rose to 1.483 percent, the highest since November 2008.

US crude rose 0.4 percent to $52.10 per barrel while Brent was last at $57.93, down 0.9 percent on the day.

Spot gold dropped 0.5 percent to $1,286.83 an ounce.

US

Losses in consumer stocks including Nike reined in gains for Wall Street’s main indexes on Wednesday after a burst of optimism fueled by hints President Donald Trump may finally be making headway on long-promised tax cuts.

Trump proposed the biggest tax overhaul in three decades, but offered scant details about how to pay for the cuts without dramatically driving up federal deficits.

If passed, the plan would be Trump’s first significant legislative win since taking office in January.

Traders now see an 81.4 percent chance of a December rate hike, compared with 71.4 percent a week ago, according to CME Group’s FedWatch tool.

The dollar and US Treasury yields rose after a better-than-expected reading on US durable goods orders that suggested inflation may be picking up.

The rise in the return on savings helped financial stocks , which gained 1.05 percent. Bank of America rose 2.40 percent, lifting the S&P, while Goldman Sachs’ 1.50 percent rise helped the Dow.

At 12:28 pm ET (1628 GMT), the Dow Jones Industrial Average was up 0.31 points, or flat, at 22,284.63 and the S&P 500 was up 2.54 points, or 0.10 percent, at 2,499.38.

The tech-heavy Nasdaq Composite was up 40.40 points, or 0.63 percent, at 6,420.57, helped by gains in Apple and Facebook shares.

The biggest S&P laggard was the consumer staples index . Procter & Gamble fell more than 2 percent and was the biggest drag on the S&P and the Dow.

UK

Britain’s top share index snapped two days of losses on Wednesday as some export-oriented companies found support in a weaker pound and financial stocks were buoyed by Standard Chartered after a broker upgrade.

Gains were driven by a revival in appetite for riskier assets as investors mulled plans in the United States to cut corporate tax.

Britain’s blue-chip FTSE 100 index ended the session up 0.4 percent at 7,313.51 points, while mid-caps also rose 0.3 percent.

The FTSE is still up more than 2 percent so far this year but has underperformed the broader pan-European STOXX 600 index, as some brokers have turned more bearish on British equities.

Among financials, which provided the biggest uplift to the FTSE on Wednesday, Standard Chartered rose 1.8 percent after Investec upgraded the stock to “hold” from “sell”. It said that after a 15-percent drop in the last two months, it was time to close short positions.

Pearson jumped nearly 4 percent after Exane BNP Paribas upgraded the stock to “outperform” from “underperform”, saying a change in strategy at the group, which is cutting jobs and dividends to revive its business, should help shares recover.

Europe

Banks led European stocks to a 10week high on Wednesday as a tax overhaul plan backed by President Donald Trump fuelled hope in a revival of the “Trumpflation” trade, a bet on rising rates, inflation and securities prices in the United States and beyond.

The pan-European STOXX 600, boosted by a falling euro, gained 0.4 percent to hit its highest level since July 20.

The rise in the common currency had weighed on the index this summer, denting earnings expectations.

Banks touched a six-week high, up 2 percent, as the prospect of fiscal stimulus in the US resurfaced.

Spain’s Banco Sabadell, which had suffered in the wake of tensions over the Catalan referendum, posted the best performance of the STOXX 600 with a 6.9 percent jump after the central government said police would take control of voting booths in Catalonia to thwart it.

Madrid’s IBEX was by far the best performer among major European bourses with a 1.8 percent rise.

Mergers and acquisitions also drove the market with Alstom shares hitting their highest level in more than six years after the French industrial group struck a deal to merge rail operations with Germany’s Siemens.

Alstom rose 4.6 percent while Siemens gained 1.2 percent.

Asia

Most Asian markets edged up Wednesday and the dollar extended gains against its peers on expectations of further interest rate rises, while traders await the release of Donald Trump’s tax reform plan.

While shares were broadly in positive territory, US-North Korea tensions continue to jangle nerves and keep investors from buying with any conviction.

Hong Kong added 0.5 percent, while Shanghai edged up 0.1 percent and Singapore gained 0.8 percent. But Seoul and Sydney each lost 0.1 percent, while Tokyo finished 0.3 percent lower.

There were also gains in Wellington, Taipei, Manila and Bangkok.

The yen — which surged Tuesday on safe-haven buying after Pyongyang accused Trump of declaring war on it and said it may shoot down US bombers — was being pegged back by the dollar in Tokyo.

The greenback returned to favour after Federal Reserve boss Janet Yellen indicated the bank would press on with its plan to raise borrowing costs, saying the US economy was strong enough to withstand it.

Analysts said her comments suggested she did not want to take too long to raise rates and end up having to introduce sharper increases down the line — which could risk a recession. Key figures around 0820 GMT Tokyo — Nikkei 225: Down 0.3 percent at 20,267.05 (close)

Hong Kong — Hang Seng: Up 0.5 percent at 27,642.43 (close)

Shanghai — Composite: Up 0.1 percent at 3,345.27 (close)

London — FTSE 100: Up 0.4 percent at 7,313.58

Euro/dollar: Down at $1.1750 from $1.1790 at 2040 GMT

Dollar/yen: Up at 112.72 yen from 112.25 yen

Pound/dollar: Down at $1.3397 from $1.3456

Oil — West Texas Intermediate: Up 37 cents at $52.25 per barrel

Oil — Brent North Sea: Up 36 cents at $58.80 per barrel

New York — DOW: Down 0.1 percent at 22,284.32 (close)

Oil

Brent crude prices dipped on Wednesday, edging lower for a second day, although an unforeseen drop in US oil inventories helped keep the market within sight of this week’s 2015 highs.

A rise in the dollar to one-month highs against the euro following a signal the previous day by the head of the US Federal Reserve that rates will continue to tighten, dampened the broader commodity markets and that weakness fed into oil.

Brent November crude futures were down 13 cents at $58.31 a barrel by 1347 GMT, while US November crude futures were up 18 cents at $52.06.

Gold

Rising expectations that the US Federal Reserve will raise interest rates again this year drove gold to a month low on Wednesday, after its biggest one day loss in almost two years during the previous session.

Platinum meanwhile hit parity with palladium for the first time since 2001 on diverging demand expectations. Platinum is used more heavily in the diesel engines that have fallen out of favour since 2015’s Volkswagen emissions-rigging scandal.

Spot gold sank 0.7 percent to $1,284.37 per ounce by 1354 GMT after tumbling 1.3 percent in the previous session.

Earlier it hit its lowest since Aug. 25 at $1,282.23. US gold futures for December delivery fell 1.1 percent to $1,287.50.

The dollar touched a one-month high against a basket of currencies after Federal Reserve chief Janet Yellen said on Tuesday it would be “imprudent” to keep rates on hold until US inflation hits 2 percent.