Dollar climbs as treasuries decline on Fed wagers; rand sinks

Bloomberg.- The dollar rose to its strongest level in 11 weeks and U.S. bonds declined as investors boosted wagers that the Federal Reserve will raise interest rates this year. South Africa’s rand tumbled after prosecutors said they will charge the nation’s finance minister with fraud.

The greenback jumped to its strongest level in more than two months against the euro and approached a more than five-week high versus the yen as Fed Bank of Chicago President Charles Evans said policy “may well be changing soon.” Treasury two-year note yields rose to the highest in more than four months and the rand tumbled the most since June. Samsung Electronics Co. led Asian stocks lower, with the company saying after markets closed that it was ending production of its Galaxy Note 7 smartphones. U.S. crude oil retreated from the highest in 15 months.

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The dollar has been supported by speculation that the U.S. economy is strong enough to withstand higher borrowing costs, with the market-implied odds of an increase this year rising to 67 percent. Markets will get more clues on policy makers’ thinking on Wednesday with the release of the minutes of the Federal Open Market Committee’s Sept. 20-21 meeting. A government report Friday will show retail sales rebounded in September, according to a Bloomberg survey of economists.

“You do have U.S. data holding up better than many expected and markets are still looking for the Fed to raise rates in December,” said Thomas Harr, global head of FICC research at Copenhagen-based Danske Bank A/S. “Over the next couple of weeks you could see a bit more dollar strength.”

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.4 percent as of 8:11 a.m. New York time, set for its highest closing level since July 25. The index has gained in six of the past seven trading days as wagers on higher rates become more entrenched.

The greenback advanced for a second day versus the euro, appreciating 0.6 percent to $1.1078, and was 0.1 percent firmer at 103.73 yen.

The South African rand led declines among major currencies, dropping 3.5 to 14.2863 per dollar, while the nation’s bonds also slumped.

Finance Minister Pravin Gordhan was summoned to appear in court on fraud charges next month, the latest twist in a struggle with President Jacob Zuma that could cause the country’s credit rating to be downgraded to junk. The case is politically motivated and South Africans need to ask why it was filed just weeks before the delivery of the mid-term budget, Gordhan said in a speech delivered in Midrand near Johannesburg on Tuesday.

The pound fell for a fourth day, with the its precipitous slide prompting strategists from ING Groep NV, JPMorgan & Chase Co. and Julius Baer Group Ltd. to revise down their longer-term predictions. Sterling has been hurt as investors await clarity from Prime Minister Theresa May’s government on how the nation will manage its exit from the European Union. The pound dropped 0.7 percent to $1.2276.

Sweden’s krona slumped to its weakest level in more than six years as a report showed the nation’s annual inflation rate unexpectedly dropped in September. The currency lost as much as 1 percent to 9.7354 per euro, the weakest level since May 2010. It depreciated 1.5 percent to 8.7828 per dollar.

China’s yuan fell 0.04 percent offshore, taking its eight-day loss to 0.7 percent. The currency joined the International Monetary Fund’s reserves basket on Oct. 1. Onshore, the yuan fell to a six-year low.

Stocks

The Stoxx Europe 600 Index gained 0.1 percent. LVMH Moet Hennessy Louis Vuitton SE rose 5 percent after reporting sales that topped analysts’ estimates. Christian Dior SE and Burberry Group Plc advanced at least 3 percent.

S&P 500 Index futures declined 0.3 percent, after U.S. equities closed up 0.5 percent on Monday as surging oil boosted energy producers. Alcoa Inc. fell 4.2 percent in early trading in New York after reporting third-quarter earnings that trailed analysts’ profit estimates. The company unofficially kicked off the earnings season, which will turn investors’ attention to the health of U.S. companies. Analysts forecast a 1.6 percent contraction in three-month profit for S&P 500 members, which would be a sixth straight quarterly drop.

The FTSE 100 Index of stocks reached an intraday record as concern that the U.K.’s government’s approach to Brexit will preclude membership of the EU single market spurred more declines in the pound, boosting companies with foreign earnings. The index jumped as much as 0.5 percent.

The MSCI Emerging Markets Index fell 0.6 percent, set for its biggest decline in more than a week. South Korea’s Kospi index slid 1.2 percent, its worst performance this month, as Samsung tumbled 8 percent, erasing $17 billion from its market value.

Saudi Arabia’s equity gauge climbed 1.5 percent after oil prices rallied Monday.The kingdom unveiled long-awaited plans to hold investor meetings from this week for a possible bond sale to help shore up the country’s finances.

Bonds

Yields on Treasury notes due in two years increased four basis points to 0.87 percent, the highest since June. 3. Ten-year note yields rose five basis points to 1.77 percent. Trading resumed after the Columbus Day bond-market holiday on Monday.

Even as he argued for keeping interest rates low until core inflation moves higher, Evans repeated an observation he made last week that policy may change soon. Officials left their benchmark interest rate unchanged in September, though the decision came over the objection of three voters who favored a hike. Fed Vice Chairman Stanley Fischer on Sunday called it a “close call.”

The decline in Treasuries is also being driven by the willingness of Saudi Arabia and Russia to cooperate on an oil output deal, said John Gorman, head of non-yen rates trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. Higher oil prices tend to boost inflation, which erodes the value of the fixed payments on bonds.

European government bonds rose, with the yield on benchmark German 10-year bunds falling one basis point to 0.049 percent. The yield on similar-dated U.K. gilts fell five basis points to 0.98 percent.

Asian government debt dropped, with yields on 10-year Australian bonds up six basis points to 2.25 percent and yields on similar maturity notes in Japan climbing 1.5 basis points.

Commodities

West Texas Intermediate crude slipped 0.6 percent to $51.04 a barrel after jumping 3.1 percent last session to its highest closing price since July 2015. Brent fell 0.9 percent to $52.69 per barrel.

Oil has gained almost 15 percent since the Organization of Petroleum Exporting Countries provisionally agreed last month to cut production for the first time in eight years. The group’s members meet this week in Istanbul for talks on implementing the deal and Saudi Arabian Energy Minister Khalid Al-Falih said it’s not unthinkable prices will rise to $60 a barrel by the end of this year.

Zinc led industrial metals lower, falling 2.1 percent to $2,280 per metric ton. Tin slid 0.8 percent.

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