Focus turns to Fed as dollar gains, bonds drop: Markets wrap

Bloomberg.- Investors moved on from President Donald Trump’s address to Congress, shifting their focus to the timing of a U.S. rate increase as the dollar strengthened, stocks advanced and bonds fell. Robust factory data from China spurred gains in metal prices.

The Bloomberg Dollar Spot Index climbed the most in a month, the yield on 10-year Treasuries rose to a week-high and European banking stocks surged after odds jumped for a Federal Reserve rate increase this month. Shares of commodity producers found support from a report indicating improving health for Chinese manufacturing which also helped prices for raw material exports.

“Fed speakers trump Trump,” Richard McGuire, the head of rates strategy at Rabobank International in London, wrote in a note. Trump’s speech lacked “fresh content for the market to trade off, with big tax cuts, deregulation and an infrastructure plan being mentioned but not supported by any details. Given this, all focus instead turned to the slew of hawkish rhetoric from Fed speakers.”

The odds of an increase in March for U.S. interest rates rose to more than 60 percent, pushing up the dollar and dragging Treasuries lower. Federal Reserve Bank of New York President William Dudley said the case for tightening has become a lot more compelling. Fed Bank of San Francisco President John Williams said he expects a rate increase to receive “serious consideration” at this month’s meeting.

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Trump in his speech urged Americans to abandon conflict and help him remake the fabric of the country, a moment he hopes will turn the page on his administration’s chaotic beginning and bring clarity to his policy agenda. He offered few new proposals and made no suggestions on how he would pay for his plans, including a replacement of Obamacare, a tax overhaul including cuts for the middle class, $1 trillion in infrastructure investment and a large increase in defense spending.

What traders are looking at in the days ahead:

– Fed speakers aren’t finished talking. There are other officials lined up for this week, including Chair Janet Yellen, who speaks in Chicago on Friday.
– The Chinese People’s Political Consultative Conference, an advisory body of more than 2,000 political elites, business executives and others, opens its annual session in Beijing on March 3.

Here are the main moves in markets:

Currencies

– The Bloomberg Dollar Spot Index jumped 0.6 percent as of 7:49 a.m. in New York, climbing for a fourth straight day and heading for the biggest advance since Jan. 26. The yen slumped 0.8 percent to 113.65 per dollar, for a third day of losses.
– The euro fell 0.4 percent to $1.0529 and the British pound weakened 0.6 percent to $1.2311.

Stocks

– European stocks climbed the most since Feb. 1, adding 1.1 percent as all industry sectors advanced. A gauge of banks gained 2.5 percent, leading the advance, while basic resources shares rose 2 percent.
– Futures on the S&P 500 Index added 0.6 percent. The benchmark index finished February with its best monthly gain since March, climbing 3.7 percent.
– Japan’s Topix index increased 1.2 percent, propelled by a weaker yen towards the the biggest rally in more than two weeks.

Bonds

– Yields on 10-year Treasuries rose four basis points to 2.43 percent, climbing for a third straight day to the highest level since Feb. 21.
– German bonds fell, with the yield on 10-year benchmarks adding six basis points to 0.26 percent after regional data showed accelerating inflation. French bonds came under more election risk after Republican candidate Francois Fillon said he would stay in the presidential race, diverting votes away from independent Emmanuel Macron, the favorite to beat National Front leader Marine Le Pen on May 7. The yield on the benchmark note due in a decade rose one basis point to 0.9 percent.

Commodities

– Gold dropped for a third day, falling 0.6 percent to $1,241.49 an ounce after completing a 3.1 percent gain in February.
– West Texas Intermediate Crude rose 0.3 percent to $54.16. Oil ended last month 2.3 percent higher.
– Copper added 1.3 percent, advancing for a fourth straight session.

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