Wall Street, dollar, surge higher after Trump tax talk

NEW YORK - Wall Street stocks surged to record highs on Thursday and the US dollar and bond yields rose after US President Donald Trump said he would release a "phenomenal" tax plan in the next few weeks.

Investors have been waiting for details on Trump's election campaign pledge to stimulate economic growth with large-scale fiscal stimulus through infrastructure spending and tax cuts.

 The three main US stock indexes ended in record territory as most sectors gained. Financials, which have soared since the election, were the best-performing group, up 1.4 percent after three sessions of declines, while energy shares gained 0.9 percent.

In a meeting with airline executives, the president said his administration will be announcing "something phenomenal in terms of tax" over "the next two or three weeks".

The Dow Jones Industrial Average rose 118.06 points, or 0.59 percent, to end at 20,172.4, the S&P 500 gained 13.2 points, or 0.58 percent, to 2,307.87 and the Nasdaq Composite added 32.73 points, or 0.58 percent, to 5,715.18.

The US dollar rose more than 1 percent against the yen to a six-day high, the euro fell to the day's low against the dollar, and the greenback saw a one-week high against the Swiss franc.

Benchmark 10-year US Treasury note yields were at 2.393 percent after hitting a three-week low of 2.325 percent Wednesday.

"It's been a broad-based dollar rally, driven by the headlines that Trump plans to announce something phenomenal on taxes in the next few weeks, in his words," said Kathy Lien, managing director of BK Asset Management.

"That was really the crux of the dollar rally shortly after his election and I think investors are getting really excited about that again."

The dollar had gained more than 5 percent against a basket of major currencies in the six weeks after Trump's election but has given back some of those gains as he has focused more on trade and immigration than fiscal stimulus.

Major world stock indexes also climbed on Thursday as investors took inspiration from corporate earnings and put aside the political risks that have dominated markets this week.

The MSCI all-country world stock index rose 0.31 percent to its highest in two weeks.

Shares rose in Europe, where investors have been pondering the potential impact of Trump's protectionist policies and the threat of similar policies resulting from upcoming European elections in France and Germany.

The pan-European STOXX 600 index closed 0.78 percent higher.

Oil held onto gains, with US prices rising on evidence that gasoline demand could strengthen in the world's biggest oil market.

Benchmark Brent crude settled up 51 cents at $55.63 per barrel while US light crude settled 66 cents higher at $53.00.

Concern over French and German elections later this year saw investors sell bonds of lower-rated euro zone countries earlier this week. However, yields started falling late on Wednesday and fell further on Thursday.

French 10-year government bond yields fell below 1.0 percent for the first time in two weeks.

source: news.abs-cbn.com

Bond markets set for taste of the 60s as inflation picks up

LONDON - Inflation has a habit of creeping up on you. Just ask historians.

From rates below zero less than a year ago, inflation across the developed world has risen in recent months towards central bank targets, largely driven by a rising oil price.

And if history is any guide, bond markets had better beware.

Paul Schmelzing, a visiting scholar at the Bank of England from Harvard University, has studied 800 years of bond markets history and says the most relevant parallel with today's environment is with the late 1960s under USPresident Richard Nixon.

The United States was emerging from a prolonged period of low inflation, the jobs market was tightening and a new pro-business president had raised expectations of fiscal expansion. It was a bruising time for bond investors.

US bonds lost 36 percent in real price terms between 1965 and 1970, while annual consumer price inflation more than tripled in the period, to 5.9 percent from 1.6 percent.

As the world's biggest bond market, what happens to US Treasuries usually sets the tone for bonds across the world.

The specter of what Schmelzing describes as an "inflation reversal" could be the final nail in the coffin of a 36-year bull run in government bonds that has been underpinned by years of low growth and subdued inflationary pressures.

"If you look at inflation expectations in the 1960s, no one expected them to rise so quickly but inflation can accelerate quickly and take people by surprise," said Schmelzing.

Based on historical standards, bonds could be set for double-digit losses, he said.

Other elements of previous sell-offs are also coming into play, creating the potential for a "perfect storm" for fixed income assets, he added.

This includes a sudden steepening in yield curves, as witnessed in a sharp sell-off in Japan in 2003.

END OF AN ERA?

Bond yields globally have risen recently on Trump "reflation" bets and growing signs of strength in the global economy.

US 10-year yields have risen about 65 basis points since the November election to around 2.50 percent, and German Bund yields -- the euro zone benchmark -- are near one-year highs just under 0.50 percent.

Based on his analysis of bond bear markets, Schmelzing said that what is currently priced into market inflation expectations may be conservative.
A sharp jump in yields on signs that inflation is taking off could be painful for bond investors and hurt savers.

The interest rate on benchmark Bunds, for instance, is just 0.25 percent, so even a slight rise in yield can outweigh an investor's return and spark a snowballing sell-off.

The 2015 "Bund tantrum" provided a taste of what happens when investors sense inflation building -- German yields rose sharply from record lows as data pointed to an inflation uptick.

What that episode showed, said Schmelzing, is that inflation remains the key driver for bond markets. But what is different to 2015 is that the uptick in inflation appears more enduring.

US average hourly earnings rose 2.9 percent in December, the largest year-on-year increase since 2009, and Germany's unemployment rate is at its lowest level since reunification in 1990 -- suggesting the jobs market in Europe's biggest economy is tightening.

China's producer prices surged the most in more than five years in December, while in the UK, many economists expect inflation will hit 3 percent later this year -- well above the Bank of England's 2 percent target.

"What is changing is that we are no longer looking at economies with a lot of slack in them," said Lombard chief economist Charles Dumas.

Pictet estimates annual returns in the next 10 years from US Treasuries could be less than half the 4.8 percent of the past 10 years, while German Bunds, will on average deliver negative returns.

For some investors, there is now a clear risk from the trajectory for higher interest rates.

"The risk is greater for bond holders about rising interest rates now than at any point since the financial crisis," said Payson Swaffield, Chief Income Investment Officer at Eaton Vance, an asset management firm with $354 billion in assets. "There will be periods where we will question that, but I believe the landscape has changed."

source: news.abs-cbn.com

Most Asia FX set for 2016 losses; yuan depreciates most since 1994

SINGAPORE - Asian currencies rose on the last trading day of 2016 on Friday, but most were set to post annual losses as the U.S. dollar climbed on expectations of higher interest rates next year.

Emerging Asian currencies were generally higher on the day, with the dollar losing some steam after the euro briefly soared on stop-loss buying in thin year-end trading.

"This is more a position adjustment rather than something fundamentally changing in the background," said Sim Moh Siong, FX strategist for Bank of Singapore.

"Our view is still for Asian currencies to weaken over the course of next year," he said.

While Asian currencies could rebound early in 2017 if the dollar retreats, such a pull-back could provide an opportunity to buy the greenback on dips, Sim added.

Investors are waiting to see if U.S. President-elect Donald Trump will quickly push expansionary fiscal policies once he is sworn in on Jan. 20, which would boost expectations for higher inflation and interest rates.

The Chinese yuan was the worst performer among major Asian currencies in 2016, and market watchers expect it to recoil further next year if the dollar continues to climb.

The yuan is down nearly 6.6 percent against the dollar in 2016, putting it on track for its biggest annual fall since China established its foreign exchange market in 1994.

Concerns about capital outflows and a slowdown in China's economy have weighed on the yuan along with the stronger dollar, and investors are also worried about a potential increase in U.S.-China trade tensions under the incoming Trump administration.

The Taiwan dollar is on track for an yearly gain of 2.7 percent, making it the best performing emerging Asian currency in 2016.
The Taiwan dollar had gained a boost earlier this year, helped by large foreign investor inflows into Taiwanese equities.

Overseas investors, however, have pulled money out of Taiwanese equities in the fourth quarter, and that has weighed on the Taiwan dollar as of late.

Emerging Asian currencies have declined broadly since early November as U.S. bond yields jumped on expectations that Trump's proposals for infrastructure spending and tax cuts will boost economic growth and inflation.

Worries about Trump's stance on trade have also weighed on the currencies of export-dependent countries in Asia.

source: news.abs-cbn.com

Asia stocks find relief as China set to return seized US drone

TOKYO - Asian shares steadied in early trade on Monday after China agreed to return a US drone it had seized, easing worries about rising diplomatic tensions between the world's two biggest economic powers.

MSCI's broadest index of Asia-Pacific shares outside Japan tacked on 0.1 percent after falling to its lowest level in three weeks on Friday. Japan's Nikkei dipped 0.2 percent from one-year high.

Financial markets briefly turned "risk-off" in late US trade on Friday following news that a Chinese Navy warship had seized a US underwater drone in international waters in the South China Sea.

The Dow Jones industrial average ended down 0.04 percent to 19,843.41 on Friday, while the S&P 500 lost 0.18 percent to 2,258.07.

The furor appears to have been defused for now after the two countries said on Saturday China will return the drone.

"I think the markets' trend will continue. Share prices will edge higher and so will bond yields. The dollar will remain strong. One key question is whether the Dow Jones will hit the 20,000 mark," said Koichi Yoshikawa, executive director of financial markets at Standard Chartered Bank in Tokyo.

Expectations that US President-elect Donald Trump will boost fiscal spending, growth and inflation have prompted investors to bet on a faster pace of US rate hikes, boosting US bond yields sharply.

The 10-year US Treasuries yield stood at 2.579 percent in Asia on Monday, near its two-year high of 2.641 percent touched on Thursday.

As higher US yields shore up the dollar, the dollar's index against a trade-weighted basket of six major currencies jumped to a 14-year high of 103.56 last week .

It last stood at 102.71.

The euro traded at $1.0451, bouncing back from last week's low of $1.03665, its weakest since January 2003.

The dollar traded at 117.80 yen, off Thursday's 10-1/2-month high of 118.66.

The Australian dollar dropped to a 6-1/2-month low of $0.7267 on Friday and last stood at $0.7293, dragged by the dip in the price of copper and some other commodities.

London copper hit its lowest level in more than three weeks on Friday on rising inventories and signs of softer demand from China.

Oil prices held firm after Goldman Sachs boosted its price forecast for 2017 and producers showed signs of adhering to a global deal to reduce output.

Brent futures rose 0.2 percent to $55.34 a barrel, while US West Texas Intermediate crude added 0.3 percent to settle at $52.06 per barrel.

source: news.abs-cbn.com

US bond yields, dollar gain, stocks fall after Fed hike

NEW York - Yields on shorter-dated Treasuries hit their highest levels in more than five years on Wednesday while the dollar rose to its highest against the yen in 10 months after the US Federal Reserve raised interest rates and signaled a faster pace of hikes in 2017.

Wall Street stocks ended a volatile session with their biggest percentage decline since before the Nov. 8 US presidential election, while gold prices hit a 10-month low.

As expected, the Fed raised the target federal funds rate 25 basis points to between 0.50 percent and 0.75 percent. It was its first rate hike in a year and its second since the financial crisis.

Central bank policymakers also shifted their outlook to one of slightly faster growth, with President-elect Donald Trump planning a simultaneous round of tax cuts and increased spending on infrastructure. The Fed now sees three rate hikes in 2017 instead of the two foreseen in September.

"It was largely as expected, but it's pretty clear the market is taking it as a bit more aggressive or hawkish than it had thought," said Ed Keon, portfolio manager and managing director at QMA, a multi-asset manager wholly owned by Prudential Financial in Newark.

Yields on two-year Treasury notes rose to their highest level since August 2009, while three-year yields hit their highest since May 2010 and five-year yields rose to their highest since May 2011.

US two-year Treasury notes were last down 4/32 in price to yield 1.238 percent, an increase of more than 8 basis points from its late Tuesday levels.

The dollar rallied about 1.3 percent against the yen to 116.71 yen, its highest since Feb. 8, while the dollar index , which measures the greenback against a basket of six major currencies, hit a nearly three-week high of 101.960 and was last up 0.8 percent at 101.86.

The dollar and bond yields were mostly trading lower before the Fed statement.

The Dow Jones industrial average fell 118.68 points, or 0.6 percent, to 19,792.53, while the S&P 500 lost 18.44 points, or 0.81 percent, to 2,253.28, its biggest daily percentage drop since Oct. 11.

The Nasdaq Composite dropped 27.16 points, or 0.5 percent, to 5,436.67.

US stocks traded both sides of unchanged just after the statement but began adding to losses during Fed Chair Janet Yellen's subequent news conference.

With US stocks, "we've had a great run, so it's tempting maybe to take a little bit off the table," Keon said. Stocks have rallied since the election on bets of higher US economic growth.

The S&P utilities index, which tends to fall as bond yields rise, fell 2 percent and led losses in the S&P 500, along with the energy index, which fell 2.1 percent.

MSCI's all-country world stock index was down 0.6 percent. The pan-European STOXX 600 share index ended down 0.5 percent.

"All elements we've received so far from the Fed, including the policy statement, the forecasts, the dot plot, tilt hawkish. They imply that the Fed sees more room to run with interest rates higher given the Trump election," said Frances Donald, senior economist at Manulife Asset Management in Boston.

In contrast to the Fed, the European Central Bank only last week extended its asset-buying campaign and moved to purchase more short-term debt.

GOLD, OIL LOWER

Gold turned lower and tapped the lowest in more than 10 months following the Fed statement, while oil prices fell with the dollar's gain.

Spot gold was down 0.3 percent at $1,154.62 an ounce.

Brent crude futures settled at $53.90 per barrel, down $1.82, or 3.27 percent. US crude ended the session down $1.94, or 3.66 percent at $51.04 per barrel.

source: news.abs-cbn.com