Dollar, U.S. Futures Hold Gains After Trump Speaks

EghtesadOnline: Dollar and equity bulls were largely unscathed by Donald Trump’s address to Congress, which provided few new details on his economic strategy amid increasing optimism on U.S. growth.

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01 March 2017

The Bloomberg Dollar Spot Index briefly pared gains while Trump spoke, only to rebound after he finished. S&P 500 futures slightly trimmed a pre-speech advance. The yield on 10-year Treasuries rose, adding to earlier gains after odds jumped for a Federal Reserve interest-rate increase this month. The yen dropped for a third day, providing a boost to Japanese equities.

According to Bloomberg, the speech “has enough to keep markets happy for now,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages about $127 billion. “It didn’t have a lot of details, but then maybe it never could.”

Trump 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. The speech offered few new proposals and Trump 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.

The U.S. president’s commitment to spur growth by boosting spending and easing regulation helped fuel a stock rally after his election that reverberated around the world, sending the value of global equities above $70 trillion and propelling the dollar higher. The question facing investors hinges on whether Trump can deliver enough of a plan to appease the optimists amid signs investors’ patience is waning. In the days leading up to the speech, investors showed an unwillingness to add to riskier bets with stocks near all-time highs.

“There were no extreme comments, nothing on border tax, and investors are feeling relieved,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo. “Focus is shifting toward the Fed. The yen was already weakening this morning on that.”

Traders sifted through a parade of other news on Wednesday in Asia before the U.S. president’s address. China’s official factory gauge firmed in February as producer prices rebounded. The Australian dollar erased an early decline as the nation’s economy grew faster than expected and traders increased bets on an interest-rate hike.

The odds of an increase in March for U.S. interest rates rose above 70 percent at one point, pushing up the dollar and dragging shorter-maturity 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. Fed Chair Janet Yellen speaks on Friday.

Here are the main moves in markets:

Currencies

The Bloomberg Dollar Spot Index rose 0.5 percent as of 1:39 p.m. in Tokyo, climbing for a fourth straight day. The yen slid 0.6 percent to 113.49 per dollar, for a third day of losses.

The Aussie dollar was little changed, after reversing an earlier decline of 0.3 percent. The country’s gross domestic product expanded 1.1 percent in the fourth quarter, higher than estimates for 0.8 percent growth, as households saved less and spent more.

Stocks

Futures on the S&P 500 Index rose 0.3 percent, after climbing as much as 0.4 percent before Trump’s speech. The benchmark index finished February with its best monthly gain since March, climbing 3.7 percent. The Dow Jones Industrial Average broke its winning streak on Wednesday, falling for the first time in 13 days.

Japan’s Topix index increased 1.1 percent. The gauge completed a fifth straight monthly advance in February, the longest winning streak since early 2015.

The Stoxx Europe 600 Index added 0.2 percent after four straight days of losses.

Australia’s S&P/ASX 200 index lost 0.3 percent.

Hong Kong’s Hang Seng climbed 0.2 percent and the Shanghai Composite Index added 0.4 percent. China’s manufacturing data gives top officials gathering in Beijing a solid economic backdrop as they seek to rein in financial risks.

Bonds

Yields on 10-year Treasuries rose three basis point to 2.42 percent, climbing for a third straight day. Two-year yields rose four basis points, after jumping seven basis points on Tuesday.

Australian benchmark yields climbed nine basis points to 2.81 percent.

Commodities

Gold dropped for a third day, falling 0.5 percent to $1,242.75 an ounce after completing a 3.1 percent gain in February.

Oil rose 0.1 percent to $54.08. Crude ended last month with a gain of 2.3 percent.