Wednesday 16:30 GMT
Wall Street surged to another record as comments from Federal Reserve officials caused traders to boost their bets for an increase in US interest rates this month and investors celebrated a more upbeat tone from Donald Trump in his first address to Congress.
In keeping with he risk-on mood that washed across financial markets around the globe, the dollar also rose and gold fell.
“The general bipartisan tone of the event and the optimistic and cohesive nature of his comments has been cited [as] a positive,” said analysts at Citi.
The US dollar and Treasuries are in focus after William Dudley, head of the New York Federal Reserve, said in an interview with CNN that the prospects for adding to December’s rate rise had become “a lot more compelling”.
This followed soon after Robert Kaplan, president of the Dallas Fed, said the US central bank may need to raise interest rates “sooner rather than later”.
Together they have added to the chorus of Fed members floating the idea of tighter monetary policy, a trend deemed all the more likely given the potential boost to growth provided by Mr Trump’s mooted fiscal strategy. Fed chair Janet Yellen is due to give a speech on Friday.
Futures markets are pricing the chance of a 25-basis-point rate rise in March at 82 per cent compared with 36 per cent a week ago. The policy-sensitive US two-year bond yield, which moves in the opposite direction to the price, is up 2 basis points to 1.28 per cent.
The 10-year Treasury yield is jumping 7bp to 2.46 per cent and this is contributing to equivalent maturity German Bunds adding 8bp to 0.28 per cent. The latter are also pressured by news that eurozone manufacturing activity is at its best level in six years and inflation in February hit its fastest pace since August 2012.
This US/German yield differential — with German two-years offering minus 82bp, the two-year spread is currently 211bp — reflects the policy divergence between the Fed and European Central Bank, which remains in easing mode.
And this is underpinning the buck. The dollar index, which measures the greenback against a basket of its peers, is up 0.8 per cent to 101.89, trundling back towards the 14-year intraday high of 103.82 hit at the start of the year.
The dollar’s broad advance sees it gain 0.1 per cent versus the euro to $1.0563 and add 0.5 per cent against sterling to $1.2317.
The yen is 0.9 per cent weaker to ¥113.77 per buck as the Japanese currency also loses some of its haven cachet.
A notable aspect of the forex action is that some emerging market currencies, such as the Mexican peso, are stronger against the dollar.
It had been expected that EM assets would struggle in the face of tighter Fed policy, as capital was drawn back to the US. However, traders are welcoming recent evidence of improving global growth while also expressing relief that president Trump seems to have toned down his protectionist rhetoric.
US equity futures initially displayed only mild gains as some analysts expressed disappointment that the president provided little fresh detail on his administration’s economic policies.
“Although Trump received rapturous applause from a very proud Republican Congress, the market reaction was muted, as fiscal details were fairly thin on the ground,” said Kathleen Brooks, research director at City Index.
However, a more fulsomely bullish interpretation of the “Trump trade” took hold as the European day got into gear and this has extended into the New York open, with the S&P 500 adding 1.2 per cent to 2,392, a new record and the Dow Jones Industrial Average piercing 21,000.
The pan-European Stoxx 600 is up 1.5 per cent as miners lead the way and financial groups welcome the higher bond yields. The UK’s FTSE 100 has risen 1.6 per cent to a record of 7,381 as foreign currency earners are boosted by the weakening pound.
The weaker yen helped push Japan’s Topix up 1.2 per cent, Hong Kong’s Hang Seng gained 0.2 per cent, and the Shanghai Composite also added 0.2 per cent after two separate surveys showed that China’s manufacturing sector continued to improve in February.
Oil prices were up after a three-day losing streak with Brent crude adding 0.2 per cent at $56.61.
Gold tends not to like a firmer buck and rising bond yields, and so the bullion is down 0.3 per cent to $1,245 an ounce.
Additional reporting by Peter Wells in Hong Kong
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