U.S. dollar and bond yields rise after Trump promises tax plan soon

Reuters News
Posted: Feb 08, 2017 7:12 PM

By Hilary Russ

NEW YORK (Reuters) - The U.S. dollar and bond yields rose on Thursday after comments from President Donald Trump that he would be releasing his "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.

In a meeting with airline executives at which Trump talked about the need to modernize the U.S. air traffic control system, the president also said his administration will be announcing "something phenomenal in terms of tax" over "the next two or three weeks".

The U.S. dollar rose more than 1.0 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 note yields reached a high of 2.382 percent after seeing 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 5.0 percent against a basket of major currencies in the six weeks after Trump's election but has given back some of those gains since as Trump 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 for now the political risks that have dominated markets this week.

Investors had in recent weeks been pondering the potential impact of the protectionist policies of U.S. President Donald Trump and threat of similar policies resulting from upcoming European elections in France and Germany.

Wall Street's three main indexes hit record highs on Thursday, amid gains across most sectors, led by financial and energy stocks.

The S&P 500 financial index rose 1.06 percent as bond yields rose and was on track to snap a three-day losing streak after Trump said he would make a tax announcement in a few weeks.

Crude oil prices rose 1.3 percent, extending gains to the second day, supported by an unexpected drawdown in U.S. gasoline inventories. The S&P 500 energy sector was up 1.05 percent.

Investors have been on the sidelines in the past few weeks, awaiting more clarity from Trump on his promises of tax cuts, simpler regulation and higher infrastructure spending.

"I think this is another 'Trump On' trade day where we're finally seeing some of the proposed policies being put into place," said Chris Gaffney, President of world markets at EverBank.

The pan-European STOXX 600 index rose 0.57 percent. French lender Societe Generale reported lower fourth-quarter net income that nonetheless beat analysts' forecasts and its shares added 3.0 percent.

Oil prices rose after an unexpected draw in U.S. gasoline inventories pointed to higher demand in the world's biggest oil market.

Benchmark Brent crude was up 58 cents a barrel, or 1.05 percent, at $55.70. U.S. light crude was 76 cents, or 1.45 percent, higher at $53.10 a barrel.

The Dow Jones Industrial Average was up 101.2 points, or 0.5 percent, at 20,155.54, the S&P 500 was up 11.4 points, or 0.49 percent, at 2,306.07 and the Nasdaq Composite was up 25.82 points, or 0.45 percent, at 5,708.27.

MSCI's broadest index of Asia-Pacific shares outside Japan gained 0.25 percent to the highest since July 2015, with Hong Kong, Taiwan and China among the region's best-performing markets.

Japanese shares fell 0.5 percent, a day before Prime Minister Shinzo Abe meets U.S. President Donald Trump.

In Europe, concern over the impact of elections in France and Germany 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 and yields on Spanish and Italian debt fell even more sharply.

The final round of France's presidential election in three months is expected to include far-right, anti-euro candidate Marine Le Pen.

Yields on German 10-year bonds, seen as among the world's safest assets, edged down 0.6 bps to 0.30 percent.

(Additional reporting by Nigel Stephenson and Christopher Johnson in London; Yashaswini Swamynathan in Bengaluru; Saikat Chatterjee in Hong Kong; Editing by Clive McKeef)