Dollar advances with stocks as traders assess Fed; Pound jumps

BLOOMBERG

The dollar and stocks worldwide climbed, as investors awaited additional clues on the health of the global economy amid speculation higher interest rates in the U.S. may come as soon as July. The pound and oil gained.
The U.S. currency touched its strongest level since March against the euro, while Australia’s dollar and South Korea’s won posted the biggest declines among major peers. The stronger dollar weighed on gold prices, with the precious metal poised for its longest losing streak since November. Sterling was boosted by a poll showing the campaign to keep Britain in the European Union is gaining strength. The Turkish lira gained after a cabinet reshuffle and as the central bank cut a key interest rate.
Federal Reserve Bank of Philadelphia President Patrick Harker said late yesterday he could see two to three rate hikes in 2016. Fed Funds futures are a better-than-even chance that the U.S. central bank will raise interest rates by its July meeting. That’s stoked a rebound in the dollar that’s reminiscent of early January, when $7 trillion was wiped from the value of global equities selloff after the December rate hike. This time around, oil and China’s yuan are showing signs of resilience.
“Markets are coming around to the assumption that the language from the majority of Fed speakers has been consistent with hikes being on the agenda,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “We’ve had a number of false alarms. The external factor was one of the reasons why markets were forced to row back. Those parameters are off the agenda for now and that leaves the onus on the domestic data.”
U.S. data on Tuesday is forecast to show sales of new homes climbed for the first time this year in April. Reports earlier showed a surge in investment propelled German economic growth to its fastest pace in two years and French business confidence improved. Investors will also monitor discussions by euro-area finance ministers on how to conclude Greece’s bailout review, including debt-relief measures and contingency plans in case budget targets are missed.

Currencies
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2 percent as of 9:41 a.m. New York time. The dollar advanced 0.6 percent to $1.1159.
The Aussie dropped 0.8 percent after Reserve Bank of Australia Governor Glenn Stevens said inflation is too low. The MSCI Emerging Markets Currency Index dropped 0.1 percent.
Sterling jumped 1.4 percent versus the euro and was 0.9 percent stronger at $1.4609, its first advance versus the greenback in three days. An ORB survey for the Daily Telegraph newspaper found older voters, previously found to back leaving the EU, are switching sides.
The yuan was the most resilient of 31 major currencies, gaining 0.02 percent versus the dollar and trimming this year’s loss to 0.9 percent. China’s central bank scrapped a market-based mechanism for managing the currency on Jan. 4, returning to a system whereby the exchange rate is based on what suits authorities the best, the Wall Street Journal reported, citing unidentified people close to the People’s Bank of China.
Turkey’s lira rose 1.4 percent as Mehmet Simsek was named deputy prime minister in a cabinet announced by prime-minister designate Binali Yildirim. The former Merrill Lynch strategist is credited by investors for maintaining fiscal discipline and acting as a buffer to President Recep Tayyip Erdogan’s push against orthodox monetary policy. The currency extended its gain as as the central bank reduced the overnight-lending rate by 50 basis points, matching the median estimate of analysts.

Stocks
The S&P 500 jumped 0.8 percent, after falling 0.2 percent Monday. The Stoxx Europe 600 Index added 1.8 percent, the biggest one-day rally since April 13, as insurers and banks led gains.
“A rise in the dollar would be a big help for European stocks” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “People are testing whether the market has found a bottom, and there’s plenty of money sitting on the sidelines. We’ve had pretty calm, sideways trading this month even with another Fed rate hike looking more likely.”
The MSCI Emerging Markets Index of stocks dropped 0.1 percent. The measure is down 0.7 percent this year. The Borsa Istanbul 100 Index jumped 3.1 percent.
Commodities
Gold fell for a fifth day, with bullion for June delivery slipping 1.2 percent to $1,237 an ounce.
Zinc in London dropped 0.7 percent to $1,827.5 a metric ton, the lowest level since April 11, while nickel rose 0.7 percent as Chinese import data signaled a diverging demand picture for the two metals. Copper rose 0.9 percent.
Oil traded above $48 a barrel, heading for the first gain in a week before U.S. government data forecast to show stockpiles declined. Crude stockpiles, which are near an eight-decade high, slid by 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday.

Bonds
Treasuries 10-year yields added two basis points to 1.86 percent.
Greek bonds reversed with the yield on sovereign securities due in a decade adding three basis points to 7.18 percent, after reaching the lowest since November.
Euro-area finance ministers convene in Brussels on Tuesday, primarily to discuss the disbursement of a proposed 11 billion euros in aid for Greece, but also for talks on how to ease its 321 billion euros of debt through lengthening loan maturities, lowering interest rates and postponing payments.
Deutsche Bank AG had its credit rating cut by Moody’s Investors Service Monday, with the agency claiming the German lender faced mounting challenges in executing a turnaround plan. The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, leaving it two levels above junk.