Dollar rallies into Fed meeting; Oil rises, stocks remain stable

BLOOMBERG

The dollar extended its best run of gains in a month and oil rallied before the Federal Reserve’s policy review on Wednesday that may shed light on the timing of U.S. interest-rate increases.
America’s currency climbed versus the yen after Bank of Japan Governor Haruhiko Kuroda said the Asian nation’s key rate could theoretically drop to minus 0.5 percent. It also climbed against the pound before the release of Britain’s annual budget. Oil rebounded to about $37 a barrel. Gains in German shares failed to hold up the Stoxx Europe 600 Index and U.S. equity-index futures were little changed as investors awaited signals on the health of the world’s biggest economy and whether the Fed will boost borrowing costs in the coming quarter.
Financial markets are being swayed by divergent monetary policies in the world’s leading economies. Fed funds futures show the odds of a U.S. rate increase by the end of June have shot up to 54 percent, after dropping to as low as 2 percent in February, as data indicated growth is strengthening in the nation. China isn’t headed for a hard landing and the government will ensure expansion hits targets, Premier Li Keqiang said Wednesday in Beijing.

Currencies
The Bloomberg Dollar Spot Index added 0.2 percent at 7:45 a.m. New York time, rising for a third straight day in the longest winning streak since Feb. 16.
“We are biased toward dollar gains as the market prices a steeper path for rates going forward,” said Adam Cole, head of global foreign-exchange strategy at Royal Bank of Canada in London. We are expecting the Fed to say “that all options are still open — including the outside possibility of an April hike and that the default position should be a June hike. The implied probability of those two events is still too low in our view.”
The yen retreated 0.3 percent to 113.47 per dollar, after strengthening 0.6 percent on Tuesday as the BOJ kept its policy rate at minus 0.1 percent at a review.
The pound weakened 0.4 percent to $1.4095 as investors prepared for U.K. Chancellor of the Exchequer George Osborne’s budget. It slid 1.1 percent on Tuesday, the biggest drop since Feb. 22.
Sterling is the worst-performing Group-of-10 currency over the past month amid concern that Britain will vote to quit the European Union at a June 23 referendum, threatening trade and economic stability. Also weighing on the currency is the potential for interest rates to stay lower for longer as the government curbs spending. The Bank of England is scheduled to announce its latest policy decision on Thursday.

Commodities
The Bloomberg Commodity Index, which measures returns on raw materials, rose for the first time in three days as oil futures climbed. West Texas Intermediate crude gained 2.2 percent to $37.13 a barrel, after sliding 5.6 percent in the previous two days as Iran indicated it won’t be joining other major producers in freezing output.
U.S. crude inventories increased by 3.2 million barrels last week, according to a Bloomberg survey before government data Wednesday, with a report from the American Petroleum Institute said to indicate an increase of 1.5 million barrels. Total SA Chief Executive Officer Patrick Pouyanne sees the oil market back in balance during 2016, he said in an interview with Le Progres newspaper.
Gold for immediate delivery was stable at $1,232.09 an ounce, after posting its first three-day decline in almost a month.

Stocks
While Germany’s DAX Index added 0.3 percent, the Stoxx Europe 600 Index was little changed. A gauge of automakers posted the best performance of the 19 industry groups on the equity benchmark as data showed the European car market expanded for a 30th consecutive month in February.
Tullow Oil Plc led energy stocks higher, gaining 3.8 percent after finding oil at a well in Kenya. Solvay SA advanced 0.6 percent after the chemical maker said it will divest its stake in a joint venture with Ineos earlier than planned.
Standard & Poor’s 500 Index futures were little changed. Equities fell in light trading on Tuesday as investors awaited the Fed’s policy announcement. Investors will look to economic data including housing starts, inflation and industrial output on Wednesday for signals on likely monetary policy moves.
Also in the back of investors’ minds are the results of U.S. presidential candidate contests. On Tuesday, voters in states including Florida boosted the likelihood that Hillary Clinton will be the Democratic Party’s representative in a November election and kept Donald Trump as the front-runner to secure the Republican Party’s nomination.

Bonds
The yield on two-year U.S. Treasuries was little changed after ending Tuesday at 0.96 percent, the highest close since Jan. 6. The Bloomberg U.S. Treasury Bond Index has dropped 1 percent since the end of February, headed for its first monthly loss of 2016.
Anheuser-Busch InBev NV was offering euro-denominated bonds to help pay for the pending $110 billion acquisition of SABMiller Plc. The six-part offering includes notes with maturities ranging from four years to 20 years, according to a person familiar with the information, who asked not to be identified because they aren’t authorized to discuss it.

Emerging Markets
The MSCI Emerging Markets Index pared losses of as much as 0.4 percent, trading down 0.1 percent. Egyptian shares rose 1.3 percent, extending the longest rally since 2008 after the central bank devalued the pound and indicated it will introduce a more flexible trading policy for its currency.
South Africa’s rand fell 1.3 percent to 16.1305 per dollar, declining for a third day to the lowest in almost three weeks as a police probe into the national tax agency was seen as possibly costing Finance Minister Pravin Gordhan his post.
President Jacob Zuma reappointed Gordhan in December as finance minister, a post he had held from 2009 to 2014, to help rebuild investor confidence damaged by Zuma’s decision to fire Nhlanhla Nene and replace him with a little-known
lawmaker.