Treasuries slump, dollar gains as inflation jumps

Bloomberg

More evidence that inflation has taken hold in the US economy spurred bets that the Federal Reserve is clear to raise interest rates as soon as March, fueling a selloff in Treasuries and lifting the dollar. Stocks rose to records as oil reversed losses.
The 10-year Treasury yield topped 2.50 percent, while the dollar strengthened against major peers as the cost of living increased in January by the most since February 2013, adding to a raft of readings showing faster inflation in major economies. Retail sales in the US also advanced more than forecast, suggesting consumers are positioned to buttress economic growth. Rate-sensitive shares tumbled, while banks advanced as US equities held near records.
Wednesday’s data lifted the odds for a Fed rate hike in March jumped to 42 percent from 30 percent two days ago, helped by Fed chair Janet Yellen’s testimony that the central bank doesn’t need to wait for Donald Trump to outline plans on fiscal stimulus before resuming rate hikes. Her case got a boost after the US inflation reading came in at 2.5 percent for January, the fastest pace since 2012.
“The January US CPI report is a strong set of data which justifies the belief that reflationary forces have been building within the US economy in recent months well in advance of any legislative program being enacted by the new administration,” Michael Shaoul, chief executive officer at Marketfield Asset Management wrote in a note to clients.
Before Yellen’s testimony, traders anticipated the Fed would start raising US borrowing costs in June. Now they see one as early as May, according to futures data compiled by Bloomberg. Data this week showed factory price increases accelerated in both China.
Yellen is testifying for a second day before the Congress. Along with headline inflation data, U.S. numbers will include retail sales, industrial production surveys and a reading on mortgage applications.

The main moves in markets on Wednesday:
Stocks
The S&P 500 Index rose 0.1 percent at 10:51 a.m. in New York, extending gains after crude erased a loss on inventory data. The measure had been fluctuating between gains and losses as Yellen testifies for a second day in Washington. An advance for U.S. stocks today would be the seventh straight, giving the S&P 500 its longest run of gains since 2013. The Stoxx Europe 600 Index climbed 0.3 percent, having touched the highest level since December 2015. HSBC Holdings Plc, BNP Paribas SA and Lloyds Banking Group Plc rose at least 1.2 percent, pushing a sub index of banking shares 1.3 percent higher. The MSCI All Country World Index rose 0.3 percent.

Currencies
The Bloomberg Dollar Spot Index appreciated 0.5 percent in the fifth day of gains, longest run since May. The pound extended Tuesday’s decline with a 0.1 percent drop to $1.2454, on course for the lowest close since Jan. 20. South Africa’s rand was the biggest gainer in a basket of 17 major currencies, strengthening 0.5 percent against the dollar.

Bonds
The yield on 10-year Treasuries increased for a fifth day, climbing three basis points to 2.50 percent. The rate on two-year notes rose two basis points to 1.25 percent, touching the highest level of the year. The uptick in March odds for an interest rate increase comes after after Yellen reiterated in her semi-annual testimony to the Senate Banking Committee Tuesday that waiting too long to tighten policy “would be unwise.”

Commodities
Oil fluctuated near $53 a barrel after U.S. industry data showed crude stockpiles expanded. Gold advanced at $1,227.30 an ounce. The flip side of declines in the euro, yen and pound in recent months has been a massive increase in gold buying as investors in Asia and Europe try to protect their wealth. Copper rose 0.1 percent in London to $6,035 a ton, rebounding after UBS Group AG said the rally has “more to go” amid mine supply disruptions and rising Chinese demand