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Dow Average Rallies to Record High as Bonds Tumble on Trump Bets


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Donald Trumps unlikely rise to power is providing a shot in the arm for global financial markets, with stocks and metals rallying on optimism that his fiscal-stimulus plans will boost the economy. Bonds tumbled.

The MSCI All Country World Index erased its monthly decline and the Dow Jones Industrial Average climbed to a record high. Copper posted its biggest back-to-back surge in three years, gaining alongside lead, zinc, tin and aluminum. The dollar rose against most major peers, while government bonds extended their selloff as Trumps win bolstered bets on faster inflation. Latin American equities, debt and currencies plunged on speculation that higher U.S. interest rates would damp the appeal of riskier emerging-market securities.

Traders are betting Trump will lower taxes, ease corporate regulation and ramp up spending to spur the worlds largest economy. Hes pledged to at least double the $275 billion five-year building plans of Democratic rival Hillary Clinton, while saying infrastructure will become second to none with millions working on projects. A statement posted on the president elects official transition website said the new administration will replace the Dodd-Frank Act financial-sector law with pro-growth policies.

People are going through the possibilities about what Washington looks like today and what Washington can do or not do for them, said John Manley, who helps oversee about $233 billion as chief equity strategist for Wells Fargo Funds Management in New York. Corporations feel theres a less restrictive hand. People may take that as a positive.

Meanwhile, Federal Reserve Bank of St. Louis President James Bullard and his San Francisco counterpart John Williams stressed the importance of the central banks independence from political influence. Questions remain over Trumps attitude toward Chair Janet Yellen, whom he accused of holding rates low to aid Democratic President Barack Obama. Traders see an 82 percent chance of rate hike next month, according to federal funds futures pricing.

I am not seeing enough volatility here to change my basic projection for the economy, Bullard said Thursday. I think we are basically on track, the same way we were before the election. Our view has called for a single rate increase and I think December would be a reasonable time to implement that increase.

Stocks

MSCIs global gauge rose 0.2 percent at 4 p.m. in New York. The S&P 500 Index added 0.2 percent to 2,167.48, and the Dow Average jumped 218.19 points. Some of the biggest technology companies from Apple Inc. to Microsoft Corp. sent the Nasdaq Composite Index down. Meanwhile, the small-cap Russell 2000 Index extended a five-day rally to 8.2 percent.

Banks and health-care shares surged on bets a Trump administration will roll back regulatory scrutiny of the industries. Industrial shares rallied as the Republican plans to boost infrastructure spending. Utility and real-estate stocks tumbled as a rout in bonds pushed yields higher, damping demand for the shares relatively high dividend payouts.

Yields are moving their way higher, thats good for banks, said Art Hogan, chief market strategist and director of research for Wunderlich Securities in Boston. If theres going to be a friendlier regulatory environment thats going to be good for banks. Thats the tailwind behind financials we havent seen for a long time.

The Stoxx Europe 600 Index erased gains as a slide in utility and real-estate shares outweighed a rally in banks. The MSCI Emerging Markets Index dropped to the lowest since August, with benchmarks in Argentina, Mexico and Brazil slumping more than 3.2 percent. Russian shares rallied on bets Trump will mend ties with Moscow.

Bonds

Benchmark 10-year note yields rose eight basis points, or 0.08 percentage point, to 2.14 percent, according to Bloomberg Bond Trader data. They were on course for the highest level since January. The yield on 30-year bonds increased 10 basis points to 2.95 percent, after jumping the most since October 2011 Wednesday.

Treasurys $15 billion 30-year debt auction Thursday again showed waning investor appetite for U.S. debt as Trump is seen ramping up spending to boost the economy, potentially widening the budget deficit and stoking inflation.

Investors from Pacific Investment Management Co. to TIAA Global Asset Management see the surge in long-term U.S. Treasury yields as a sign inflation will in fact be on the rise. That means the long-dormant part of the Feds dual mandate could force policy makers to act more swiftly to raise borrowing costs than they have in 2016.

We see a higher and more balanced inflation forecast and more rapid normalization of policy, Scott Mather, chief investment officer for core strategies at Pimco, wrote in a note. This means the Fed will move faster on rate increases than the market had been pricing for in the year ahead, he said, adding that he expects two to three rate hikes before the end of 2017.

In Europe, Italian 10-year yields climbed to their highest in almost 14 months amid concern Decembers constitutional referendum may be the next vehicle for a growing anti-establishment mood. In France, where elections are due in 2017, yields also surged.

The biggest exchange-traded fund invested in emerging-market bonds tumbled the most since 2010. The cost to hedge against losses in debt from Argentina and Brazil rose the most among major economies.

Currencies

The Bloomberg Dollar Spot Index advanced 0.9 percent to the highest level since March. The greenback rose 1.1 percent to 106.87 yen, and added 0.2 percent to $1.0890 per euro.

The dollar will do very well on a broad trade-weighted basis in the next 12 months, Bilal Hafeez, global head of foreign-exchange research at Nomura Holdings Inc. in London, said in an interview on Bloomberg Television. The Fed will be increasing interest rates, the U.S. will be engaging in fiscal stimulus of some kind, which is much-needed by economies around the world, so well have faster growth and more inflationary pressures.

Meanwhile, Latin American currencies tumbled on concern that Trumps administration could usher in a host of protectionist measures after he campaigned on a pledge to protect American workers and companies from unfair trade deals. A trade war would be a blow to economies such as Mexico, which gets 80 percent of its overseas sales from the U.S., and others in the region that depend on exports.

Brazils real plunged the most since 2008, while Colombias and Mexicos currencies each fell at least 3.7 percent.

Commodities

Most industrial metals rallied on speculation that commodities used to build everything from airports to bridges will benefit under Trumps presidency.

The clearest message delivered by Donald Trump in his election victory speech was a focus on greater infrastructure spending in the U.S., Goldman Sachs Group Inc. analysts including Damien Courvalin and Jeffrey Currie said in a Nov. 9 report. Without specific details it is hard to quantify the impact on commodity demand, however such policies would support steel, iron ore, zinc, nickel, diesel and cement.

Copper for delivery in three months jumped 3.5 percent to $5,601 a metric ton ($2.54 a pound) on the London Metal Exchange, after hitting a 16-month high. Thats pushed up the relative strength index to 90, the highest since data began in 1986. A reading over 70 suggests an asset is overbought.

As optimism mounts that Trumps plans will boost global growth, investors are unwinding options that give holders the right to buy December gold futures at higher prices, with the most-active call slumping for a fourth straight day. Contracts for December delivery fell 0.6 percent to settle at $1,266.40 an ounce on the Comex in New York.

Oil fell after the International Energy Agency said prices may retreat amid relentless global supply growth unless OPEC enacts significant output cuts. West Texas Intermediate for December delivery fell 1.4 percent to $44.66 a barrel on the New York Mercantile Exchange. Brent for January settlement slipped 1.1 percent to $45.84 a barrel on the London-based ICE Futures Europe exchange.

Read more: http://www.bloomberg.com//news/articles/2016-11-09/asian-shares-to-join-global-rebound-after-trump-win-bonds-sink


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Selloff in Bonds, Emerging-Market Assets Deepens as Dollar Gains


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Routs in bonds and emerging-market assets intensified, while the dollar continued to strengthen as investors positioned for the wave of U.S. fiscal stimulus that President-elect Donald Trump has pledged to unleash.

Yields on 30-year Treasuries rose to the highest level since January, with last weeks record debt selloff bleeding into Monday amid losses from Asia to Europe. The Bloomberg Dollar Spot Index climbed to a nine-month high, with the greenback gaining against most major peers. U.S. stocks took a breather as a gauge of shares in developing nations sank to a four-month low. Copper climbed with nickel, while crude oil fell with gold.

Trumps election as leader of the worlds biggest economy is sending shock waves through global markets amid speculation his promise to bolster infrastructure spending will fuel growth and spur inflation, triggering a faster pace of U.S. policy tightening. More than $1 trillion was erased from the value of bonds last week, while equities added that amount and industrial metals soared by the most in four years. Emerging markets are being hit by an exodus of capital amid concern Trump will implement more protectionist trade policies.

Trump has introduced so much uncertainty, around the fiscal outlook, the outlook for foreign demand for Treasuries given his protectionism and his views on China, uncertainty around the outlook for the Fed, said John Davies, a rates strategist at Standard Chartered Plc in London, which lifted its forecast for Treasury yields on the election. Theres an uncertainty premium, rather than just expectations of much more Fed tightening, being priced into Treasuries, he said. We think theres room for this to continue.

Bonds

Ten-year U.S. Treasury yields jumped 11 basis points, or 0.11 percentage point, to 2.26 percent as of 5 p.m. New York time, their highest close since early January. Yields surged by 37 basis points last week, the most in three years, amid speculation Trumps plans to boost spending and cut U.S. taxes will swell the budget deficit and fuel price growth. The 30-year yield increased as much as 13 basis points Monday, to 3.06 percent.

Fed Vice Chairman Stanley Fischer said Friday that the central bank was close to achieving its goals of maximum employment and price stability, strengthening the case for a rate hike. Pacific Investment Management Co. says long-term yields may have bottomed out and is predicting three rate hikes by the end of next year. Futures prices indicate a 92 percent chance of a rate hike at the Feds December policy meeting.

Yields will continue to rise over the next year, said Hiroki Shimazu, an economist and strategist at the Japanese unit of MCP Asset Management in Tokyo. The fundamentals are very strong, particularly in the U.S. There are some signs of higher inflation pressures. Trump is pushing this phenomenon.

Benchmark 10-year German bunds capped their longest losing streak since May, while yields on similar-maturity Italian debt climbed to the highest level since July 2015. U.K. 10-year gilts extended their slide to a sixth day.

The selloff in Asia-Pacific bonds looked set to extend into Tuesday, with yields on 10-year Australian and New Zealand government debt up at least six basis points in early trading in their fourth rising day.

Currencies

Bloombergs dollar index, which tracks the greenback against 10 major peers, rose 0.7 percent Monday, rising for a fourth-straight day. The euro fell versus the greenback for a sixth session, its longest run of declines in six months, dropping 1.1 percent to $1.0737.

The yen sank 1.7 percent to its weakest level since early June. Japans economy expanded by an annualized 2.2 percent in the last quarter, data Monday showed, exceeding the forecast for 0.8 percent growth in a Bloomberg survey of economists and easing pressure on the Bank of Japan to further boost stimulus.

The dollar is strengthening along with the rise in U.S. yields, reflecting expectations for economic expansion from fiscal spending, said Yunosuke Ikeda, Nomura Holdings Inc.s head of Japan foreign-exchange research in Tokyo. Japans 2 percent growth can be used as a reason for the BOJ not lowering interest rates for a while.

New Zealands dollar dropped to a one-month low after an earthquake rocked the country early Monday. South Koreas won slipped to its weakest level since June amid growing calls for President Park Geun-hye to be impeached over an influence-peddling scandal. Chinas yuan slid to a more than six-year low in onshore trading, beyond a level at which it was pegged by regulators following the 2008 financial crisis.

The MSCI Emerging Markets Currency Index extended last weeks losses, falling 0.2 percent. Mexicos peso attempted a rebound after a Trump adviser hinted in a Financial Times opinion piece that the president-elect is open to negotiations before imposing import barriers. Trump also pledged during the campaign to make Mexico pay for a wall between the two countries to deter illegal immigration.

Commodities

Copper rallied as much as 3.4 percent in London before ending the day up 0.2 percent. The metal surged 11 percent last week as Trump vowed to spend more than $500 billion rebuilding American infrastructure, and as Chinese investors stepped up their purchases.

Iron ore climbed to a two-year high on the Dalian Commodity Exchange as data showed rising steel output in China, the worlds largest steelmaker. Goldman Sachs Group Inc. said the initial reaction of iron ore and copper prices to the infrastructure spending proposed by Trump has been excessive and analysts reiterated their view for sequentially lower prices.

Gold touched a five-month low, after sliding last week by the most in three years as the prospect of Fed rate increases under Trump strengthened the dollar.

Oil closed at an eight-week low in New York, slipping 0.2 percent to $43.32 a barrel, as Iranian output rose and the dollar surged.

Stocks

The S&P 500 Index was little changed at 2,164.20, after slipping 0.1 percent on Friday, snapping a four-day gain that left it up 3.8 percent in the week.

Some of the worlds biggest technology companies including Apple Inc. and Microsoft Corp. dragged the Nasdaq Composite Index down 1.1 percent amid concern over what Trump has said about international trade. Meanwhile, the Russell 2000 Index of smaller companies rallied to a record.

Stocks have outperformed bonds since Trumps presidential election win, on speculation his pledge to spend more will trigger interest-rate hikes amid a pickup in growth and inflation. Equities had their biggest inflows in 17 weeks as bonds saw redemptions, for their largest gap in 12 months, a Bank of America Corp. report on Thursday showed.

Theres a lot of re-positioning going on in the market rather than the whole market rolling over, with the sectors expected to do well under Trump outshining those which should fare worse, said Jasper Lawler, a London-based analyst at CMC Markets Plc. We are starting to see a reallocation according to the fiscal policy.

Banks and miners again provided the main support to European shares amid continued investor optimism about the benefits of a Trump presidency. The Stoxx Europe 600 Index rose 0.2 percent, paring earlier gains. The MSCI Emerging Markets Index fell 1.1 percent

In Asia, index futures diverged, with the yens selloff buoying contracts on Japans Nikkei 225 Stock Average, while futures on other equity benchmarks retreated. New Zealands S&P/NZX 50 Index, the first major gauge to start trading each day, fell 0.1 percent at the start of Tuesday trade.

Read more: http://www.bloomberg.com//news/articles/2016-11-13/asian-futures-outside-japan-tip-stock-losses-as-quake-hits-kiwi


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Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges


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The fallout from Donald Trumps election to the U.S. presidency eased off in financial markets with Treasuries and emerging markets halting their slide. Stocks jumped with crude.

Treasury 10-year note yields fell from this years high and Italys bonds outperformed German bunds, which investors tend to favor in times of turmoil. The Dow Jones Industrial Average climbed to a record and shares in developing nations rallied after a four-day slump. The dollar advanced to a five-month high against the yen, and Mexicos peso led gains among major currencies. Oil surged the most in seven months as OPEC members were said to be making a final diplomatic push toward securing a deal to cut output.

Trumps election victory, which came with pledges to cut taxes, spend more than $500 billion on infrastructure and restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation and interest rates. Some, including Fidelity Investments Ford ONeil, have already expressed skepticism that Trumps proposals will be fully backed by Congress, while Goldman Sachs Group Inc. last week said the rally in iron and copper was too much, too fast.

Many people were surprised by the market reaction to the election, but now portfolio managers are starting to focus more on where potential investment opportunities may be with a Trump administration, said Ross Yarrow, director of U.S. Equities at Robert W. Baird & Co. in London. There has been lots of chatter of fiscal stimulus and tax reform, but there are still a lot of moving parts and no firm details.

Bonds

The yield on benchmark Treasury 10-year notes dropped three basis points, or 0.03 percentage point, to 2.23 percent as of 4 p.m. New York time. The 41 basis-point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.

ONeil, who oversees about $100 billion in bonds for Fidelity Investments, said the sharp run-up in yields following the election may not be justified given that Trump will face resistance from Congress in getting his fiscal stimulus plans approved.

Federal Reserve Bank of Richmond President Jeffrey Lacker said Monday that easier fiscal policy may require higher rates, but its too early for the central bank to react to potential policy changes by the incoming administration.

Italys 10-year yield slid 12 basis points to 1.96 percent, after rising for five consecutive days, and that on Spanish securities with a similar due date dropped to 1.45 percent, from as high as 1.66 percent on Monday. German bund yields were little changed at 0.31 percent, as a report showed growth in Europes biggest economy slowed to the weakest pace in a year last quarter.

Indian bonds rallied on expectations liquidity will improve in the wake of Prime Minister Narendra Modis surprise Nov. 8 crackdown on unaccounted wealth through the withdrawal of high denomination bills. Japans 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.

Currencies

A broad index of the greenback fluctuated after a four-day rally, its longest in a month, as U.S. retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus. The president-elects proposals to increase spending and cut taxes are fueling bets economic growth will accelerate and push the Fed to raise interest rates.

The dollar is potentially going to go a lot higher still, if we do go down the route of extra fiscal stimulus, which would also result in higher interest rates, Jeremy Hale, head of global macro strategy and asset allocation at Citigroup Inc., said in a Bloomberg Television interview. That mixture of growth stimulus through the fiscal side and tighter monetary policy can be very powerful for the currency.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, lost 0.1 percent. It surged 2.8 percent last week, the most since 2011, and on Monday erased its losses for this year. The greenback rose 0.8 percent to 109.23 yen.

The pound fell for a second day versus the dollar as a report showed U.K. inflation unexpectedly slowed in October. Bank of England Governor Mark Carney told lawmakers that sterling weakness was due to the outlook for slower growth.

The MSCI Emerging Markets Currency Index rose 0.4 percent as Mexicos peso and South Africas rand rallied more than 1.8 percent. Chinas yuan slipped to its weakest level since 2008.

Commodities

Iron ore slid 9 percent in Singapore, extending the last sessions retreat from a two-year high. The price soared by a record 27 percent last week, driven by speculative interest in China and optimism Trumps policies will boost steel demand. Goldman Sachs said Friday that iron ores reaction to the Trump win was excessive, while Capital Economics Ltd. warned prices will face growing pressure from rising supply.

Copper pulled back from near a one-year high, while gold rebounded from a five-month low. It slid 4.4 percent over the last three days as the dollar strengthened.

Crude oil rose 5.8 percent to $45.81 a barrel in New York. Qatar, Algeria and Venezuela are leading the effort to finalize a deal, a delegate familiar with the talks said.

Stocks

The S&P 500 Index rose 0.8 percent to 2,180.39, after edging lower Monday for a second straight decline. The Dow Average advanced for a seventh straight day, while the Nasdaq Composite Index rallied 1.1 percent.

As central bankers look for signs of stronger growth, a report today showed sales at retailers rose more than forecast last month in a broad advance after an even stronger September than initially estimated, marking the biggest back-to-back increase since 2014. A separate reading on November manufacturing in the New York region unexpectedly rose.

The retail sales data showed broad-based gains rather than just narrowly focused on home improvement and autos. Thats heartening, said Brian Jacobsen, the chief portfolio strategist at Wells Fargo Funds Management LLC, which oversees $242 billion. This is another data release that if the Fed had in hand when it met at the beginning of November, it probably would have hiked. The economic data isnt likely going to derail this Trump-bump in the market. It could be handed off to a Santa Claus Rally.

The Stoxx Europe 600 Index rose 0.3 percent. It has swung between intraday gains and losses for six sessions, matching a streak last seen in August, and has struggled to break out of a trading range of about 20 points since July.

Read more: http://www.bloomberg.com//news/articles/2016-11-14/futures-outside-japan-tip-more-stock-losses-as-bond-rout-endures