Investors continued to add to reflation trades that were reinvigorated last week when President Donald Trump indicated details on his pro-growth policies were imminent.
US stocks rose, the dollar strengthened and bonds retreated before data this week provide detail on the strength of US consumer prices. Speeches from a range of Federal Reserve officials will provide clues on how the central bank factors promised increases in government spending into its thinking on monetary policy. Commodities advanced as iron ore surged with copper. Crude slipped.
A rebound in the latter half of last week saw some of this year’s angst recede after a crescendo of speculation that the so-called Trump reflation trade was withering. Stock investors pushed the S&P 500 Index higher for a third week, while Trump’s promise of a “phenomenal” tax plan snapped the longest losing streak for the Bloomberg Dollar Spot Index since 2010. “We see equities as better positioned in 2017,” according to a report jointly-authored by Mihir Worah, chief investment officer for asset allocation at Pacific Investment Management Co. The bond giant’s Total Return Fund trimmed holdings of U.S. government debt to the lowest since September. “Protectionism and a fiscal boost, combined with a US economy operating close to full employment, raise the possibility of higher inflation and larger inflation surprises.”
What’s coming up in the markets:
Inflation will be back on the radar for most investors this week, with CPI numbers from the UK due Tuesday and data from the US coming on Wednesday. Fed Chair Janet Yellen faces Congress for two days of testimony this week and the dollar could rally if she suggests a March increase is still in the cards, Bloomberg strategists said.
Here are the main market moves on Monday:
The S&P 500 Index rose 0.4 percent to a record 2,325.47 at 10:17 a.m. in New York. The measure capped a third weekly gain after Trump said he’d soon unveil details of his tax plan. The MSCI All-Country World Index climbed 0.4 percent, to the highest level since May 2015. The Stoxx Europe 600 added 0.9 percent, heading for a fifth straight gain for the longest winning streak of the year. Commodities producers rose the most, adding to Friday’s rally.
The Bloomberg Dollar Index gained 0.2 percent after last week’s 0.7 percent advance. The yen slid the most among major currencies, weakening 0.5 percent to 113.817 per dollar, after its biggest weekly decline since mid-December. The euro weakened 0.2 percent to $1.0619.
The yield on 10-year Treasury notes added three basis points to 2.44 percent. Traders are pricing in a 32 percent chance that the Fed lifts rates at its March 15 meeting. European government bonds were mixed after the European Commission boosted its outlook for euro-area inflation. The rate will average 1.7 percent in 2017, 0.3 points higher than previously forecast, but still below the European Central Bank’s goal, the commission said. The yield on 10-year German benchmarks increased one basis point to 0.33 percent.
Iron ore gained 4.9 percent Monday. The raw material used to make steel is trading at the highest in more than two years, climbing 16 percent over the past five sessions. Copper added 0.7 percent, extending Friday’s jump that was the largest since 2013 on the London Metal Exchange. The metal has rallied 11 percent this year. Crude snapped a three-day gain on signs that OPEC’s production cuts will stimulate a recovery in U.S. production.