US tax reform move boosts dollar, stocks, bond yields

World
Europe

After the US Senate approved a budget blueprint that paves the way for tax cuts, European stocks, the dollar and bond yields all climbed on Friday as investors speculated on the return of the “Trumpflation trade.”

With sentiment broadly risk-on, European shares rebounded from their worst day in two months, also helped by well-received earnings reports for Volvo and Ericsson and high German producer-price inflation numbers.

Japan's Nikkei stock index logged its longest winning streak in more than half a century, while the dollar hit a more than three-month high against the yen.

The yen was on track for its worst week against the dollar in five, with the greenback climbing as much as 0.8 percent on Friday to 113.42 yen, its strongest since mid-July, as investors readied for Sunday’s Japanese general election.

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Thursday’s Senate vote pushed 10-year US Treasury yields to their highest in more than a week at 2.3650 percent.

While European bond yields were also pulled higher, the “transatlantic spread” between Treasury yields and their German equivalents stretched to 197 basis points, its widest since June.

The dollar index which tracks it against a basket of six other major currencies climbed 0.3 percent to a three-month high.

Bets that Trump’s planned tax cuts, US infrastructure spending and other pro-business measures would push up growth and inflation had been behind a “Trumpflation trade” that sent the dollar to 14-year highs earlier this year.

But as doubts have grown about Trump’s ability to push through reforms, that trade had been unwound and the dollar has slipped around 10 percent.

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“The tax cuts are the policy that people are most optimistic about so I think the view is that [Trump] will get something through,” said Rachel Winter, senior investment manager at Killik & Co in London.

US stock futures rose a quarter of a percent, pointing to a firmer start on Wall Street.

Oil prices rose, supported by signs of tightening supply and demand fundamentals, although a warning about excessive China economic optimism still weighed somewhat.

Brent crude futures, the international benchmark for oil prices, were up 0.4 percent from their close.

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European stocks, the dollar and bond yields climbed on Friday as investors speculated on the return of the “Trumpflation trade.”

Source(s): AP ,Reuters