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Hong Kong - The dollar rallied and crude oil fell with gold as speculation mounted that the Federal Reserve will raise interest rates as early as next month. The pound jumped and European stocks gained.
The US currency touched its strongest level in eight weeks against the euro, while Australia’s dollar and the Malaysia’s ringgit were among the biggest losers, as the prospect of higher interest rates boosted demand for the greenback.
The stronger dollar also weighed on commodities, as gold headed for its longest losing streak since November and Brent crude oil declined for a fifth day. Sterling was boosted by a poll showing support for staying in the European Union is solidifying, while the Turkish lira gained after a cabinet reshuffle.
Fed Funds futures are indicating for the first time since March a better-than-even chance that the US central bank will raise interest rates by its July meeting. The speculation is driving a dollar rally that’s reminiscent of early January, when a global equities selloff wiped out about $7trn of market value following a December rate hike by the Fed.
Unlike back then, oil and China’s yuan are showing signs of stability. Federal Reserve Bank of Philadelphia President Patrick Harker said he could see two to three rate hikes in 2016.
“A rise in the dollar would be a big help for European stocks” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “People are testing whether the market has found a bottom, and there’s plenty of money sitting on the sidelines. We’ve had pretty calm, sideways trading this month even with another Fed rate hike looking more likely.”
US data on Tuesday are forecast to show sales of new homes climbed for the first time this year in April. A surge in investment propelled German economic growth to its fastest pace in two years in the first quarter and French business confidence improved in May, reports showed.
Eurozone finance ministers are due to discuss how to conclude Greece’s bailout review, including debt-relief measures and contingency plans in case budget targets are missed. Hungary’s central bank is widely expected to cut interest rates, while Nigeria’s is seen boosting borrowing costs. Turkey also has a policy meeting scheduled.
Currencies
The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2% as of 11:37. It advanced 0.4% to $1.1181 per euro, after being as strong as $1.1169.
The Aussie dropped 0.8% after Reserve Bank of Australia Governor Glenn Stevens said inflation is too low. The ringgit slid 0.9% as the drop in oil prices dimmed prospects for Malaysia, Asia’s only major net exporter of crude. The MSCI Emerging Markets Currency Index dropped 0.2%.
Sterling jumped 0.9% versus the euro and was 0.7% stronger at $1.4580, its first advance versus the greenback in three days. An ORB survey for the Daily Telegraph newspaper found older voters, previously found to back leaving the EU, are switching sides.
The yuan was the most resilient of 31 major currencies, gaining 0.02% versus the dollar and trimming this year’s loss to 0.9%.
China’s central bank scrapped a market-based mechanism for managing the currency on January 4, returning to a system whereby the exchange rate is based on what suits authorities the best, the Wall Street Journal reported, citing unidentified people close to the People’s Bank of China.
Turkey’s lira rebounded, climbing 0.6% after Mehmet Simsek was named deputy prime minister in a cabinet announced by prime-minister designate Binali Yildirim. The former Merrill Lynch strategist is credited by investors for maintaining fiscal discipline and acting as a buffer to President Recep Tayyip Erdogan’s push against orthodox monetary policy.
Commodities
Gold fell for a fifth day, with bullion for immediate delivery slipping 0.4% to $1 244.01 an ounce.
Crude declined as Canadian oil-sands producers prepared to restart operations and cooler weather helped contain wildfires.
Brent crude futures decreased 0.6%, after declining 1.9% over the previous four sessions.
Inventories slid by 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday. Supplies are near the highest in eight decades. West Texas Intermediate slid 0.4% to $47.89 a barrel
Zinc in London dropped 1.4% to $1 815 a metric ton, the lowest in six weeks, while nickel rose 0.2% as Chinese import data signaled a diverging demand picture for the two metals. Copper rose 0.9%.
Stocks
The Stoxx Europe 600 Index added 0.9%, led by miners and banks. S&P 500 futures gained 0.2%, signaling that the main index will recover after falling 0.2% on Monday.
Kingfisher rose 1.9% after it reported better-than-expected quarterly sales at its businesses in the UK and France. SEB SA rallied 12% after agreeing to buy German silverware and coffee-machine maker WMF for about €1.6bn.
Galenica dropped 7% after the owner of Switzerland’s biggest pharmacy network said it will split into separate companies by the end of 2017.
The MSCI Emerging Markets Index of stocks dropped 0.6%. The measure is down 1.2% this year and trades at 11.2 times its projected 12-month earnings, data compiled by Bloomberg show. The Borsa Istanbul 100 Index jumped 1.9%.
Bonds
Treasuries were little changed with the 10-year yield at 1.84%.
Greek bonds rose for a third day with the yield on sovereign securities due in a decade falling three basis points to 7.23%, having reached the lowest since November.
Eurozone finance ministers convene in Brussels on Tuesday, primarily to discuss the disbursement of a proposed €11bn in aid for Greece, but also for talks on how to ease its €321bn of debt through lengthening loan maturities, lowering interest rates and postponing payments.
Deutsche Bank had its credit rating cut by Moody’s Investors Service Monday, with the agency claiming the German lender faced mounting challenges in executing a turnaround plan. The bank’s senior unsecured debt rating was lowered to Baa2 from Baa1, leaving it two levels above junk.
