Bonds drop on inflation, Europe stocks erase gains

Bonds fell and the dollar rose against most of its peers as reflation trades came back into focus after a promise by US President Donald Trump to overhaul business taxes.

European stocks erased gains as banks declined as political risk plagued the region.

The dollar headed for its first weekly gain of the year and Treasuries and gold retreated.  Crude extended a rally as output cuts from Opec and other producing nations are seen clearing a global inventory glut.

French banks led stocks lower in Europe, while S&P 500 futures were little changed after the gauge closed at a record Thursday.

The pledge by Trump helped rekindled inflation expectations that had been doused by a controversy over the White House’s immigration policies and rising election risk in Europe. Trump said a "phenomenal" plan to overhaul business taxes may be released within the next "two or three weeks."

What’s coming up in the markets:

Moody’s Investors Service is due to weigh in on the creditworthiness of France and Italy.

Greece’s creditors may present the government as soon as today with a framework of fiscal measures equal to as much as 2% of GDP in a bid to revive the country’s stalled bailout, people familiar said.

The International Energy Agency and Opec monthly reports are due on Friday and on Monday, respectively, providing the first full month of production data since the oil cartel’s supply deal.

Attention turns to Shinzo Abe’s visit to Washington, as investors parse reports Japan’s prime minister is prepared to offer infrastructure investment, with the US administration still sitting on details of its own policy proposal.

Trump appears set to go to the Supreme Court over his ban on immigration after a San Francisco-based appeals court upheld a suspension of the order.

Here are the main market moves:

Bonds

Treasuries fell, with 10-year yields rising one basis point to 2.41% as of 10:56 in London. The benchmark yield increased six basis points on Thursday, halting the longest rally in eight months.  

German 10-year bond yields increased two basis points to 0.323% while French yields increased four basis points 1.017% Greece’s two-year notes retreated 41 basis points to 9.616%.

The debt topped 10% yesterday on the impasse between the country, its creditors and the IMF.

Stocks

The Stoxx Europe 600 index fell less than 0.1%. Contracts on the S&P 500 increased 0.1% after the underlying index rose 0.6% to a record 2 307.87 on Thursday.

Currencies

The Bloomberg Dollar Spot Index rose less than 0.1% after Thursday’s 0.3% advance, and is poised to snap a six-week losing streak.

The euro and British pound were both little changed. Citigroup Inc., the world’s largest foreign-exchange trading firm, sees the dollar rising this year even as the president talks the greenback down.

Commodities

Oil added 1% to $53.53 a barrel on Friday after it climbed 1.3% the previous session. Gold fell 0.3% to $1 224.41 an ounce, after dropping 1.1% on Thursday.

The metal, which is considered a haven asset, was at a three-month high earlier in the week. Iron ore futures jumped 3.8% in a fourth consecutive day of gains exceeding 1%.