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Sydney - Rumours of the reflation trade’s demise seem to have been at least a little exaggerated, as investors shifted to equities from bonds and the dollar edged higher.
Global stocks continued a rally before data this week provides detail on the strength of US consumer prices, and ahead of speeches from a range of Federal Reserve officials. The dollar extended gains after its first weekly advance since December, and Treasuries fell after data showed America’s biggest creditors ditching holdings. Iron ore surged and copper climbed, buoying commodity producers.
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.
“The market is betting that Mr. Trump will succeed in cutting taxes and therefore we can have an increase in US Corporate earnings without needing a significant shift in the economic environment itself,” James Bevan, chief investment officer at CCLA Investment Management, said in a Bloomberg TV interview.
“For me the big issue is his announcement on taxation and then the amount of support he gets for the reduction in corporate tax.”
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 on 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:
Stocks
The MSCI All-Country World Index climbed 0.2% as of 12:10, to the highest level since May 2015. The Stoxx Europe 600 added 0.3%, heading for a fifth straight gain for the longest winning streak of the year. Commodities producers rose the most, adding to Friday’s rally.
Japan’s Topix index advanced 0.5%, near the highest in more than a year, after Shinzo Abe and US President Donald Trump refrained from arguing about currency levels during the Japanese prime minister’s two-day US visit.
Data on Monday showed Japan’s economy continued on a moderate growth path during the final quarter of 2016, driven by rising exports and business investment.
Currencies
The Bloomberg Dollar Index added 0.1% after last week’s 0.7% advance. The yen slid the most among major currencies, weakening 0.5% to ¥113.75/$, after its biggest weekly decline since mid-December. The euro slipped 0.1% to $1.0635.
Bonds
The yield on 10-year Treasury notes added two basis points to 2.43%.
Commodities
Iron ore futures were up 4.9%. The raw material used to make steel is trading at the highest in more than two years, climbing 16% over the past five sessions. Copper futures added 0.3%, extending Friday’s jump that was the largest since 2013 on the London Metal Exchange. Crude slipped 0.8% to $53.45 in New York, after rallying 3.2% over the previous three sessions.
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