Trump-Trade Rally Pushes Dollar to Weekly Surge as Bonds Slump

  • Greenback extends record streak of gains versus euro
  • Oil advances after OPEC holds informal talks with Russia

Yu: U.S. Dollar Move Not Brutal, but a 'Surge'

The Trump-trade has dominated markets this week.

The dollar extended its record winning streak against the euro on speculation Donald Trump’s economic policies will trigger faster monetary tightening in the world’s largest economy. Bonds around the world slumped for the week, while global stocks wiped out their advance. Oil rose after OPEC member Algeria said the group’s meeting with Russia gave it confidence a deal can be reached to re-balance global markets.

The U.S. currency’s appreciation over the past two weeks has come as Treasury yields have surged on bets the new administration will boost spending and spark an increase in inflation. Federal Reserve Chair Janet Yellen suggested Thursday the central bank remained on course to tighten policy, while Fed St. Louis President James Bullard said Friday that some of Trump’s potential policies may help restore lagging U.S. productivity.

“The dollar is rampant,” said Stuart Bennett, head of Group-of-10 currency strategy at Banco Santander SA in London. “It’s just this assumption, and for now it still is an assumption, that the U.S. is going to reflate next year from fiscal policy. Yellen’s comments yesterday probably helped the dollar.”

Currencies

The dollar advanced 0.3 percent to $1.0594 per euro as of 4 p.m. in New York to the strongest level in almost a year. The U.S. currency added 0.7 percent to 110.87 yen Friday, on track for the biggest two-week advance since 1988.

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, rose 0.5 percent to the highest since January. The gauge is up 1.9 percent this week after last week’s 2.8 percent rise.

“U.S. dollar momentum has been strong,” said Vassili Serebriakov, a foreign-exchange strategist at Credit Agricole CIB in New York. “The move has further to go. We could see some consolidation ahead of the Thanksgiving holidays, but I suspect markets will continue buying into any U.S. dollar pullbacks.”

Bonds

The Bloomberg Barclays Global Aggregate Index has fallen 4 percent in the period through Thursday. It’s the biggest two-week rout in data going back to 1990.

"We’ve seen a sharp and swift move since the election, which is pricing in the potential future policies of Trump," said Sean Simko, who manages $8 billion at SEI Investments Co. in Oaks, Pennsylvania. "The big question is to what extent these policies are going to be implemented, and how quickly are they going to be implemented."

Treasury 10-year note yields rose four basis points, or 0.04 percentage point, to 2.34 percent, according to Bloomberg Bond Trader data.

The difference between yields on U.S. 10-year notes and similar-maturity Treasury Inflation Protected Securities, a gauge of trader expectations for consumer prices over the life of the debt, rose to as much as 1.97 percentage points this week, the highest since April 2015.

Stocks

The MSCI All Country World Index dropped 0.5 percent, erasing its weekly advance.

The S&P 500 Index fell 0.2 percent to 2,181.90, after climbing within two points of its Aug. 15 record of 2,190.15. The gauge capped a weekly gain of 0.8 percent. The Dow Jones Industrial Average slipped, while the Russell 2000 Index posted its longest winning streak since 2003.

“The markets are looking at the potential of a Trump stimulus,” said Andrew Brenner, the head of international fixed income for National Alliance Capital Markets.  “They’re thinking the U.S. is going to do well, but the problem is that the dollar is going out of control to the upside.”

Among stocks moving Friday, Salesforce.com Inc. surged the most in a month after the company gave an upbeat forecast for fourth-quarter sales. Ross Stores Inc. jumped after profit topped estimates. Gap Inc. tumbled 17 percent as results disappointed.

Commodity producers dragged down European equities as Mario Draghi indicated the region’s economy still needs stimulus. The Stoxx Europe 600 Index trimmed its weekly gain to 0.6 percent. The European Central Bank president said the recovery isn’t strong enough yet and the current level of monetary support is key.

Commodities

Oil rose 0.6 percent in New York. Algerian Energy Minister Noureddine Boutarfa said he’s more optimistic of clinching an agreement after discussions between the Organization of Petroleum Exporting Countries and Russia in Doha. Russian Energy Minister Alexander Novak said a consensus is emerging and that his country is considering an output freeze of six months. Prices fell earlier as the dollar rallied and U.S. explorers added the most oil rigs in 16 months.

"The expectation is that OPEC will come up with something," said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $5.6 billion. "The talk of a cut is what’s buoyed the market the last couple of months."

West Texas Intermediate for December delivery rose 27 cents to close at $45.69 a barrel on the New York Mercantile Exchange. Brent for January settlement increased 37 cents, or 0.8 percent, to $46.86 a barrel on the London-based ICE Futures Europe exchange.

— With assistance by Maciej Onoszko, Dani Burger, Anooja Debnath, Yun Li, Wes Goodman, Paul Dobson, and Mark Shenk

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