“Stocks, Dollar Rise on Fed, Tax Plans; Bonds Fall: Markets Wrap.”
U.S. stocks advanced as President Donald Trump prepares to lay out his tax-cut plan, while the dollar extended gains and bonds fell after Federal Reserve Chair Janet Yellen boosted expectations for an interest-rate rise in December.
The S&P 500 Index was near record levels in early trading. The Bloomberg dollar index headed for a six-week peak and Treasury yields jumped to the highest in two months as traders digested Yellen’s warning against tightening “too gradually.” The greenback’s resurgence pressured the euro, giving a lift to stocks in Europe, with almost all major country benchmarks in the green. Emerging-market stocks headed for a fifth day of declines, the longest streak since May 2016.
WTI crude rose to its highest level since April after data showed U.S. stockpiles dwindled last week. Safe havens including gold, the yen and the Swiss franc extended declines as North Korea dropped off the radar for the time being.
While the market may not be fully convinced of the Fed’s willingness to raise rates again in December, the possibility and the prospect of corporate tax cuts is something traders can’t ignore. Though Trump’s tax plan marks only the start of what could be a brutal fight in Congress, stocks were cheered by a proposal that may allow companies to write off capital expenditure for five years. The dollar received an extra leg up from the prospect of capital inflows as companies take advantage of a proposed one-off repatriation tax.
“Britain warns Boeing it might lose business over Bombardier row.”
Britain told U.S. plane-maker Boeing on Wednesday that it could lose out on British defense contracts because of its dispute with Canadian rival Bombardier which has put 4,200 jobs at risk in Northern Ireland.
The U.S. Department of Commerce on Tuesday imposed a 220-percent duty on Bombardier’s (BBDb.TO) CSeries jets, whose wings are made at a plant in Belfast, following a complaint by Boeing (BA.N) which accuses Canada of unfairly subsidizing Bombardier. The ruling is a political headache for Britain’s minority Conservative government, which relies on support from a Northern Irish party to stay in power.
It also undermines the government’s assurances to Britons that free trade and London’s close ties with Washington will be pillars of Britain’s prosperity and global influence after it leaves the European Union in 2019.
“This is not the behavior we expect from Boeing and it could indeed jeopardize our future relationship with them,” British Defense Secretary Michael Fallon told reporters in Belfast. “Bitterly disappointed by initial Bombardier ruling,” said British Prime Minister Theresa May, who had personally asked U.S. President Donald Trump to help resolve the dispute. “The government will continue to work with the company to protect vital jobs for Northern Ireland,” she said on Twitter.
“Worst Bond-Market Rut in 52 Years Shows Few Signs of Break Out.”
The world’s most important bond market is stuck in its worst rut in more than half a century. Ten-year U.S. Treasury yields have been locked between 2.01 percent and 2.63 percent in 2017 — a measly 62 basis points. That’s the tightest trading range since 1965, when William McChesney Martin ran the Federal Reserve, Lyndon B. Johnson was president and Frank Herbert’s sci-fi classic Dune hit shelves. And it’s less than half the annual average span of 175 basis points, according to data compiled by Bloomberg.
Analysts who less than six months ago predicted that the 10-year yield would end the year at about 3 percent have since brought their median forecast down more than 50 basis points. Investors say yields will continue to be constrained by mediocre growth, tepid inflation and a Fed that’s revised down its estimate of the terminal fed funds rate amid a well-telegraphed tightening cycle.
The Fed this month unveiled plans to start shrinking its $4.5 trillion balance sheet, which strategists say may put upward pressure on yields. Ditto for the European Central Bank’s anticipated tapering of its bond-purchase program, which analysts expect an announcement on in the coming months. Still, that may not be enough for the 10-year yield to break above highs made in mid-March.
Beyond issues related to the bond holdings of the ECB and Fed, U.S. policymakers are still signaling a rate hike at the central bank’s December meeting, which could prompt year-end volatility. And President Donald Trump is seeking to pass a tax overhaul which, if successful, could revive expectations for stronger growth and inflation. On the flip side, any escalation in geopolitical tensions or other exogenous shocks risk sending investors fleeing to haven assets and forcing yields lower.
“Europe migrant crisis: EU presents legal migration plan.”
The EU Commission has proposed a new two-year program to bring at least 50,000 asylum seekers into Europe. «It is about managing one of the most complex, structural phenomena of our times, not a temporary emergency,» said the Commission’s Vice-President Federica Mogherini. The issue has soured relations in the 28-country European Union. A two-year program which finishes on Wednesday relocated less than a fifth of a planned 160,000 asylum seekers.
Several eastern states balked at the mandatory resettlement scheme, and a legal challenge brought by Poland and Hungary was rejected by the European Court of Justice earlier this month. Nevertheless, Mrs Mogherini insists EU migration policy is «starting to deliver».
The resettlement scheme which is coming to an end was an attempt to manage the surge of some 1.7 million migrants who have arrived on European shores since 2014. The scheme suspended European rules which say would-be refugees should apply for asylum in the country of entry to the EU – which had put the main burden of managing the crisis on frontline countries such as Italy and Greece.
EU officials say the failure of the scheme to resettle the envisaged number of people is partly because a 2016 deal with Turkey and EU measures to curb migration from Libya led to a dramatic drop in the number of arrivals, and because many of the more recent arrivals come from countries which do not qualify for the relocation program. In a separate announcement, the Commission also said it was planning on updating the code governing the 26-nation Schengen zone of free movement.
Germany, Austria, Denmark and Norway have reinstated border checks at certain points in response to migrant arrivals, while France has also done so, citing a persistent terrorist threat, but these controls are due to expire in coming weeks. The new proposal extends the time limit for such temporary measures from six months to a year, and under exceptional circumstances up to three years, but obliges member states to assess whether alternative measures are available. In its statement, the Commission lauds Schengen as «one of the major achievements of European integration» and reminds member states that imposing internal border controls should be a measure of last resort.