The dollar rose with Treasury yields as investors contemplated the prospects for U.S. tax cuts as well as the chances of a new — and potentially less dovish — Federal Reserve chief. The euro retreated in the wake of a contentious vote for independence in the Spanish region of Catalonia.
European equities opened higher after a mixed session for holiday-hit Asian markets. Spanish stocks slumped and the common currency was one of the worst performers among major peers after a violence-marred vote in Catalonia spurred the regional government to press toward a unilateral declaration of independence. The tensions also had a clear impact in the bond market, with Spanish premiums climbing over comparable German debt. Gold fell and West Texas oil halted gains above $51 a barrel after Baker Hughes data showed the U.S. rig count climbing to 750 last week. The pound dropped against the dollar for the sixth time in seven days amid concerns about the stability of U.K. Prime Minister Theresa May’s government.
The tension in Spain “is not a game-changer for the euro, but it is likely to weigh — shifting the narrative away from the political optimism that followed Macron’s victory,” wrote RBC Capital Markets strategists led by Sue Trinh in Hong Kong, referring to President Emmanuel Macron’s victory in the French election earlier this year.
After a two-day pause the dollar is adding to gains from last week, when it benefited from speculation President Donald Trump could opt for a Fed boss who might pursue more aggressive policy tightening, not to mention details of the administration’s tax plans.
Elsewhere, Australia’s equity benchmark had its biggest daily gain in almost two months after China, its top trading partner, reported an unexpectedly strong manufacturing gauge and announced plans to cut the amount of cash banks must hold as reserves for certain loans. Japanese shares were mixed after the Bank of Japan’s quarterly Tankan survey showed the country’s big manufacturers are the most confident in a decade.
Holidays in markets including Hong Kong, China, India and South Korea affected the region Monday.
Terminal subscribers can read more in our Markets Live blog.
Among the key events this week:
- Manufacturing PMIs for September are due for most of the world’s major economies. The U.S. ISM measure comes Monday.
- Investors will monitor progress toward forming coalition governments in Germany and New Zealand after elections last month left no party in either country with a majority. Also in focus: Japanese political polls ahead of elections expected later this month.
- U.K. Prime Minister Theresa May’s Conservative Party holds its annual conference Oct. 1-4.
- Other American data this week include trade, durable goods and Friday’s September non-farm payrolls report, which may have less predictive power than usual for the economic outlook due to likely distortions from hurricanes that hit from late August.
- Australia’s central bank on Tuesday is forecast to keep its benchmark interest rate unchanged at a record low of 1.5 percent.
- The Reserve Bank of India on Wednesday is projected to keep benchmark rates unchanged.
- China is due to report monthly foreign-exchange reserves Thursday.
- Fed speakers this week welcome remarks by Yellen at an event on Wednesday, a speech on the Treasury market by board member Jerome Powell (considered a candidate for Fed chair), and New York Fed President William Dudley.
- Minutes of the last ECB meeting are the European economic highlight this week.
Here are the main moves in markets:
- The Stoxx Europe 600 Index increased 0.2 percent as of 9:45 a.m. London time, hitting the highest in 14 weeks with its eighth consecutive advance.
- The MSCI All-Country World Index decreased 0.1 percent.
- The U.K.’s FTSE 100 Index climbed 0.5 percent to the highest in three weeks.
- Germany’s DAX Index jumped 0.3 percent, reaching the highest in 15 weeks on its sixth consecutive advance.
- The MSCI Emerging Market Index gained less than 0.05 percent to the highest in a week.
- Futures on the S&P 500 Index advanced 0.1 percent to the highest on record.
- The Bloomberg Dollar Spot Index climbed 0.5 percent to the highest in almost 11 weeks.
- The euro declined 0.6 percent to $1.1745, the weakest in more than six weeks on the biggest fall in a week.
- The British pound fell 0.7 percent to $1.3305, the weakest in almost three weeks on the largest drop in two weeks.
- The yield on 10-year Treasuries climbed two basis points to 2.36 percent, the highest in almost 12 weeks.
- Germany’s 10-year yield advanced one basis point to 0.47 percent.
- Britain’s 10-year yield gained one basis point to 1.371 percent.
- Gold fell 0.5 percent to $1,274.14 an ounce, the weakest in almost seven weeks.
- West Texas Intermediate crude declined 0.4 percent to $51.48 a barrel, the lowest in more than a week.
- The Topix index of Japanese stocks dropped 0.1 percent. Australia’s S&P/ASX 200 Index gained 0.8 percent, with resources companies climbing on optimism China’s growth slowdown will be modest.
- The Japanese yen declined 0.3 percent to 112.83 per dollar.
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