Philadelphia, PA–Global stocks rose as growing expectations of a third rate increase by Fed within this year lifted the dollar Wednesday, and the U.S. President Donald Trump’s administration prepared to outline a new tax plan.
The greenback strengthened after Fed chair Janet Yellen cautioned Tuesday against tightening “too gradually.
She said it would be “imprudent” to keep rates on hold until U.S. inflation hit 2 percent.
Yellen’s comments sent dollar to its one-month high against a basket of currencies, rising half a percent. Interest rate-sensitive two-year U.S. Treasury yields touched their highest since 2008.
Markets are pricing in a more than an 80 percent chance the Fed will raise borrowing costs in December, up from 72 percent a week ago, according to the CME Group’s FedWatch tool.
“Yellen’s comments gave more certainty about another rate hike by the end of the year,” said DZ Bank rates strategist Daniel Lenz.
He shared with the Reuters, “Further details of Trump’s tax plans and whether this proceeds smoothly will be of interest – it should be a boost to the economy and mean a generally higher bond yield environment.”
The Dow Jones industrial average slipped 0.1% on Tuesday, while the S&P 500 was mostly unchanged and the Nasdaq gained 0.2%.
A stronger dollar added pressure on the euro, giving a lift to stocks in Europe. Most European markets advanced in early trading. Asian markets ended the day mixed.
President Trump is expected to lay out a framework for his highly-anticipated tax plan today. Investors are expecting more details of potential tax cuts.
Trump said that the plan would cut taxes “tremendously” for the middle class.
“What we heard is that things were negotiable,” the Financial Times quoted John Larson, Democratic member of the House ways and means committee who attended a meeting with Mr Trump on Tuesday. “But [Trump] couldn’t have been more clear about it being a middle-class, working-class, lower-class tax cut.”
”If it comes to pass, we are talking a pretty material fiscal boost to the U.S. economy. This sort of easy fiscal policy is why the markets are reacting the way they have,” Mark Dowding, co-head of investment grade at BlueBay Asset Management shared with the Reuters.
Brent crude oil fell but still remained at levels not far from Tuesday’s 26-month high.
On individual stocks, Nike’s share is down by about 4% premarket after the company released its latest earnings.
Over in Europe, Europe’s main competition watchdog said it was launching an in-depth investigation into the proposed merger of French lens manufacturer Essilor and Italian firm Luxottica.
