US stocks joined a rally in European shares as growing conviction that the Federal Reserve will raise interest rates this summer sparked gains in financial shares.
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Benchmark 10-year Treasury notes were down 5/32 in price for a yield of 1.859 per cent, up 2 basis points from Monday.
Following weekend remarks from Boston Fed’s Rosengren that criteria for the next rate hike are “on the verge” of being met, St. Louis Fed’s Bullard and San Fran Fed’s Williams echoed the sentiment today when each stated that an interest rate hike could occur sooner than the market expects.
The Federal Reserve will likely raise interest rates two or three times this year, another top Fed official said on Monday (May 23), reinforcing the central bank’s message it is getting ready to act now that the United States economy has recovered from a weak winter.
Hopes that higher interest rates would help banks’ profits and a resilient housing market would boost home builders’ bottom lines lifted US share prices and pared bids for Treasuries.
Markets are raising their bets on a rate hike at the July meeting, with odds above 50 percent for the first time in two months, said Kathy Lien of BK Asset Management. It was the largest gain since February 2013 after rising 0.1% in March.
The U.S. Federal Reserve’s decisions to delay interest-rate hikes helped cushion the economic shocks caused by rapidly rising borrowing costs for U.S. companies from late previous year through early 2016, according to economists at the New York Fed.
The Bloomberg Dollar Spot index, a gauge of the greenback against 10 major peers, rose 0.3 percent.
MSCI’s all-country world stock index rose 1 per cent, while the pan-European FTSEurofirst 300 index of leading regional stocks ended up 2.3 per cent.
Gold prices fell to a seven-week low on Wednesday after upbeat U.S. home sales data in the previous session boosted expectations that the Federal Reserve will press ahead with interest rate hikes in the near term. “Increasing chances of a rate hike in June are likely to continue to weigh on gold”, Australia & New Zealand Banking Group Ltd. said in a report, citing what it described as a procession of Fed speakers who’d made the case for a normalization in interest rate policy. Futures markets are predicting two rate increases this year as opposed to just one as recently as last week.
“A re-pricing of Fed tightening expectations is the principal driver of the U.S. dollar’s resurgence”, said Richard Franulovich, senior currency strategist at Westpac Banking Corporation in NY. New home sales, as measured by the U.S. Commerce Department, are expected to have increased 2 percent to a seasonally adjusted annual rate of 523,000 units in April.
Brent futures rose 61 cents to $48.96 a barrel, while USA crude futures rose more than 1 percent to settle at $48.62 a barrel.
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Turning to global markets, Germany’s DAX and France’s CAC-40 were up 1.4 percent and 1.6 percent respectively while the dollar climbed 0.5 percent to 1.1166 against the euro, its strongest since mid-March.
