Tag Archives: Stock Market

Explainer: Rising U.S. inflation and what it means for markets

A man unloads vegetables at Grand Central Market in Los Angeles, California, March 9, 2015. REUTERS/Lucy Nicholson

By Chuck Mikolajczak and Lucia Mutikani

(Reuters) – U.S. financial markets have been roiled recently by something neither the economy nor investors have had to contend with for the better part of a decade: concerns they may soon have to reckon with rising inflation.

The S&P 500.is down more than 7 percent from its lifetime high hit on Jan. 26 through Feb. 13, after falling as much as 10.2 percent, and yields on the benchmark U.S. 10-year note have climbed to a four-year high, largely due to inflation worries.

What exactly is inflation, aside from a rise in prices for goods and services, and why is it having such a strong influence on markets?

Inflation is measured in a number of ways by various government agencies, and as long as the economy continues to expand it will be a consideration for markets.

Investors will get the latest inflation data on Thursday with the monthly Producer Price Index.

WHAT IS INFLATION AND HOW IS IT MEASURED?

While inflation decreases consumer purchasing power, a certain level of inflation is considered a reflection of a strengthening economy and the impact on consumers can be offset by rising wages.

The U.S. government publishes several inflation measures on a monthly and quarterly basis. The main measures are the Consumer Price Index (CPI) and the personal consumption expenditures (PCE) price indexes. The CPI and PCE are constructed differently and perform differently over time.

The monthly CPI, compiled by the Labor Department’s Bureau of Labor Statistics (BLS), measures the change in prices paid by consumers for goods and services. The BLS data is based on spending patterns of consumers and wage earners, although it excludes rural residents and members of the Armed Forces.

CPI measures the prices that consumers pay for frequently purchased items. The components are weighted to reflect their relative importance, with the weightings derived from household surveys. Some of the components of the CPI basket such as food and energy can be volatile. Stripping out food and energy from the CPI gives us the core CPI, seen as a measure of the underlying inflation trend.

The January reading on consumer prices released on Wednesday showed prices rose more than expected, up 0.5 percent versus the 0.3 percent expectation. The core reading rose 0.3 percent against the 0.2 percent forecast. Both numbers increased from the 0.2 percent reading for December.

Another reading is the Producer Price Index (PPI), which measures prices from the seller’s point of view.

The Federal Reserve, whose mandate includes price stability along with maximum employment, prefers the personal consumption expenditures (PCE) price indexes constructed by the Commerce Department’s Bureau of Economic Analysis. PCE is considered to be more comprehensive because it includes some components that are excluded from the CPI. According to the BEA, the PCE reflects the price of expenditures made by and on behalf of households. Weights are derived from business surveys.

Housing has a greater weighting in the CPI than in the PCE index. The weighting for medical care is greater in the PCE price index than in the CPI. As with CPI, food and energy components of the PCE are volatile. Stripping them out yields the core PCE, which measures the underlying inflation trend. The core PCE is the Fed’s preferred measure for its 2 percent inflation target.

WHAT SPARKED THE RECENT INFLATION WORRY?

The government’s monthly employment report for January, released on Feb. 2, showed wages posted their largest annual gain in more than 8-1/2 years, suggesting the economy was moving closer to full employment and inflation was on the horizon.

If the economy continues to gain momentum, inflation is likely to rise further toward the Fed’s 2 percent target.

There is concern, however, that the recent U.S. tax overhaul by the Trump administration, which slashed the corporate income tax rate and cut personal income tax rates, could cause an economy that may be nearing full capacity to overheat and prompt the Fed to become more aggressive than anticipated in its course of interest rate hikes.

Markets are pricing in an 87.5 percent chance of a quarter-point increase at the U.S. central bank’s next policy meeting in March. The Fed has forecast three hikes this year, after raising rates three times in 2017.

Some market participants are unsure about how swiftly the Fed will react to inflation and market turbulence under its new chair, Jerome Powell. The March meeting will be the first since Powell took over from Janet Yellen. Recent comments from some Fed officials suggested the possibility of more hikes should the economy continue to strengthen.

HOW HAS INFLATION AFFECTED MARKETS?

Many analysts believe the stock market was overdue for a pullback because valuations, as measured against corporate earnings, have been rich by historic standards, and that the employment data showed economic fundamentals underpinning stocks are strong. Inflation has yet to rise to concerning levels, and as long as the pace remains modest, stocks have room to climb.

Healthy economic growth, along with U.S. deficit spending and moves by central banks around the world to lift interest rates from ultra-low levels, has driven U.S. bond yields to a four-year high. Rising yields could dent the attractiveness of high dividend-paying stocks to investors and trigger increased borrowing costs for U.S. companies and households, which could crimp economic growth.

The initial reaction to the CPI data on Wednesday was sharp, with S&P 500 e-mini futures <ESc1> falling to a session low of 2,627 while yields on the benchmark U.S. 10-year note <US10YT=RR> rose as high as 2.891 percent. The dollar initially spiked higher against a basket of major currencies <.DXY> before weakening.

However, stocks recovered and turned positive shortly after the opening bell and yields on the 10-year note eased.

A strengthening currency would normally go hand-in-hand with an improving economy, yet the U.S. dollar is near four-year lows even after a recent uptick. Some of the weakness has been attributed to anticipation of scaling back in stimulus measures by central banks other than the Fed.

If the U.S. economy fails to show any meaningful uptick in inflation as currently feared, that could tie the Fed’s hands when it comes to interest rate hikes and drag the dollar lower.

(Reporting by Chuck Mikolajczak; Additional reporting by Richard Leong; Editing by Alden Bentley and Leslie Adler)

U.S. Stocks plunge in highly volatile trading: S&P 500 erases 2018’s gains

A trader watches his screens on the floor of the New York Stock Exchange in New York, U.S., February 5, 2018.

By Lewis Krauskopf

(Reuters) – U.S. stocks plunged in highly volatile trading on Monday, with the Dow industrials falling nearly 1,600 points during the session, its biggest intraday decline in history, as investors grappled with rising bond yields and potentially firming inflation.

The benchmark S&P 500 and the Dow suffered their biggest percentage drops since August 2011 as a long-awaited pullback from record highs deepened.

The financial, healthcare and industrial sectors fell the most, but declines were spread broadly as all major 11 S&P groups dropped at least 1.7 percent. All 30 of the blue-chip Dow industrial components finished negative.

With Monday’s declines, the S&P 500 erased its gains for 2018 and is now down 0.9 percent in 2018.

Many investors have been bracing for a pullback for months, as the stock market has minted record high after record high with investors encouraged by solid economic data and corporate earnings prospects, the latter bolstered by recently passed U.S. corporate tax cuts.

Friday’s January jobs report sparked worries over inflation and a surge in bond yields, as well as concerns that the Federal Reserve will raise rates at a faster pace than expected.

“The market has had an incredible run,” said Michael O’Rourke, chief market strategist At JonesTrading In Greenwich, Connecticut.

“We have an environment where interest rates are rising. We have a stronger economy so the Fed should continue to tighten … You’re seeing real changes occur and different investments are adjusting to that,” O’Rourke said.

The Dow Jones Industrial Average fell 1,175.21 points, or 4.6 percent, to 24,345.75, the S&P 500 lost 113.19 points, or 4.10 percent, to 2,648.94 and the Nasdaq Composite dropped 273.42 points, or 3.78 percent, to 6,967.53.

The S&P 500 ended 7.8 percent down from its record high on Jan. 26, with the Dow down 8.5 percent over that time.

Even with the sharp declines, stocks finished above their lows touched during the session. At one point, the Dow fell 6.3 percent or 1,597 points, the biggest one-day points loss ever, as it breached both the 25,000 and 24,000 levels during trading.

The stock market has climbed to record peaks since President Donald Trump’s election and remains up 23.8 percent since his victory. Trump has frequently touted the rise of the stock market during his presidency.

As the stock market fell on Monday, the White House said the fundamentals of the U.S. economy are strong.

The CBOE Volatility index, the closely followed measure of expected near-term stock market volatility, jumped 20 points to 30.71, its highest level since August 2015.

Until recently, gains for stocks have come as the market has been relatively subdued, and any declines were met with buyers looking for bargains.

“People who have been buying the dip are now going to be selling the rip,” said Dennis Dick, a proprietary trader at Bright Trading LLC in Las Vegas. “The psychology of the market changed today. It’ll take a while to get that psychology back.”

About 11.5 billion shares changed hands in U.S. exchanges, well above the 7.6 billion daily average over the last 20 sessions.

Declining issues outnumbered advancing ones on the NYSE by a 8.64-to-1 ratio; on Nasdaq, a 6.92-to-1 ratio favored decliners.

The S&P 500 posted 1 new 52-week highs and 38 new lows; the Nasdaq Composite recorded 17 new highs and 164 new lows. 37.32

(Additional reporting by Megan Davies, Sinead Carew, Caroline Valetkevitch and Chuck Mikolajczak in New York, Noel Randewich in San Francisco and Tanya Agrawal in Bengaluru; Editing by Arun Koyyur and Nick Zieminski)

Wall St. set to rise at open as tax reform enters last lap

Wall St. set to rise at open as tax reform enters last lap

By Rama Venkat Raman

(Reuters) – Wall Street was poised to open higher on Thursday, aided by gains for banking shares and news that the Republicans’ tax code overhaul should face final votes in Congress before the year-end.

A final bill could be formally unveiled on Friday, with decisive votes expected next week in both chambers.

On Wednesday, Republicans in the Senate and the House reached a deal on final tax legislation, paving the way for final votes next week on a package that would slash the corporate tax rate to 21 percent.

“We have a pretty positive background, investors are focused on the tax deal that they are closed to an agreement between the House and the Senate,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“It will take some time to go through the details, what that means for specific companies but it’s consistent with the general positive tone.”

Traders also focused on a $52.4 billion stock deal between Walt Disney <DIS.N> and Twenty-First Century Fox <FOXA.O>.

Shares of media baron Rupert Murdoch’s Fox fell marginally in choppy trading after Walt Disney agreed to buy the Fox’s film, television and international businesses. Disney shares were also down 0.9 percent.

Goldman Sachs <GS.N>, JPMorgan <JPM.N>, Wells Fargo <WFC.N> and Bank of America <BAC.N> rose between 0.52 percent and 0.86 percent ahead of market open.

Shares of big banks recovered early in the day from an initial decline after the Federal Reserve raised rates by 25 basis points but kept its outlook for 2018 and 2019 unchanged.

At 8:34 a.m. ET (1334 GMT), Dow e-minis <1YMc1> were up 32 points, or 0.13 percent, with 8,450 contracts changing hands.

S&P 500 e-minis <ESc1> were up 1.5 points, or 0.06 percent, with 69,766 contracts traded.

Nasdaq 100 e-minis <NQc1> were up 6 points, or 0.09 percent, on volume of 7,313 contracts.

U.S. retail sales increased more than expected in November as the holiday shopping season got off to a brisk start, pointing to sustained strength in the economy.

A Commerce Department report showed retail sales rose 0.8 percent in November, while economists polled by Reuters has forecast a 0.3 percent rise.

Among other big movers, Express Scripts <ESRX.O> gained about 2 percent after pharmacy benefit manager forecast full-year 2018 earnings that topped analysts’ expectations.

U.S.-listed shares of Valeant Pharmaceuticals <VRX.N> fell 4.2 percent after JPMorgan cut the stock’s rating to ‘underweight’.

Israel-based drugmaker Teva Pharmaceutical’s <TEVA.N> shares soared 15 percent after the company announced job cuts, asset sale and dividend suspension in an overhaul to pay back debt.

(Reporting by Rama Venkat Raman in Bengaluru; Editing by Arun Koyyur)

Lucky 13? Stocks score longest run of monthly gains on record

Lucky 13? Stocks score longest run of monthly gains on record

By Marc Jones

LONDON (Reuters) – A dive in high-flying U.S. tech stocks on worries their boom may have peaked left investors wondering on Thursday whether the longest global equity bull run in living memory might be starting to splutter.

The caution was sparked by another Wall Street wobble involving a rotation from tech to financials which came just as the near 9-year global rally prepared to notch up another impressive milestone.

The world’s broadest equity gauge – the MSCI all-country index – was on course to finish November with its 13th straight monthly gain on Thursday – the longest winning streak in the index’s 30-year history. Lucky for some.

Though the celebrations were muffled by the tech problems – Samsung and China stocks had also taken another tumble in Asian trading [.SS] – the mood improved again in Europe.

Germany’s Dax <.GDAX> and France’s CAC 40 <.FCHI> both inched up for a third day, and though London’s FTSE <.FTSE> lagged as hopes of a breakthrough in Brexit negotiations pushed the pound higher again, Wall Street futures <ESc1> pointed to U.S. rebound later. [.N] [GBP/]

The latest Reuters global asset poll showed the majority of investors expect shares to keep rising. Robeco strategist Peter van der Welle was one of those, despite noting the market was “playing in extra time”.

“In the absence of a near-term recession trigger, current stretched equity valuations do yet not instil enough fear to change overall market direction,” he said.

Possibly feeding the tech concerns was a Morgan Stanley report earlier this week that the “super-cycle” in memory chip demand looks likely to peak soon.

Shares of Amazon.com <AMZN.O>, Apple <AAPL.O>, Google parent Alphabet <GOOGL.O> Facebook <FB.O> and Netflix <NFLX.O> slid between 2 percent and 5.5 percent on Wednesday. [.N] Asia’s bellwether Samsung <005930.KS> then slumped 4.3 percent to two-month lows.

Tech nerves were not just confined to stocks. Rocketing cryptocurrency Bitcoin <BTC=BTSP> dropped a cool $1,000 to a low of $9,250 before spending European hours pinballing between $9,700 and $10,100.

For perspective, though, the Nasdaq index is still up 26.8 percent so far this year, roughly 7 percentage points more than the MSCI world <.MIWD00000PUS>. For Bitcoin it is a mind-boggling 950 percent. http://tmsnrt.rs/2zJqD6m

“It is true that if you look at the world’s semiconductor sales on chart, their year-on-year growth appears to be peaking out,” said Hiroshi Watanabe, an economist at Sony Financial Holdings. “But if you look at what’s driving demand, it’s not just smart phones and actually a lot of things.”

DOLLAR IN THE DOLDRUMS

In the more mainstream FX markets, the U.S. dollar climbed to 112.25 yen <JPY=>, held its ground versus the euro <EUR> but fell to a two-month low of $1.3480 to the resurgent pound <GBP=>. Measured against major peers the dollar is headed for biggest monthly drop since July. [FRX]

The U.S. Senate took a step on Wednesday toward passage of tax legislation that is a top White House priority, setting up a likely decisive but finely-balanced vote later this week.

Investors also seem to have grown cautious about the outlook of the world’s biggest economy and there are growing signs that it certainly won’t be the only country raising interest rates.

J.P. Morgan Asset Management global head of rates David Tan predicted on Thursday that there will be some 1,000 rate hikes globally over the next decade.

“The current period of economic expansion has therefore been extraordinarily long, almost 10 years and counting, but we know that the days of super low global central bank rates are in the process of coming to an end,” he said.

Borrowing costs in Germany, the euro zone’s benchmark bond issuer, rose to their highest in just over two weeks. The 10-year U.S. Treasuries yield climbed too, reaching 2.3859 percent <US10YT=RR> to near this month’s high of 2.414 percent.

There was no market response after U.S. President Donald Trump nominated Carnegie Mellon University professor Marvin Goodfriend, viewed as a policy hawk, to be a member of the Federal Reserve Board of Governors.

Oil meanwhile moved higher again as OPEC meet in Vienna to debate an extension of the group’s supply-cut agreement.

While the Organization of the Petroleum Exporting Countries and key non-member Russia look set to prolong oil supply cuts until the end of 2018, they have signaled that they may review the deal when they meet again in June if the market overheats.

U.S. crude futures <CLc1> traded at $57.72 per barrel in European trade, up 1.4 percent, while Brent futures <LCOc1> rose 0.7 percent to just over $64 a barrel. [O/R]

(Reporting by Marc Jones; editing by Mark Heinrich)

U.S. consumer prices edge up; retail sales unexpectedly increase

U.S. consumer prices edge up; retail sales unexpectedly increase

By Lucia Mutikani

WASHINGTON (Reuters) – U.S. consumer prices barely rose in October as the boost to gasoline prices from hurricane-related disruptions to Gulf Coast oil refineries was unwound, but rising rents and healthcare costs pointed to a gradual buildup of underlying inflation.

Low inflation is, however, helping to underpin consumer spending. Other data on Wednesday showed an unexpected increase in retail sales last month as heavy price discounting by automobile manufacturers lifted purchases of motor vehicles.

Rising retail sales and steadily firming underlying price pressures likely will keep the Federal Reserve on course to raise interest rates next month.

The Labor Department said its Consumer Price Index edged up 0.1 percent last month after jumping 0.5 percent in September. That lowered the year-on-year increase in the CPI to 2.0 percent from 2.2 percent in September. The increases were in line with economists’ expectations.

Gasoline prices fell 2.4 percent after surging 13.1 percent in September, which was the largest gain since June 2009. September’s jump in gasoline prices followed Hurricane Harvey, which struck Texas in late August and disrupted production at oil refineries in the Gulf Coast region.

Food prices were unchanged after nudging up 0.1 percent in September. Excluding the volatile food and energy components, consumer prices rose 0.2 percent in October amid a pickup in the cost of rental accommodation, healthcare costs, tobacco and a range of other goods and services.

The so-called core CPI gained 0.1 percent in September. October’s increase lifted the year-on-year increase in the core CPI to 1.8 percent. The year-on-year core CPI had increased by 1.7 percent for five straight months.

The slight pickup in the monthly core CPI could offer some comfort to Fed officials amid concerns that stubbornly low inflation might reflect not only temporary factors but developments that could prove more persistent.

The Fed’s preferred inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, has consistently undershot the U.S. central bank’s 2 percent target for more than five years. The Fed has lifted borrowing costs twice this year and has projected three rate increases in 2018.

Prices of U.S. Treasuries fell and the U.S. dollar <.DXY> pared losses against a basket of currencies after the data. U.S. stock index futures extended losses.

RENTS, HEALTHCARE COSTS RISE

Last month, owners’ equivalent rent of primary residence climbed 0.3 percent, quickening after September’s 0.2 percent increase. The cost of hospital services increased 0.5 percent and prices for doctor visits rose 0.2 percent. There were also increases in prices for wireless phone services, airline fares, education and motor vehicle insurance.

Prices for used cars and trucks rose 0.7 percent, ending nine straight months of declines. New motor vehicle prices, however, fell for a second consecutive month as manufacturers resorted to deep discounting to eliminate an inventory overhang.

In a separate report on Wednesday, the Commerce Department said retail sales increased 0.2 percent last month. Data for September was revised to show sales jumping 1.9 percent, which was the largest gain since March 2015, rather than the previously reported 1.6 percent advance.

Retail sales increased 4.6 percent on an annual basis.

Economists polled by Reuters had forecast that retail sales would be unchanged in October. The slowdown in retail sales last month from September’s robust pace largely reflected an unwinding of the boost to building materials and gasoline prices after recent hurricanes.

Receipts at auto dealerships increased 0.7 percent after soaring 4.6 percent in September, supported by the deep price discounting by manufacturers. Sales at gardening and building material stores fell 1.2 percent last month after surging 3.0 percent in September.

Receipts at service stations decreased 1.2 percent in October. That followed a 6.4 percent gain in September. Excluding automobiles, gasoline, building materials and food services, retail sales increased 0.3 percent last month after climbing 0.5 percent in September.

These so-called core retail sales correspond most closely with the consumer spending component of gross domestic product. Last month’s increase in core retail sales indicated a healthy pace of consumer spending at the start of the fourth quarter.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.4 percent annualized rate in the third quarter.

(Reporting by Lucia Mutikani; Editing by Paul Simao)

Global stocks dip on U.S. tax reform doubt; no respite in havens

Global stocks dip on U.S. tax reform doubt; no respite in havens

By Trevor Hunnicutt

NEW YORK (Reuters) – Global stock indexes and the U.S. dollar cooled off Friday as signs that U.S. tax reform could be delayed impeded the market’s momentum.

MSCI’s global stock index <.MIWD00000PUS>, which tracks shares in 47 countries, declined 0.15 percent, slipping further from a record level. On Thursday, the global index fell 0.4 percent following 10 straight days of gains. The dollar index <.DXY>, too, fell 0.06 percent.

The MSCI world index surged more than 20 percent so far this year, and some investors believe a pullback is due.

“The pause that the market is currently in is directly related to what’s going on from a tax standpoint,” said Jim McDonald, chief investment strategist for Northern Trust Corp.

Adding insult to injury, the pullback in stocks as well as softness in high-yield “junk” bonds this week did little to support traditional safe havens.

Benchmark 10-year U.S. Treasury notes <US10YT=RR> fell 21/32 in price to yield 2.4037 percent. The 30-year bond <US30YT=RR> fell 50/32 in price to yield 2.8845 percent. [US/]

Meanwhile, German government bond yields climbed to their highest in over a week as euro zone bonds were sold across the board for a second consecutive day. The yield on Germany’s benchmark 10-year government bond <DE10YT=TWEB> hit 0.40 percent for the first time since Oct. 27.

Spot gold <XAU=> dropped 0.7 percent to $1,275.61 an ounce. Gold pays no interest, so demand for it wanes when bonds offer higher yields. [GOL/]

Citigroup Inc equity trading strategist Alex Altmann said it is rare for government bonds and equities to be hit at the same time.

“It’s a classic hallmark of momentum strategies unwinding,” he said, referring to a investment strategy that favors buying recent winners and selling losers.

“We may not get that calm ride into the end of the year.”

Coal producer Canyon Consolidated Resources became the second junk-rated company to pull a bond sale this week, on Friday, capping a bout of volatility in credit markets.

TAX OVERHAUL

U.S. Republican senators said they wanted to slash the corporate tax rate in 2019, later than the House’s proposed schedule of 2018, complicating a push for the biggest overhaul of U.S. tax law since the 1980s.

The House was set to vote on its measure next week. But the Senate’s timetable was less clear.

“I would say a compromise will be reached,” said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

“But if they indeed decide to delay the tax cut by a year, there is likely to be some disappointment.”

Wall Street retreated a bit on concern over delays in corporate tax cuts, which would hike profits, though a rise in some media and industrial stocks limited the slide. [.N]

The Dow Jones Industrial Average <.DJI> fell 39.73 points, or 0.17 percent, to 23,422.21, the S&P 500 <.SPX> lost 2.32 points, or 0.09 percent, to 2,582.3 and the Nasdaq Composite <.IXIC> added 0.89 point, or 0.01 percent, to 6,750.94.

The pan-European STOXX 600 <.STOXX> index suffered its worst week in three months, down 0.4 percent on Friday and falling for a fourth day in row. [.EU]

“There’s a feeling out there that there’s a long-awaited correction, and no one wants to be caught by surprise,” said Emmanuel Cau, global equity strategist at JPMorgan Chase & Co.

Crude was down as expectations the Organization of the Petroleum Exporting Countries and other producers will extend their production cut agreement were offset by U.S. drillers adding the most oil rigs in a week since June, indicating output will continue to grow. [O/R]

U.S. crude <CLcv1> fell 0.56 percent to $56.85 per barrel and Brent <LCOcv1> was last at $63.61, down 0.5 percent on the day.

Bitcoin <BTC=> dropped below $7,000 on Friday to trade more than $1,000 down from an all-time high hit on Wednesday, as some traders dumped it for a clone called Bitcoin Cash.

(For a graphic on ‘Major MSCI Indexes Price Performance YTD’ click http://reut.rs/2zqsj4B)

(Additional reporting by Kit Rees and Helen Reid in London and Hideuyki Sano in Tokyo; Editing by Jennifer Ablan and James Dalgleish)

Dollar weakened by worries over delay to hoped-for cut in U.S. company taxes

Dollar weakened by worries over delay to hoped-for cut in U.S. company taxes

By Saqib Iqbal Ahmed

NEW YORK (Reuters) – The dollar slipped against a basket of currencies on Friday and was set for its biggest weekly drop in a month as investor disappointment that implementation of part of a planned big U.S. tax overhaul may be delayed until 2019 put a brake on the currency’s recent rally.

The dollar index <.DXY>, which tracks the greenback against six major currencies, was down 0.08 percent at 94.37. For the week, the index was down 0.6 percent, on pace for its worst performance since the week ending Oct. 13.

The greenback has also lost 0.5 percent against the Japanese yen this week.

U.S. Senate Republicans unveiled a tax plan on Thursday that differed from the House of Representatives’ version on several fronts, including deductions for state and local taxes, and the estate tax.

Complicating a Republican push for the tax revamp, senators said that, like the House, they wanted to slash the corporate tax rate to 20 percent from 35 percent, but in 2019 rather than right away.

“It just highlights the challenge in reconciling the two (plans),” said currency strategist Erik Nelson of Wells Fargo Securities in New York.

The House was set to vote on its measure next week after its tax-writing Ways and Means Committee approved the legislation on Thursday along party lines, with Democrats united in opposition.

The Senate’s timetable was less clear, with a formal bill yet to be drafted in that chamber, where Republicans have a much smaller majority and a narrower path to winning approval for any legislation, let alone one as contentious as a tax package.

“I think the markets are becoming concerned that this is not a serious piece of legislation and that there really is no political support necessary to pass it,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

The dollar index gained about 3 percent from mid-September through the end of last week, boosted by hopes of tax cuts.

“This week was a bit of a reality check for currency markets,” Wells Fargo’s Nelson said.

Sterling closed the week on firmer ground, climbing around half a percent against the dollar on Friday as better-than-expected data on British industry and rising confidence in the progress of Brexit talks supported the currency.

The pound was up 0.37 percent at $1.3197.

(Reporting by Saqib Iqbal Ahmed; Editing by Lisa Von Ahn and Frances Kerry)

Dollar hits nine-day low vs yen as rally runs out of steam

Dollar hits nine-day low vs yen as rally runs out of steam

By Jemima Kelly

LONDON (Reuters) – The dollar slipped to its lowest this month against the yen on Thursday, pressured by talk of possible delays to U.S. President Donald Trump’s tax reform plans as well as a risk-off mood.

The greenback had hit its highest levels in eight months against the Japanese currency at the start of the week <JPY=EBS>, boosted by strong risk appetite across markets, but has since fallen back by about 1.3 percent.

It fell as low as 113.25 yen on Thursday after a sudden fall in Japanese equities from multi-decade peaks dampened risk sentiment in Asian trade — a mood that continued into London trading hours, with European stocks also falling.

The yen is a low-yielding currency often used to fund investment in higher-yielding currencies and assets when risk sentiment is positive.

The dollar was also 0.3 percent down against a basket of major currencies <.DXY>.

The euro climbed to a six-day high of $1.1645 <EUR=>, having dropped as low as $1.1553 on Tuesday, its weakest since July 20.

“The dollar is running out of steam. There’s nothing to drive it higher,” said BMO Capital Markets currency strategist Stephen Gallo in London.

The “Trumpflation trade” — bets that Trump’s policies would boost growth and inflation, meaning a faster pace of U.S. interest rate increases — had driven the dollar to 14-year highs after his election and 10-year U.S. Treasury yields to their highest since 2014.

But they and the dollar have since fallen back.

A U.S. Senate tax-cut bill, differing from one in the House of Representatives, was expected to be unveiled on Thursday, complicating a Republican push for a tax overhaul.

Any potential delay in the implementation of tax cuts, or the possibility of proposed reforms being watered down, would tend to work against the dollar, analysts said.

“Disappointment over the tax reforms is driving the dollar lower. There is a lack of momentum behind the recent moves and the euro’s outlook remains bright as global money managers remain underweight in the single currency,” said Marc Ostwald, a strategist at ADM Investor Services International in London.

The New Zealand dollar touched a two-week high after comments from the country’s central bank on the inflation outlook were taken as hawkish as it kept interest rates unchanged as expected.

The currency rose as high as $0.6977, its strongest since Oct. 24, before dipping to trade flat on the day at $0.6969.

(Reporting by Jemima Kelly; Additional reporting by Saikat Chatterjee in London and Masayuki Kitano in Singapore; Editing by John Stonestreet and David Goodman)

Dollar slips on fears over U.S. tax reform troubles

Dollar slips on fears over U.S. tax reform troubles

By Jemima Kelly and Polina Ivanova

LONDON (Reuters) – The dollar slipped to a one-week low against the yen on Wednesday, weighed down by worries over possible delays to Donald Trump’s tax reform plans, evidence of the U.S. president’s waning popularity as well as lower Treasury yields.

The Washington Post, citing unidentified sources, reported on Tuesday that Senate Republican leaders are considering a one-year delay in the implementation of a major corporate tax cut to comply with Senate rules.

Any potential delay in the implementation of tax cuts, or the possibility of proposed reforms being watered down, would tend to work against the U.S. currency, analysts said.

The so-called “Trumpflation trade” – bets that Trump’s policies would boost growth and inflation, meaning a faster pace of interest rate hikes from the U.S. Federal Reserve – had driven the dollar to 14-year highs in the aftermath of his election, and 10-year U.S. Treasury yields to their highest since 2014 at more than 2.6 percent <US10YT=RR>.

They, and the dollar, have since fallen back.

There had been some talk of a revival of the Trumpflation trade, with the greenback rising to a 3-1/2-month high against a basket of currencies <.DXY> last month after the U.S. Senate approved a budget blueprint for tax reform.

But the latest report fed doubts over whether Trump could indeed push that program through.

“Fed rate expectations and the news flow regarding..tax reforms are two key elements in terms of the dollar’s performance,” said Jeremy Stretch, head of G10 foreign exchange strategy at CIBC Capital Markets in London.

“We have seen rate support for the dollar in terms of U.S. yields diminishing…so I think that’s certainly limiting dollar gains and keeping the dollar index away from … recent highs,” he added.

The dollar was last down 0.4 percent at 113.52 yen <JPY=>, its weakest so far this month, falling from an eight-month high of 114.735 touched on Monday.

It was also down 0.1 percent against its basket at 94.870 and down 0.1 percent against the euro, which was trading at $1.1591 <EUR=>.

“If the story is true that they’re considering a delay of one year to the corporate tax cut,…big differences (among members of Congress) will need to be sorted, so we continue to be dubious on that proceeding,” said MUFG’s European head of global markets research in London, Derek Halpenny.

Halpenny added that a Wall Street Journal poll on Tuesday showing Trump’s approval rating falling sharply, even in counties that had voted for him, was adding to a picture of an increasingly unpopular president, which could potentially embolden members of Congress to oppose his plans and further weaken the dollar.

(Reporting by Jemima Kelly and Polina Ivanova in London; Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Emelia Sithole-Matarise)

World stocks index dips after breaking record, oil near 2-1/2-year high

World stocks index dips after breaking record, oil near 2-1/2-year high

By David Randall

NEW YORK (Reuters) – A global rally in stocks paused on Tuesday, halting a nine-day advance that had sent the most widely tracked index of world stock markets to record highs.

All three of Wall Street’s major indexes dipped in U.S. afternoon trading, sending the MSCI 47-country ‘All World’ index <.MIWD00000PUS> down slightly after it had hit record highs above 500 points after Japan’s Nikkei <.N225> notched its best level since 1992 and Germany’s DAX <.GDAXI> scored a record high. The index is up nearly 20 percent for the year to date.

“You’ve had almost a perfect backdrop for equities,” said Pictet Asset Management’s global strategist Luca Paolini. “You have acceleration in nominal growth, earnings are between 10-15 (percent higher) globally and whatever you look at is pretty much in double digits.”

After hitting all-time highs shortly after the opening bell, the Dow Jones Industrial Average <.DJI> fell 11.21 points, or 0.05 percent, to 23,537.21, the S&P 500 <.SPX> lost 2.8 points, or 0.11 percent, to 2,588.33 and the Nasdaq Composite <.IXIC> dropped 24.31 points, or 0.36 percent, to 6,762.13.

Financial stocks <.SPSY> led the U.S. market lower, with the S&P 500 financial sector losing 1.2 percent, the largest decline of any sector. U.S. Treasury yields hit a two-week low.

Oil prices fell slightly after posting the biggest rise in six weeks following the Saudi crown prince’s move to tighten his grip on power and crank up tensions between the kingdom and Iran.

U.S. crude <CLcv1> fell 0.28 percent to $57.19 per barrel and Brent crude futures <LCOcv1> were last at $63.73, down 0.84 percent after touching a peak of $64.65.

The dollar was also on the move amid signs of more change at the Federal Reserve, while President Donald Trump’s Republican party pushes ahead with its tax cut program.

The dollar index <.DXY> rose 0.24 percent, with the euro <EUR=> down 0.28 percent to $1.1576 – the single currency’s lowest since mid-July. The Japanese yen weakened 0.23 percent to 113.97 per dollar <JPY=>, while sterling <GBP=> was last trading at $1.3153, down 0.13 percent on the day.

The Mexican peso lost 0.83 percent to 19.17 pesos to the U.S. dollar <MXN=>. The Canadian dollar <CAD=> fell 0.61 percent versus the greenback at C$1.28 per dollar.

Benchmark 10-year notes <US10YT=RR> last rose 2/32 in price to yield 2.3127 percent, from 2.32 percent late on Monday.

The 30-year bond <US30YT=RR> last rose 12/32 in price to yield 2.7778 percent, from 2.796 percent late on Monday.

Germany’s 10-year bond yields <DE10YT=RR> held near two-month lows at 0.338 percent after the European Central Bank firmed up its plans to reinvest the proceeds of its 2.5 trillion euro stimulus program. [GVD/EUR]

(Reporting by David Randall; Editing by Dan Grebler and James Dalgleish)