Dollar rises on Fed bets as Europe stock futures gain

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Hong Kong - The dollar strengthened for a sixth day versus the yen and Asian bonds fell as American manufacturing data and hawkish comments from a Federal Reserve official spurred bets that U.S. interest rates will be raised this year. European equity index futures gained.

A gauge of the greenback’s strength climbed to a two-week high and yields on benchmark US Treasuries increased for a third day. Sovereign  bonds in Australia dropped by the most this year and South Korea’s had their biggest loss in three weeks as trading resumed following holidays on Monday.

About twice as many shares rose as fell on the MSCI Asia Pacific Index, with Japanese exporters getting a boost from the depreciating yen. Crude oil retreated from a three-month high.

American manufacturers’ output and new orders expanded in September, spurring confidence that the world’s biggest economy is robust enough to withstand higher interest rates.

Fed Bank of Cleveland President Loretta Mester said Monday she expects the case for a rate hike to remain “compelling” at the next review in November, having been one of three policy makers to dissent in favour of an increase at the September meeting.

The probability of US borrowing costs being raised by December stood at 61% on Monday, up 10 percentage points from a week earlier, futures show.

“The data is suggesting the Fed will likely raise rates in December,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney. “We’ll probably have a couple of months of stronger data gauging from the strength of new orders. The yen weakness is supportive of Japanese exports.”

Currencies

The Bloomberg Dollar Spot Index rose 0.3% as of 08:13, advancing ahead of a speech by Fed Bank of Richmond President Jeffrey Lacker that may touch on the outlook for US monetary policy. The yen slid 0.6% versus the dollar, extending its longest run of losses since August.

“Better-than-expected US data are reminding markets that November remains a live meeting” for the Fed, said Christopher Wong, a foreign-exchange strategist at Malayan Banking Bhd. in Singapore.

The pound fell as much as 0.2% to $1.2817, near a July level of $1.2798 that was the weakest in three decades. British Prime Minister Theresa May said over the weekend that she’ll begin the process of withdrawal from the European Union in the first quarter of 2017 and curb immigration, stoking speculation the UK is headed toward a so-called hard Brexit - with limited access to the EU’s single market.

Australia’s dollar traded near its strongest level of the past three weeks after the central bank kept its benchmark interest rate at a record-low 1.5% following Philip Lowe’s first policy meeting as governor. The decision was forecast by all 28 economists in a Bloomberg survey.

India’s rupee was little changed for a second day ahead of the central bank’s first policy meeting since a leadership change.

A six-member panel comprising Reserve Bank of India officials including Governor Urjit Patel and three academics are set to take the nation’s first-ever collective rate decision and 44% of the economists surveyed by Bloomberg forecast borrowing costs will be cut.

Bonds

Australia’s 10-year bonds fell 1% from Friday’s close and their yield surged 12 basis points to 2.07%. South Korean bonds due in a decade snapped a seven-day winning streak, lifting their yield by five basis points to 1.46%.

The rate on similar-maturity US Treasuries was steady at 1.62%, after climbing six basis points over the last two sessions. A Treasury market gauge of inflation expectations advanced to a four-month high on Monday, spurred by Mester’s comments and an increase in oil prices.

Japan’s 10-year bonds reversed earlier losses after demand strengthened at a sale of the tenor, with the bid-to-cover ratio increasing to the highest since June. The securities yielded minus 0.075%, compared with minus 0.055% ahead of the auction.

Stocks

The MSCI Asia Pacific Index added 0.1%, after gaining 0.6% on Monday. Japan’s Topix climbed 0.7%, with Toyota advancing 1.9%. 

“Overall, the US economy appears to be on a growth track,” said Mitsuo Shimizu, a deputy general manager at Japan Asia Securities in Tokyo. “As some had been expecting a deterioration in the manufacturing figures, alleviation of such worries will help Japanese shares rise.”

China Evergrande Group jumped as much as 12% in Hong Kong after announcing a plan to shift most of its property assets into a listed company in Shenzhen, where valuations are higher.

Futures on the Euro Stoxx 50 Index rose 0.3% and S&P 500 Index contracts added 0.1%.

Commodities

Crude oil fell 0.6% to $48.53 a barrel in New York, losing ground for the first time in a week before data that’s forecast to show US crude stockpiles expanded.

Production from Libya, among countries exempt from an OPEC output cut, rose to 500 000 barrels a day and will climb further this month, a state oil company official said.

Gold fell for a sixth day, its longest losing streak since August. Growing expectations for a US rate hike weigh on the metal as it doesn’t bear interest.

Industrial metals were mixed in London, with zinc advancing 0.3% and nickel declining 0.2%. An LME index tracking the metals moved into a bull market last week as economic data pointed to a stronger economic outlook for China, the top commodities consumer.

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