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Dollar Extends Weekly Surge on Yellen Commentary

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The dollar extended its advance after Federal Reserve Chair Janet Yellen signaled an interest-rate hike could be imminent, while metals declined. European stocks advanced.

The Bloomberg Dollar Spot Index climbed 0.4 percent to trade at its highest level since February. The yen retreated 0.4 percent. Japan’s Nikkei 225 Stock Average extended its rally from a June low to more than 20 percent after the S&P 500 Index came within four points of a record on Thursday. Equities in Europe rose for a second day. The greenback’s gain weighed on oil, gold and copper, with the industrial metal set for its first weekly slide in four weeks. Global bonds headed for their steepest two-week loss in at least 26 years.

In her first public statement since the U.S. election, Yellen told lawmakers that the Fed is close to boosting borrowing costs as the economy continues to gain traction. The comments torpedoed Treasuries, while American financial stocks pushed their rally since Donald Trump’s presidential victory back above 10 percent Thursday. Speculation that he will boost fiscal stimulus continues to lift industries that are perceived to benefit from economic growth.

“Right now it is a dollar-dominated story,” Philip Borkin, a senior economist in Auckland at ANZ Bank New Zealand Ltd., said in a client note. “But beyond a Fed rate hike next month, many questions remain over the path of policy going forward – for both fiscal and monetary.”

Stocks

The Stoxx Europe 600 Index added 0.3 percent as of 8:07 a.m. in London, heading for a 1.2 percent weekly advance. Industrial shares contributed the most to the measure’s Friday rally, while mining companies fell with commodities prices.

Shippers and carmakers led gains on the Topix index in Tokyo, which rose 0.4 percent. The Nikkei 225 closed at its highest level since January.

Telecommunications and consumer stocks drove Australia’s S&P/ASX 200 Index up 0.4 percent, while South Korea’s Kospi index slipped 0.3 percent. Hong Kong’s Hang Seng China Enterprises Index advanced 0.2 percent, while the Shanghai Composite Index dropped 0.5 percent on the mainland.

S&P 500 futures slipped 0.1 percent to at 2,181.75, following a 0.5 percent advance in the underlying benchmark Thursday. Bank shares led the index to its highest level since Aug. 15, when the gauge reached an all-time high.

“Markets have arrived at a point where they need to weigh the risks of being caught out by the potential stimulatory impacts of the Trump administration’s policies, against the risk of being caught by those policies not being implemented,” Ric Spooner, chief market analyst in Sydney at CMC Markets, said in an e-mail.

Abe said Trump was a trustworthy leader after meeting with the U.S. president-elect in New York. The Japanese premier said his talks with Trump took place in a “warm atmosphere” inside Trump Tower, potentially mitigating concern over the Republican’s election back home. During the campaign, Trump vowed to drop the Trans-Pacific Partnership trade deal and also accused Japan of manipulating the yen.

Currencies

Bloomberg’s dollar gauge, which tracks the greenback against 10 major peers, climbed for a third session.

Odds on the Fed raising the benchmark rate are now at 96 percent, up from 80 percent a week ago and less than 65 percent a month ago, according to futures trading tracked by Bloomberg.

“The fact that she didn’t push back against market expectations for a December hike is perhaps the most significant takeaway,” said Jack Spitz, managing director for foreign exchange at National Bank of Canada in Toronto, referring to Fed Chair Yellen. “The dollar is higher as a result.”

The yen weakened 0.4 percent to 110.62 per dollar and is on track for its second weekly retreat of more than 3 percent.

The won slipped 0.6 percent. Malaysia’s ringgit retreated 0.5 percent as the nation’s central bank said it’s intervening in the currency market. China’s yuan slid to its weakest level since June 2008.

Bonds

The bond selloff deepened Friday, with yields on U.S., European and Asia-Pacific sovereign debt increasing. The Bloomberg Barclays Global Aggregate Index fell 4 percent from Friday Nov. 4 through Thursday. It’s the biggest two-week rout in the data, which go back to 1990.

Yields on Australia’s 10-year notes jumped 15 basis points to 2.72 percent. Yields on similar-maturity Italian debt rose 9 basis points, while those on Treasuries increased two basis points to 2.33 percent, extending the eight basis-point jump last session.

Commodities

Gold tumbled to the lowest in more than five months, dropping as much as 1.1 percent to $1,202.96 an ounce. The precious metal has plunged as investors digested the implications of Trump’s policies, which may boost the economy and lead to higher borrowing costs. Rising bond yields and a stronger dollar are also weighing on gold, which doesn’t pay interest.

Oil futures declined 1.6 percent in New York, trimming the first weekly advance since late October.

Nickel fell 1.4 percent in London to lead declines by industrial metals. Copper retreated 0.8 percent, heading for a weekly loss after entering a bull market last week. The global glut in the metal used in cables and wiring will endure for another year in 2017, and it’s too early to know if the surprise price surge this month heralds a sustained trend, according to Ivan Arriagada, chief executive officer of Antofagasta Plc, one of Chile’s biggest producers.

Source: Bloomberg