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Dow Passes 21,000, Dollar Jumps as Rate Hike Looms

By Jeremy Herron

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The Dow Jones industrial average surged 300 points to top 21,000 for the first time, the dollar advanced and Treasuries fell as investors grew increasingly confident global economic growth is accelerating, clearing the path for higher interest rates in America.

Major lenders led gains among equities, with Goldman Sachs Group Inc. and JPMorgan Chase & Co. trading at all-time highs as the odds for a rate hike in two weeks swelled past 65% and President Donald Trump’s address to Congress did little to alter views that his administration will seek pro-growth policies. Industrial and energy shares also surged as the S&P 500 Index rallied the most since the day after the election.

(Related on ThinkAdvisor: Fed Officials See Rate Hike ‘Fairly Soon,’ Minutes Show)

The dollar rallied a day after two Federal Reserve officials said the case for lifting borrowing costs March 15 has strengthened. Robust factory data from China spurred gains in metal prices, while accelerating inflation in Germany added to European stock gains. The yield on 10-year Treasury notes topped 2.45% and crude rose.

Trump reiterated broad proposals for boosting spending and cutting taxes without providing specifics that could be seen as impeding Congress’s path to enact the policies. That left investors focused on the Fed and the pace of economic growth. Data showed U.S. manufacturing expanded last month at the fastest pace in three years, while German inflation accelerated above 2% for the first time since 2012, adding to signs of momentum in Europe’s largest economy.

“Fed speakers trump Trump,” Richard McGuire, the head of rates strategy at Rabobank International in London, wrote in a note. Trump’s speech lacked “fresh content for the market to trade off, with big tax cuts, deregulation and an infrastructure plan being mentioned but not supported by any details. Given this, all focus instead turned to the slew of hawkish rhetoric from Fed speakers.”

What traders are looking at in the days ahead:

Fed speakers aren’t finished. There are other officials lined up for this week, including Chair Janet Yellen, who will give an address on the economic outlook on Friday in Chicago. The Chinese People’s Political Consultative Conference, an advisory body of more than 2,000 political elites, business executives and others, opens its annual session in Beijing on March 3.

Here are the main moves in markets:

Stocks

The S&P 500 Index jumped 1.5% to a record 2,399.08 at 3:25 p.m. in New York, its biggest gain of the year. The benchmark index briefly topped 2,400 for the first time after finishing February with its best monthly gain since March.  Financial stocks surged 2.6%, the most since Nov. 14. The Dow rallied 334.31 points to 21,146.55, with JPMorgan and Goldman Sachs adding at least 2% to pace gains. European stocks climbed the most since Nov. 27, rising 1.5%. Banks led gains among all industries. Japan’s Topix index increased 1.2%, propelled by a weaker yen. 

Currencies

The Bloomberg Dollar Spot Index jumped 0.4%, climbing for a fourth straight day and heading for the highest level since Jan. 27.  The yen slumped 0.8% to 113.65 per dollar, for a third day of losses. The euro dropped 0.3% to $1.0550 and the British pound weakened 0.7% to $1.2291.

Bonds

Yields on 10-year Treasuries rose seven basis points to 2.46%, climbing for a third straight day to the highest level since Feb. 15. German bonds fell, with the yield on 10-year benchmarks adding seven basis points to 0.28% after regional data showed accelerating inflation.  French bonds came under more election risk after Republican candidate Francois Fillon said he would stay in the presidential race, diverting votes away from independent Emmanuel Macron, the favorite to beat National Front leader Marine Le Pen on May 7. The yield on the benchmark note due in a decade rose two basis points to 0.91%.

Commodities

Gold dropped for a third day, falling 0.4% to $1,249.30 an ounce after completing a 3.1% gain in February. West Texas Intermediate Crude fell 0.3% to $53.82. Oil ended last month 2.3% higher. Copper added 0.7%, advancing for a fourth straight session.

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