Tag Archives: investments

U.S. inflation pressures rise in July; Fed on track to lift rates

FILE PHOTO: A woman shops with her daughter at a Walmart Supercenter in Rogers, Arkansas, U.S., June 6, 2013. REUTERS/Rick Wilking/File Phot

By Lindsay Dunsmuir

WASHINGTON (Reuters) – U.S. consumer prices rose in July and the underlying trend continued to strengthen, pointing to a steady increase in inflation pressures that keeps the Federal Reserve on track to gradually raise interest rates.

The Labor Department said on Friday its Consumer Price Index advanced 0.2 percent, the bulk of which was due to a rise in the cost of shelter, driven by higher rents. The CPI rose 0.1 percent in June.

In the 12 months through July, the CPI increased 2.9 percent, matching the increase in June.

Excluding the volatile food and energy components, the CPI rose 0.2 percent, the same gain as in May and June. The annual increase in the so-called core CPI was 2.4 percent, the largest rise since September 2008, from 2.3 percent in June.

Economists polled by Reuters had forecast both the CPI and core CPI rising 0.2 percent in July.

U.S. Treasury yields held near three-week lows and U.S. stocks fell on anxiety about Turkey’s financial woes and its deepening rift with the United States. The U.S. dollar was trading higher against a basket of currencies.

“As the July CPI figures make clear, underlying price pressures are still mounting,” said Michael Pearce, senior U.S. economist at Capital Economics in New York.

The Fed more closely tracks a different inflation measure, the personal consumption expenditures (PCE) price index excluding food and energy, which increased 1.9 percent in June.

That gauge hit the U.S. central bank’s 2 percent target in March for the first time in more than six years and Fed policymakers have said they will not be unduly concerned if it overshoots its target in the coming months.

The U.S. central bank has raised rates twice this year, in March and June, and financial markets overwhelmingly expect a hike at the next policy meeting in September.

The Fed currently forecasts a total of four rate rises in 2018, with investors expecting a final nudge upwards of the year in the benchmark overnight lending rate in December.

Inflation pressures are seen continuing to build amid low unemployment and increasing difficulty reported by employers in filling positions. Rising raw material costs are also expected to push up inflation as manufacturers pay more, in part because of tariffs imposed by the Trump administration on lumber, aluminum and steel imports.

Last month, gasoline prices fell 0.6 percent after increasing 0.5 percent in June. Food prices edged up 0.1 percent after rising 0.2 percent in June.

Owners’ equivalent rent of primary residence, which is what a homeowner would pay to rent or receive from renting a home, advanced 0.3 percent last month after increasing by the same margin in June. Overall, the so-called shelter index rose 3.5 percent in the 12 months through July.

Healthcare costs fell 0.2 percent after gaining 0.4 percent in June. Prices for new motor vehicles rose 0.3 percent in July following a 0.4 percent increase in the prior month. Apparel prices were down 0.3 percent after a 0.9 percent drop in June.

(Reporting by Lindsay Dunsmuir; Editing by Paul Simao)

Twelve charts to watch for signs of the next U.S. downturn

FILE PHOTO: The Dow Jones Industrial average is displayed on a screen after the closing bell at the New York Stock Exchange (NYSE) in New York, U.S., May 29, 2018. REUTERS/Brendan McDermid/File Photo

By Megan Davies

NEW YORK (Reuters) – Economists and investors are watching for signs they hope can predict when the wheels will come off a near-record U.S. economic expansion and equities bull market.

Some are already worried about a flattening Treasuries yield curve and slowing housing market, even as other economic vital signs remain healthy.

U.S. economic growth will probably slow gradually over the next two years and the threat of a trade war has made a recession more likely, a recent Reuters poll predicted.

A majority of bond market experts in a separate poll now predict a yield curve inversion in the next one to two years, a red flag for those who believe short-term yields rising above longer-term yields means an imminent recession.

“Almost every client meeting includes questions about where the economy and markets sit in the cycle,” JPMorgan head of cross-asset fundamental strategy John Normand wrote in a recent research note.

The U.S. economy is a year away from surpassing the record 120-month 1991-2001 expansion, according to data from the National Bureau of Economic Research.

The stock market bull run is also nearing a record. Bull markets are typically measured retroactively, but U.S. equities could hit their longest bull run in history on Aug. 22, according to S&P.

The U.S. economy is “late cycle” but a recession is not imminent, a number of economists and strategists say.

“We believe that the U.S. economic expansion is entering the final third of its cycle,” wrote analysts at Wells Fargo Investment Institute, although they said various indicators do not suggest a recession this year.

1. THE YIELD CURVE

The U.S. yield curve plots Treasury securities with maturities ranging from 4 weeks to 30 years. The spread between two-year and 10-year notes is typically used when discussing yield curve inversion. The gap between long- and short-dated yields turning negative has been a reliable predictor of recessions. The yield curve has been flattening in recent months.

2. SHORT-TERM BILLS

An alternative yield curve measures the difference in the current interest rate on 3-month Treasury bills and expectations for the yields 18 months from now. Federal Reserve officials have found this measure is a stronger predictor of recession in the coming year. The measure currently suggests little recession risk.

3. UNEMPLOYMENT

The unemployment rate and initial jobless claims ticked higher just ahead or in the early days of the last two recessions before rising sharply. Unemployment hit an 18-year low in May of 3.8 percent but nudged up to 4 percent in June.

4. OUTPUT GAP

The output gap between the economy’s actual and potential gross domestic product has fallen ahead of the last two recessions.

“Currently we estimate that the output gap is nearly closed, but not yet in the ‘overheating’ territory,” wrote Kathy Bostjancic, head of U.S. investor services at Oxford Economics, in May.

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

FILE PHOTO: A trader works in a work space on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 24, 2018. REUTERS/Brendan McDermid/File Photo

5. STOCK MARKETS

Falling equity markets can signal a recession is looming or has already started to take hold. Markets turned down before the 2001 recession and tumbled at the start of the 2008 recession.

On a 12-month rolling basis, the market has turned down ahead of the last two recessions. The 12-month rolling average percent move is now below its 2018 peak but higher than recent lows.

6. BOOM-BUST BAROMETER

The Boom-Bust Barometer devised by Ed Yardeni at Yardeni Research measures spot prices of industrials inputs like copper, steel and lead scrap, and divides that by initial unemployment claims. The measure fell before or during the last two recessions and is below its 2018 peak.

7. HOUSING MARKET

Housing starts and building permits have fallen ahead of some recent recessions. Housing starts and permits fell to the lowest level since September 2017 in June.

8. EARNINGS GROWTH

S&P 500 earnings growth dipped ahead of the last recession. Earnings growth is expected to slow slightly this year and more next year, but remain in the high single digits or low double digits in 2019.

9. SOUTH KOREA EXPORTS

South Korean exports fell during the last recession and before the previous recession.

Those exports, which include cars, phones, steel and other products, tend to be a leading indicator, said Bank of America Merrill Lynch chief investment strategist Michael Hartnett. Exports from China are also increasingly important as weak Asian exports tend to coincide with weak global and U.S. growth.

South Korea’s export growth came to a halt in June. China, the world’s largest exporter, reported exports accelerated in June.

The United States and China have fired the first shots in what could become a protracted trade war. The United States and South Korea agreed in March to revise a trade pact.

10. HIGH-YIELD SPREADS

The gap between high-yield and government bond yields rose ahead of the 2007-2009 recession and then widened dramatically. Credit spreads typically widen when perceived risk of default rises. Spreads have fallen slightly this year.

11. INVESTMENT-GRADE YIELDS

Risk premiums on investment-grade corporate bonds over comparable Treasuries have topped 2 percent during or just before six of the seven U.S. recessions since 1970. Spreads on Baa-rated corporate bonds rose to 2 percent this month based on Moody’s Investors Services data, according to Leuthold Group’s chief investment strategist Jim Paulsen.

12. MISERY INDEX

The so-called Misery Index adds together the unemployment rate and the inflation rate. It typically rises during recessions and sometimes prior to downturns. It has nudged higher in 2018 but is still relatively low.

(Additional reporting by Richard Leong, Dan Burns, Jenn Ablan and Howard Schneider; Editing by Meredith Mazzilli)

Turkey’s lira hammered after Erdogan says wants greater economic control

By Daren Butler and Nevzat Devranoglu

ISTANBUL (Reuters) – Investors hammered Turkey’s lira on Tuesday, sending it to a record low after President Tayyip Erdogan said he plans to take greater control of the economy after next month’s election, deepening concerns about his influence on monetary policy.

Erdogan’s comments, in an interview with Bloomberg Television in London, reinforced long-standing worries about the central bank’s ability to fight double-digit inflation amid the president’s drive for lower interest rates.

He said the central bank, while independent, would not be able to ignore signals from the new executive presidency that comes into effect after the June polls. A self-described “enemy of interest rates”, Erdogan wants borrowing costs lowered to fuel credit and new construction.

“I will take the responsibility as the indisputable head of the executive in respect of the steps to be taken and decisions on these issues,” he said in the interview broadcast on Tuesday.

Turkey has called snap presidential and parliamentary elections for June 24 and polls show Erdogan as the strongest candidate to win the presidential vote. Turks narrowly backed a switch to an executive presidency in a referendum last year. That change is due to go into effect after the vote.

Erdogan’s comments helped pushed the ailing lira  to a fresh record low of 4.4604 against the dollar, bringing its decline this year to more than 14 percent.

It clawed back some of its losses after one of his advisers, Cemil Ertem, said the central bank had the independence to use all the tools at its disposal.

Yields on 10-year government bonds briefly touched their highest since at least January 2010.

 

PRESIDENT RESPONSIBLE

“Centralization of power and interference in the monetary policy is a concern to us,” said Dietmar Hornung, an associate managing director and head of European Sovereigns at ratings agency Moody’s, at a conference in London.

However, Erdogan’s economic adviser Ertem said the reduction of rates was a general target, rather than a specific aim of the bank’s next rate-setting meeting on June 7 – comments likely designed to take some pain off the lira.

“President Erdogan’s emphasis is not directed towards June 7. What the president says is that interest rates should be reduced as a target,” he told Reuters.

Erdogan said citizens would ultimately hold the president responsible for any problems generated by monetary policy.

“They will hold the president accountable. Since they will ask the president about it, we have to give off the image of a president who is effective in monetary policies,” he said.

“This may make some uncomfortable. But we have to do it. Because it’s those who rule the state who are accountable to the citizens,” he said.

He also said Halkbank <HALKB.IS> executive Mehmet Hakan Atilla, who was found guilty by a U.S. court of helping Iran evade U.S. sanctions, was innocent and Turkey wanted his acquittal.

“If Hakan Atilla is going to be declared a criminal, that would be almost equivalent to declaring the Turkish Republic a criminal,” he said.

To view a graphic on Turkey inflation and central bank funding, click: https://reut.rs/2rhsMkh

(Additional reporting by Marc Jones in London; Writing by Daren Butler and David Dolan; Editing by Janet Lawrence)

Too many cancer drugs? Crowded market gives investors pause

FILE PHOTO: A scientist prepares protein samples for analysis in a lab at the Institute of Cancer Research in Sutton, July 15, 2013. REUTERS/Stefan Wermuth/File Photo

By Ben Hirschler

LONDON (Reuters) – In London’s world-famous Great Ormond Street children’s hospital, Dr. Karin Straathof is excited about a new cell-based medicine that offers hope for toddlers with incurable nerve tissue cancer.

Her progress with a handful of children for whom standard care does not work reveals the promise of modern cancer drugs, an increasingly crowded pharmaceuticals field from which investors must try to select future winners.

The new therapy using engineered white blood cells has shown anti-tumor activity in the hardest to treat neuroblastoma patients.

“The beauty is that it is very specific in targeting the cancer cells, while leaving healthy tissue unharmed,” Straathof told Reuters, after presenting her early findings at a science meeting in Chicago in April. “It’s an important step forward.”

Autolus – the small British biotech company developing the chimeric antigen receptor T-cell or CAR-T treatment – is equally excited, and is planning a potential IPO on Nasdaq.

But Autolus is far from alone in pursuing CAR-T therapy. In fact, CAR-T treatment – part of the wider field of cancer immunotherapy – is one of the hottest areas of drug research today, with multiple firms piling in.

The biotech dollars are flooding in not only in Europe and the United States but also in China which, with 162 clinical trials, now boasts more CAR-T studies than the United States, according to a Reuters analysis of the latest data.

With over 2,000 drugs in the cancer immunotherapy space, the competitive landscape has never been more crowded as each firm seeks its own proprietary version of often similar drugs.

Overall, researchers are working on more than 5,200 cancer drugs, up 7.6 percent from a year ago, according to the Pharmaprojects database. The sheer number is stretching the ability of scientists to find enough patients to test them on.

Cancer now makes up 34.1 percent of the total drug industry pipeline, up from 26.8 percent in 2010, as companies divert resources into a promising sector where new treatments can often fetch more than $100,000 a year.

‘MORE CIRCUMSPECT’

With the first two CAR-T treatments from Novartis and Gilead Sciences winning U.S. approval last year for rare blood cancers, the promise of such smart medicine is real and life-changing – especially if it can be made to work in solid tumors, as Straathof’s work suggests is possible.

However, the wholesale rush by pharmaceutical and biotech companies into the cancer area poses a dilemma for investors.

A flood of similar products makes it hard for investors to pick those companies that will achieve commercial success.

“More competition means you should be more circumspect,” said Nooman Haque, head of life sciences at Silicon Valley Bank in London, which provides financing for start-ups and venture capitalists.

“The traditional investment thesis in biotech is to have a differentiated medicine with not many competitors, which helps drive value. Here the problem is that even if there is a big patient benefit, there are questions as to how long your advantage lasts and what your commercial edge will be.”

Pharmaceutical executives are not blind to the issue, although each hopes to find a winning formula in immunotherapy – the fastest-growing part of the $100 billion-a-year cancer drug market, with sales expected to top $25 billion by 2021, according to analyst forecasts compiled by Thomson Reuters.

Roche <ROG.S> CEO Severin Schwan, head of the world’s top cancer company, says he expects “an enormous drop-out”, while Sanofi’s  outgoing research head Elias Zerhouni warned analysts last week that duplication of effort would shrink the time available for drugmakers to recoup their  investments.

“The cycle of innovation has been shortened significantly,” agrees Aiman Shalabi, chief medical officer at the non-profit Cancer Research Institute. “There is no doubt we are seeing fast follow-on and many identical agents hitting the same targets.”

The good news for society is that patients will find out much faster than in the past if new approaches work. But that means doctors can rapidly switch to alternatives, leading to increased product churn and uncertainty over future sales.

COMBINATION STUDIES

Twenty years ago, when Roche launched its state-of-the-art cancer drugs Herceptin and Rituxan, it enjoyed years without rivals. Today, there are multiple versions of new drugs targeting molecular pathways with acronyms such as PD-1/L1, PARP and CDK, as well as CAR-T.

“You’re either first or you’re best or you’re nowhere because it has become such a race,” said Paul Major, an investment manager at BB Healthcare Trust, who is cautious about investing in cancer immunotherapy.

Lydia Haueter at Pictet Asset Management is also wary, pointing out there are already five PD-1/L1 drugs on the market – from Merck, Bristol-Myers Squibb, Roche, AstraZeneca and Pfizer – and more are coming.

“It seems everybody has a PD-1, so we especially don’t go for those kind of cancer companies,” she said.

Some drugmakers like GlaxoSmithKline <GSK.L> and Novartis that missed the initial PD-1/L1 wave are trying to make a virtue of looking ahead to the next phase of cancer immunotherapy, particularly drug combinations.

Yet last month’s failure of a combination study using a next-generation drug from Incyte with Merck’s PD-1 Keytruda shows that adding a new agent is no slam dunk for expanding the reach of immune-boosting medicine.

At Great Ormond Street, Straathof is less concerned about doubling up on research and more focused on getting effective, affordable cures – and she hopes automated processes will eventually bring down today’s sky-high drug prices.

“I’m not too worried about duplication. It’s important to not ask the same question in two trials but I think there are a lot of questions to be addressed because there is a lot of nuance in the system.”

(Reporting by Ben Hirschler; Editing by Pravin Char)

Russian-North Korea projects foundering because of missile tests

A guard walks along a platform past signs, which read "Russia" (L) and "DPRK"(Democratic People's Republic of Korea), at the border crossing between Russia and North Korea in the settlement of Tumangan, North Korea July 18, 2014.

By Polina Nikolskaya and Katya Golubkova

MOSCOW (Reuters) – Commercial ventures planned between Russia and North Korea three years ago are not being implemented because of Pyongyang’s missile testing program, the Minister for the Development of the Russian Far East, Alexander Galushka, said.

Russia has been under international scrutiny over North Korea because it has taken a more doveish approach to Pyongyang than Washington, and Russian trade with North Korea increased sharply at the start of this year.

The United States government earlier this month imposed new North Korea-related sanctions that targeted Russian firms and individuals for, it alleged, supporting Pyongyang’s weapons programs and providing oil.

However Galushka, in an interview with Reuters, said Moscow was faithfully implementing the international sanctions regime on North Korea, and held up the stalled bilateral projects as an indication that Pyongyang was paying an economic price for its weapons program.

“Russia has not violated, does not violate and will not work outside the framework (of the resolution) that was accepted by the U.N. Security Council,” said Galushka, who also heads a Russia-North Korean Intergovernmental Commission.

Russian businesses discussed a number of projects with North Korea in 2014. But then North Korea conducted military tests, including some involving nuclear weapons, and the projects became difficult to implement, Galushka said.

One such project, called “Pobeda”, or “Victory,” would have involved Russian investments and supplies that could be exchanged for access to Korean natural resources.

“We told our North Korean partners more than once … that it hampers a lot, makes it impossible, it restricts things, it causes fear,” Galushka said, referring to the weapons testing.

Another joint project between the two countries is a railway link with North Korea, from the Russian eastern border town of Khasan to Korea’s Rajin.

It is operating but below its potential. The link could work at a capacity of 4 million tonnes a year, officials have said previously, but now it only carries around 1.5 million tonnes of coal per year, according to Galushka.

UN sanctions also prohibit countries from increasing the current numbers of North Korean laborers working in their territories.

According to Galushka, around 40,000 employees from North Korea worked in Russia. Mainly they are engaged in timber processing and construction.

Russian business is interested in access to the North Korea workforce, Galushka said, but the numbers will stay in line with what the sanctions permit.

He said 40,000 workers from North Korea “is a balance formed in the economy, neither more nor less.”

Bilateral trade between the two countries has been decreasing for the last four years, from $112.7 million in 2013 to $76.9 million in 2016, according to Russian Federal Customs Service statistics.

But it more than doubled to $31.4 million in the first quarter of 2017 in year-on-year terms. Most of Russia’s exports to North Korea are oil, coal and refined products.

Asked to explain why trade was rising if political issues were hurting commercial projects, a spokeswoman for Galushka’s ministry said in an email: “According to the latest data, there was an objective increase due to exports to North Korea, primarily oil products. But the export of oil does not violate the agreements of the UN countries in any way.”

The interview with Galushka took place before the U.S. imposed the sanctions targeting Russian entities and individuals for trading with North Korea.

Galushka’s ministry referred questions about the new sanctions to the Russian foreign ministry.

Maria Zakharova, a foreign ministry spokeswoman, told reporters Washington’s unilateral sanctions worsened tensions on the Korean peninsula, and that Russia is fulfilling its international obligations in full.

 

(Editing by Andrew Heavens)

 

World stocks reach new peak in world full of surprises

Traders work in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, August 4, 2017.

By John Geddie

LONDON (Reuters) – World stocks breached record highs on Monday as better-than-expected company earnings and economic data from the United States stole the focus from rising geopolitical tension over North Korea’s nuclear program.

The U.S. dollar  dipped slightly but held on to most of Friday’s gains – its biggest daily rise this year – made after data showed the United States created more jobs than forecast last month.

For those watching second quarter corporate results in recent weeks, there have been many such surprises. Of the nearly 1000 companies in the MSCI world index that have reported, 67 percent have beaten expectations, according to Reuters data.

These two factors helped nudge the flagship share index above a peak breached late last month, setting a new all-time high of 480.09 on Monday.

The Dow Jones, which recorded its eighth consecutive record high on Friday, was set to open up slightly on Monday.

“Global equities remain the preferred asset class for investors and this can be clearly seen in the new highs hit by world indices today,” said Edward Park, investment director at Brooks Macdonald.

“Whilst the headline beat in non-farm payrolls was the primary positive for the market … equity prices are supported by a strong earnings season and relatively low event risk over the next few months.”

Aside from a slight weakening in the Korean won, there was little financial market reaction to the news over the weekend that the U.N. Security Council unanimously imposed new sanctions on North Korea aimed at pressuring Pyongyang to end its nuclear program.

South Korean President Moon Jae-in and his U.S. counterpart, Donald Trump, agreed in a telephone call on Monday to apply maximum pressure and sanctions on North Korea, while China expressed hope that North and South Korea could resume contact soon.

Yields on U.S. and German government bonds – seen as a safe haven in times of stress – held above one-month lows hit at the tail end of last week.

 

ASIAN GAINS

A strong rise in U.S. and Asian stocks propelled the world index to a new high, with the strength of the euro providing a bit of a headache for European markets.

Earlier in Asian trading, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.5 percent while Japan’s Nikkei added 0.5 percent.

Chinese blue chips were bolstered by data showing the country’s foreign exchange reserves rose twice as much as expected in July.

A dramatic reduction in capital outflows – which are seen as one of China’s biggest risks – has helped boost confidence in the world’s second largest economy ahead of a key political leadership reshuffle in coming months.

The euro zone’s main stock index edged lower, however, as the single currency headed back towards 20-month high, a trend which appears to be denting profitability in certain sectors.

Of the MSCI Europe companies having reported, 61 percent have either met or beat expectations. But focusing on industrial firms – of which many depend on exports, and are sensitive to a stronger euro – the beat ratio is just 37 percent.

“The euro is likely to have an impact in the third quarter, with a 10 percent appreciation of the euro lowering earnings per share by around 5 percent,” said Valentin Bissat, senior strategist at Mirabaud Asset Management.

DOLLAR DOUBTS

The upbeat U.S. jobs data offers policymakers some assurance that inflation will gradually rise to the central bank’s 2 percent target, and likely clear the way for a plan to start shrinking its massive bond portfolio later this year.

But market pricing shows investors are still about evenly divided over whether the Fed will also opt to raise rates again in December.

For some analysts, Monday’s pull back in the dollar backs some views in markets that Friday’s rally may not have legs.

The dollar index, which tracks the greenback against a basket of six global peers, inched back 0.2 percent to 93.361. It rallied 0.76 percent on Friday, its biggest one-day gain this year.

The dollar slipped 0.2 percent against the euro to $1.1796 per euro, after surging 0.8 percent on Friday.

“The most logical view here is the moves on Friday were clearly just a sizeable covering of USD shorts, from what was one of the biggest net short positions held against the USD for many years,” Chris Weston, chief market strategist at IG in Melbourne, wrote in a note.

For the dollar rally to gain momentum, the market needs to change its interest rate pricing, Weston added.

In commodities, oil prices slid back from nine-week highs hit on Aug. 4 as worries lingered over high production from OPEC and the United States.

Global benchmark Brent crude futures were down 60 cents, or 1.14 percent, at $51.82 a barrel. They traded as low as $51.56 a barrel earlier in the day.

Gold  steadied as the dollar surrendered some of its gains, but remained under pressure. The precious metal was marginally lower at $1,257.41 an ounce, extending Friday’s 0.8 percent loss.

 

(Reporting by John Geddie in London and Nichola Saminather in Singapore Additional reporting by Helen Reid in London; Editing by Richard Balmforth)

 

Dollar inches higher as investors look to Fed decision this week

Arrangement of various world currencies including Chinese Yuan, US Dollar, Euro, British Pound,

By Gertrude Chavez-Dreyfuss

NEW YORK (Reuters) – The dollar edged higher from two-week lows on Monday, recovering after Friday’s bout of profit-taking following a robust U.S. jobs report, as investors looked to this week’s Federal Reserve’s policy meeting in which it is expected to raise rates by a quarter percentage point.

“We remain bullish on the dollar, but as Friday’s events suggested, a lot of good news is already priced into the dollar at current levels,” said Shaun Osborne, chief FX strategist, at Scotiabank in Toronto.

“Yields are high enough and spreads are wide enough to keep the dollar broadly supported against its major currency peers for the moment, but additional gains will likely hinge on the messaging from the Fed at the FOMC.”

The Federal Open Market Committee will hold a two-day monetary policy meeting, which starts on Tuesday. Fed funds futures on Monday have priced in a nearly 90-percent chance the Fed will hike rates on Wednesday.

Sterling, which has been one of the worst performers against the dollar over the last two weeks, rose half a percent after the devolved Scottish government demanded the right to hold a new referendum on independence.

In late morning trading, the dollar was slightly higher  against a basket of currencies at 101.31 and was marginally up against the euro. The single European currency was last at $1.0664.

The dollar index earlier fell to a two-week low of 101.01.

Friday’s solid jobs number cemented the case for a rise in U.S. interest rates this week that will long predate any rise in European equivalents.

Britain is expected to formally lodge its request to leave the European Union, but was given another curve ball from Scottish First Minister Nicola Sturgeon’s call for a new referendum on independence.

But Sturgeon’s timeframe for the referendum, which at the earliest could happen by the end of next year when Brexit negotiations are expected to be concluded, partially eased concerns about the issue adding to more political risk over the next 12 months.

Sterling, as a result, held gains against the dollar rising 0.5 percent to $1.2229.

Against the yen, the dollar slipped 0.1 percent to 114.68 yen.

Scotiabank, in a research note, said there is speculation on the potential for changes at the Bank of Japan, including a possible shift to 10-year government bond yield target range from the current zero level. This is considered positive for the yen.

(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Patrick Graham in London; Editing by Nick Zieminski)

Dow hits 12th record high close; Trump talks up infrastructure spending

Leaf Group CEO Sean Moriarty (4th L) stands amongst Leaf Group management and board members for the opening bell at the New York Stock Exchange (NYSE) in Manhattan, New York City, U.S.

By Caroline Valetkevitch

NEW YORK (Reuters) – U.S. stocks ended slightly higher on Monday and the Dow closed at a record high for a 12th straight session, as President Donald Trump said he would make a “big” infrastructure statement on Tuesday.

The Dow’s streak of record-high closes matches a 12-day run in 1987, with Boeing and UnitedHealth among the biggest boosts for the Dow on Monday. The S&P 500 also closed at a record high. Energy gave the biggest boost to the S&P 500, with the energy index up 0.9 percent.

Trump, who met with state governors at the White House, also said he is seeking what he called a “historic” increase in military spending of more than 9 percent, while he said his administration would be “moving quickly” on regulatory reforms.

The comments came ahead of Trump’s first address to a joint session of Congress Tuesday evening. Investors are looking for more specifics on Trump’s plans, given the hefty gains in the market since the Nov. 8 election.

“Things are moving along in terms of the Trump agenda, but we’ll get a clearer picture after tomorrow night so that might precipitate some buying or selling,” said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

Hellwig and others said there’s potentially more upside than downside from the address, given how the market has reacted in recent weeks.

Shares of U.S. defense companies – Boeing, Raytheon, General Dynamics and Lockheed Martin – rose after Trump said he would seek to boost Pentagon spending by $54 billion in his first budget proposal.

Boeing was up 1.1 percent while UnitedHealth was up 1.4 percent.

The Dow Jones Industrial Average was up 15.68 points, or 0.08 percent, to close at 20,837.44, the S&P 500 gained 2.39 points, or 0.10 percent, to 2,369.73 and the Nasdaq Composite added 16.59 points, or 0.28 percent, to 5,861.90.

In its 1987 12-day streak of record-high closes, the Dow rose 9.2 percent compared with just a 3.9 percent gain in the recent record run.

While the S&P 500 is up 10.8 percent since the Nov. 8 election, the pace of the rally has slowed this year.

Trump’s promise a few weeks ago of a “phenomenal” tax announcement helped rekindle the post-election rally, driving the main U.S. markets to record highs.

Time Warner ended up 0.9 percent after news that the head of the U.S. Federal Communications Commission does not expect to review AT&T Inc’s planned $85.4 billion acquisition of Time Warner.

AT&T slipped 1.3 percent.

Advancing issues outnumbered declining ones on the NYSE by a 1.55-to-1 ratio; on Nasdaq, a 1.87-to-1 ratio favored advancers.

The S&P 500 posted 63 new 52-week highs and one new low; the Nasdaq Composite recorded 143 new highs and 45 new lows.

(Additional reporting by Yashaswini Swamynathan in Bengaluru; Editing by Sriraj Kalluvila and James Dalgleish)

On election day, Fed official urges U.S. fiscal investments

presidential election at Public School P.S. 56 in the Manhattan borough of New York, USA

By Jonathan Spicer

NEW YORK (Reuters) – U.S. lawmakers should take advantage of low interest rates by making infrastructure investments and encouraging innovations that boost productivity, a Federal Reserve policymaker said on Tuesday as Americans voted in a presidential election.

Charles Evans, head of the Chicago Fed, waded into the fiscal policy debate just as polls opened. An outspoken dove at the central bank, he said his prediction of 1.75 to 2 percent future economic growth was “informed by some assessment of what policies we are likely to entertain” out of Washington.

The Fed, which is expected to raise rates before year end, has occasionally emerged as an issue in the divisive campaign between front runners Hillary Clinton and Donald Trump. Trump, a Republican, said Fed Chair Janet Yellen was keeping rates low to boost President Barack Obama, a Democrat.

The Fed typically avoids prescribing fiscal policies, though its members have been more strident as their plans for a more aggressive policy tightening fizzled in the face of sub-par growth this year.

“Fiscal policy, if it were more stimulative and if it could be directed into more socially productive uses (like) infrastructure investments that strike me as something we need to do anyway, why not do it when interest rates are lower,” Evans said at a Council on Foreign Relations breakfast.

“That would end up probably increasing real rates too and that would help all of us out.”

Clinton has pledged to unveil a plan to rebuild U.S. infrastructure during her first 100 days, saying this would create new jobs. Trump has proposed increasing spending on the U.S. military and infrastructure but says he would reduce spending on other categories by 1 percent each year.

“There is a real risk if we focus too much on the debt,” Evans said, adding that fiscal policies “might incent certain types of investments or innovations.”

“If you’re restricting labor input so that we’re not going to get growth … it’s just simple arithmetic that’s going to be limiting to what our possibilities are,” he added.

Turning to the Fed’s 2-percent inflation mandate, Evans noted a preferred price measure is now up to 1.7 percent.

“We’re close, we’re getting there, and if I had even more confidence that we were going to get to 2 percent then I’d feel better about monetary policy normalization,” he said.

But there remain “reasons to be nervous about inflation,” including low expectations and the tendency of prices to be “inertial” after years below target, he said.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Wall St stumbles as FBI to review more Clinton emails

Traders work on the floor of the New York Stock Exchange (NYSE) shortly after the opening bell in New York

By Chuck Mikolajczak

NEW YORK (Reuters) – U.S. stocks erased early gains and turned negative on Friday after the head of the FBI said it will review more emails related to Democratic presidential candidate Hillary Clinton’s private email use.

Each of the three major indexes on Wall Street fell to session lows after FBI Director James Comey said in a letter to several congressional Republicans that the agency had learned of the existence of emails that appeared to be pertinent to its investigation. The election is scheduled to take place in 11 days, on Nov. 8.

“The market turned south the minute the headline hit the tape that the FBI is all of a sudden looking at (Hillary Clinton’s) emails again,” said Ken Polcari, Director of the NYSE floor division at O’Neil Securities in New York.

“The fact they are looking again just raises the prospect that once again they might find something, so the market turned south because it is expecting a Clinton win.”

Wall Street had been higher for most of the session after economic data showed the U.S. economy grew 2.9 percent in the third quarter, its fastest pace in two years, and upbeat earnings from Google parent company Alphabet Inc.

Alphabet shares were up 0.6 percent at $821.85.

While the report supports the case for an interest rate hike, the Federal Reserve is unlikely to make a move at its meeting next week, as it falls just days ahead of the U.S. presidential election.

The market is largely expecting the central bank to hike rates in December, with the odds of a rate increase that month  at 73.6 percent, according to the CME Group’s FedWatch tool.

Investors also digested the latest wave of earnings reports with the hope the latest quarter snaps a year-long earnings recession.

Nearly 73 percent of the S&P 500 companies that reported have topped Wall Street expectations, with growth for the quarter now expected to be 3 percent, according to Thomson Reuters I/B/E/S. The quarter had been expected to show a decline of 0.5 percent at the start of October.

On the negative side, Amazon.com was set for its worst day in nearly nine months, falling 4.8 percent to $778.74 after the online retailer warned that heavy investments in the crucial holiday quarter would hurt profits. The stock was the top drag on the S&P and the Nasdaq.

The Dow Jones industrial average <.DJI> fell 37.49 points, or 0.21 percent, to 18,132.19, the S&P 500 lost 9.81 points, or 0.46 percent, to 2,123.23 and the Nasdaq Composite dropped 29.05 points, or 0.56 percent, to 5,186.93.

Each of the major indexes were poised to post a decline for the week.

Amgen plunged 10.1 percent to $144.30 after the world’s largest biotechnology company’s sales for its flagship drug disappointed investors and analysts.

Declining issues outnumbered advancing ones on the NYSE by a 1.65-to-1 ratio; on Nasdaq, a 1.37-to-1 ratio favored decliners.

The S&P 500 posted 10 new 52-week highs and 9 new lows; the Nasdaq Composite recorded 42 new highs and 112 new lows.

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)