European stocks, the dollar and bond yields climbed yesterday as investors speculated that the “Trumpflation trade” could be back in play, after the US Senate approved a budget blueprint that paves the way for tax cuts.
The vote was seen as overcoming a crucial hurdle in President Donald Trump’s plans for fiscal stimulus, and drove an increase in risk appetite across markets.
Wall Street was set to open higher as US stock futures rose a quarter of a per cent to all-time highs.
European shares rebounded from their worst day in two months, also helped by well-received earnings reports for Volvo and Ericsson and high German producer-price inflation numbers.
Spanish stocks lagged, though, kept under pressure by worries over the Catalonia region.
Earlier, Japan’s Nikkei stock index logged its longest winning streak in more than half a century, while the dollar hit a more-than three-month high against the yen.
The Swiss franc – which along with the yen is often bought at times of investor uncertainty – dropped to its weakest against the euro since the Swiss National Bank removed its cap on the currency in January 2015.
The Republican-controlled Senate voted 51 to 49 for the budget measure, which paves the way for taxes to be reformed in the 2018 fiscal year without support from the Democrats, and which would add up to $1.5 trillion to the federal deficit over the next decade.
Bets that Mr Trump’s planned tax cuts, infrastructure spending and other pro-business measures would push up growth and inflation had been behind a “Trumpflation trade” that propelled the dollar to 14-year highs earlier this year.
But as doubts have grown about Mr Trump’s ability to push through reforms, that trade had been unwound and the dollar has slipped around 10 per cent.
Meanwhile, the dollar index – which tracks it against a basket of six other major currencies - climbed 0.1 per cent.
Oil prices fell and were set for a weekly loss as investors sought to book profits, despite tensions in the Middle East that have slashed supplies of crude.
Yesterday, Brent crude, the international benchmark for oil prices, was down 35 cents at $56.88 a barrel.