Dow, S&P eye fresh highs, banks up on rate hike talk

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Wall Street is set to resume its rally on Wednesday, with futures suggesting both the Dow Jones Industrial Average and the S&P 500 will hit new record highs at the open as traders pencil in the growing odds of an interest rate hike this month.

With President Donald Trump’s speech last night offering few specifics on his economic plans, investors are instead focusing on comments from William Dudley, the influential head of the New York Federal Reserve, who said the case for adding to the December 2016 rate increase had become ‘a lot more compelling’.

The probability of a rate increase in March climbed to 74 per cent on Tuesday afternoon, shortly after Mr Dudley’s remarks, according to Bloomberg data on federal funds futures. The odds increased further to 82 per cent on Wednesday morning.

The spectre of another rate rise this month helped sent banking stocks sharply higher in pre-market trading. Shares in Goldman Sachs were up 1.9 per cent ahead of the bell, while those for JPMorgan gained 1.8 per cent and Morgan Stanley rose 2.3 per cent.

Futures meanwhile suggest that the Dow and the S&P will open 0.8 per cent higher at 20,974 and 2,380 respectively. Both would represent new record highs.

Bonds sold off however, with the yield on the 10-year Treasury note, which moves inversely to price, up 6.3 basis points at 2.45 per cent. Yields on the more policy sensitive 2-year note rose 4bps to 1.3 per cent.

The DXY dollar index jumped 0.8 per cent to 101.87, its biggest one day gain since December 15.

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