published May 24th 2016, 11:42 am, by Inyoung Hwang and Oliver Renick

(Bloomberg) —
U.S. stocks joined a rally in European shares as growing conviction that the Federal Reserve will raise interest rates this summer sparked gains in financial shares. The dollar rose and Treasuries fell as housing data reinforced confidence in the strength of the American economy.

Financial and technology companies set the S&P 500 Index on track for its biggest gain in two weeks, while the Stoxx Europe 600 Index posted its best day since mid-April. The dollar strengthened to its strongest level since March against the euro, denting demand for gold, which is headed for its longest losing streak since November. Sterling was boosted by a poll showing the campaign to keep Britain in the European Union is gaining strength. The Turkish lira gained after a cabinet reshuffle.

Traders are now pricing in a better-than-even chance that the U.S. central bank will raise interest rates by its July meeting, after Fed officials signaled their willingness to make such a move if the economy shows sustained progress. U.S. data on Tuesday showed purchases of new homes surged in April to the highest level since the start of 2008. Investors will scrutinize comments from Fed Chair Janet Yellen later this week and a key government employment report that is due next Friday.

“This is the way these markets seem to run now with these quick reversals,” John Stoltzfus, chief market strategist at Oppenheimer & Co. in New York, said by phone. “If the Fed is raising rates because the economy is doing better, that looks like a good thing and it seems the market is recognizing that. The jump today in new-home sales, it’s a volatile figure, but that’s a big deal.”

Investors are also monitoring discussions by euro-area finance ministers on how to conclude Greece’s bailout review, including debt-relief measures and contingency plans in case budget targets are missed.

Stocks

The S&P 500 jumped 1.3 percent at 12:38 p.m. New York time. Banks surged as Treasury yields climbed toward a three-week high, with JPMorgan Chase & Co. and Citigroup Inc. rising at least 1.7 percent. Toll Brothers Inc. jumped the most in almost three years after the stronger-than-forecast new-home sales data and as the luxury builder’s quarterly profit topped estimates. An S&P index of homebuilders was on track for the steepest climb in more than two months.

The Stoxx Europe 600 Index added 2.2 percent, the biggest one-day rally since April 13, as insurers and banks led gains.

“A rise in the dollar would be a big help for European stocks” said Heinz-Gerd Sonnenschein, a strategist at Deutsche Postbank AG in Bonn, Germany. “People are testing whether the market has found a bottom, and there’s plenty of money sitting on the sidelines. We’ve had pretty calm, sideways trading this month even with another Fed rate hike looking more likely.”

The MSCI Emerging Markets Index of stocks was little changed, while the Borsa Istanbul 100 Index jumped 3.5 percent.

Currencies

The Bloomberg Dollar Spot Index, a gauge of the greenback against 10 major peers, rose 0.2 percent. The dollar advanced 0.7 percent to $1.1146.

Sterling jumped 1.7 percent versus the euro and was 1 percent stronger against the dollar, its first advance versus the greenback in three days. An ORB survey for the Daily Telegraph newspaper found older voters, previously found to back leaving the EU, are switching sides.

Turkey’s lira rose 1.8 percent as Mehmet Simsek retained his position as Turkey’s deputy prime minister. Simsek is the last man standing from the team of ruling party officials feted by investors as the driving force behind Turkey’s rapid growth years. The nation’s central bank also reduced the overnight-lending rate by 50 basis points, matching the median estimate of analysts.

The yuan was the most resilient of 31 major currencies, gaining 0.02 percent versus the dollar and trimming this year’s loss to 0.9 percent. China’s central bank scrapped a market-based mechanism for managing the currency on Jan. 4, returning to a system whereby the exchange rate is based on what suits authorities the best, the Wall Street Journal reported, citing unidentified people close to the People’s Bank of China.

Commodities

Gold fell for a fifth day, with bullion for June delivery slipping 1.8 percent to $1,229.5 an ounce.

Zinc in London dropped 0.9 percent to the lowest level in more than a month, while nickel rose 1 percent as Chinese import data signaled a diverging demand picture for the two metals. Copper rose 0.6 percent.

Oil traded above $48 a barrel, before U.S. government data. Crude stockpiles, which are near an eight-decade high, slid by 2 million barrels last week, according to a Bloomberg survey before Energy Information Administration data Wednesday.

Bonds

Two-year Treasuries are barely eking out a gain in 2016, lagging behind every other U.S. bond and note, as investors prepare to bid at an auction of the securities Tuesday.

Two-year note yields rose three basis points, or 0.03 percentage point, to 0.92 percent, after the difference between two- and 30-year rates shrank to 171 basis points Monday, the narrowest since 2008. The Treasury Department is scheduled to sell $26 billion of the securities. Yields on 10-year notes added four basis points to 1.88 percent.

Greek bonds reversed with the yield on sovereign securities due in a decade adding one basis point to 7.16 percent, after reaching the lowest since November.

Euro-area finance ministers convene in Brussels on Tuesday, primarily to discuss the disbursement of a proposed 11 billion euros in aid for Greece, but also for talks on how to ease its 321 billion euros of debt through lengthening loan maturities, lowering interest rates and postponing payments.

–With assistance from Alan Soughley, Stephen Kirkland, James Herron and Lukanyo Mnyanda. To contact the reporters on this story: Inyoung Hwang in New York at ihwang7@bloomberg.net ;Oliver Renick in New York at orenick2@bloomberg.net To contact the editors responsible for this story: Jeremy Herron at jherron8@bloomberg.net Inyoung Hwang

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