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Stock Futures, Bond Yields Rise Ahead of Trump Inauguration

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01/20/2017 | 03:05pm CET
By Riva Gold 

U.S. stock futures, government bond yields and the dollar climbed Friday, as popular postelection trades were rekindled shortly ahead of President-elect Donald Trump's inauguration.

Futures pointed to a 0.2% bump for the S&P 500 and a 0.1% gain for the Dow Jones Industrial Average, after the blue-chip index on Thursday erased its gains this year in its fifth consecutive session of losses.

Investors broadly bought the dollar and U.S. stocks and sold long-dated government bonds after the November election, but those moves had stalled in recent weeks, with many investors waiting for further clarity on fiscal, regulatory and trade policy in the U.S.

"People are pretty much confident that things should go quite well economically -- the big issue is the political outlook," said Christophe Foliot, head of U.S. and international equities at Edmond de Rothschild Asset Management.

Appetite for mutual funds slowed appreciably in the week leading into the inauguration, while flows into gold funds hit a 10-week high, according to fund-tracker EPFR Global. Financial sector funds snapped a 16-week streak of inflows and industrial sector funds posted their biggest outflow since 2015, reversing popular trends that followed the November election.

Mr. Trump is scheduled to deliver an inaugural address later Friday as he is sworn in as the 45th U.S. president. Although few market participants expect the speech itself to spark volatility, some are hoping clarity from Mr. Trump on the new administration's policy priorities will help reignite a stalled postelection rally.

"We've got many generalities and not many specifics as far as policies," said Jon Adams, investment strategist at BMO Global Asset Management.

New details or a timeline on taxation and infrastructure spending plans would be supportive of a further move higher for stocks, he said, while possible changes to immigration and trade policy changes pose risks to the market.

In U.S. premarket trading, shares of drugmaker Merck & Co were up more than 3%, while Procter & Gamble Co. added 1.8% after it reported a smaller-than-expected fall in sales.

International Business Machines Corp. fell 2% after recording its 19th consecutive quarter of declining revenue, while American Express fell 2.2% after posting lower fourth-quarter results. General Electric slipped 1.2% after the industrial giant's revenue fell more than expected.

Elsewhere, the Stoxx Europe 600 swung between small gains and losses, as a steep climb in government bond yields lifted bank shares but weighed on steady dividend-payers. Advances in the financial sector were offset by a decline in real-estate and health-care shares, leaving the pan-European index flat in afternoon trading.

"If rates move up, financials are really the only sector where you get traction and support for earnings growth," said Mr. Foliot.

China's economy also was in focus Friday, as data showed China notched a 6.7% gain in economic growth last year -- the weakest rate in a generation -- despite a surge of easy credit and state spending. Fourth-quarter GDP growth came in at 6.8%.

"Our biggest concern right now is China and the tightrope they're walking," said Erik Knutzen, multiasset chief investment officer at Neuberger Berman. "I do not expect it to fall into crisis from currency flows or debt levels, but tail risks are increasing."

He has been adding primarily to domestically-geared U.S. stocks, particularly smaller companies, that he expects to benefit from higher U.S. growth and interest rates.

Earlier, the Shanghai Composite Index rose 0.7%, but Hong Kong's Hang Seng Index and Australia's S&P ASX 200 shed 0.7% following the declines on Wall Street.

Japan's Nikkei Stock Average added 0.3%, as recent gains in yields of long-dated bonds boosted insurers.

The 10-year U.S. Treasury yield rose Friday to 2.495% from 2.461% Thursday, when expectations for higher U.S. rates after a speech by Federal Reserve Chairwoman Janet Yellen sent it to its biggest daily jump of the year. 10-year German bund yields rose to 0.336% from 0.301%, as data Friday showed rising inflation expectations in the eurozone, while superlong Japanese government bond yields touched one-month highs. Yields move inversely to prices.

In a speech Thursday, Ms. Yellen signaled a gradual course for interest-rate rises, noting she doesn't see the U.S. economy at risk of overheating and doesn't expect growth to pick up much soon. Ms. Yellen had said Wednesday that rates could be raised "a few times a year" through 2019.

Separately, Mr. Trump's pick for Treasury secretary, Steven Mnuchin reaffirmed the strength of the dollar Thursday following comments from Mr. Trump earlier in the week that it was "too strong."

The WSJ Dollar Index was last up 0.2% while the euro was down 0.2% against the dollar at $1.0636.

The British pound fell 0.4% to $1.2280 after data showed U.K. retail sales dropped in December at the fastest rate in nearly five years.

In commodities, Brent crude oil rose 1.7% to $55.05 a barrel amid signs of waning OPEC production, while gold inched up 0.1% to $1,202 an ounce.

David Harrison, Kenan Machado and Mark Magnier contributed to this article.

Write to Riva Gold at riva.gold@wsj.com

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