U.S. tax reform move boosts dollar, stocks, bond yields

European stocks, the dollar and bond yields climbed on Friday as investors speculated on the return of the “Trumpflation trade”, after the U.S. Senate approved a budget blueprint that paves the way for tax cuts.

With sentiment broadly risk-on, 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

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 JPY=. 

The VIX “fear index”, which briefly spiked close to 12 on Thursday, was back down below 10 .VIX.

Thursday’s Senate vote pushed 10-year U.S. Treasury yields to their highest in more than a week at 2.3650 percent. 

While European bond yields were also pulled higher, the “transatlantic spread” between Treasury yields and their German equivalents stretched to 197 basis points, its widest since June. US10YT=RR, DE10YT=RR. <GVD/EUR>. 

The dollar index - which tracks it against a basket of six other major currencies - climbed 0.3 percent to a three-month high .DXY. 

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 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 sent the dollar to 14-year highs earlier this year. 

But as doubts have grown about Trump’s ability to push through reforms, that trade had been unwound and the dollar has slipped around 10 percent.

MSCI world equity index .MIWD00000PUS, which tracks shares in 47 countries, was a touch lower but only around 0.2 percent below record highs hit the previous day. 

U.S. stock futures rose quarter of a percent ESc1, pointing to a firmer start on Wall Street.