Euro loses more ground
Political concerns were to the fore again yesterday – after a brief hiatus on Wednesday – evident in a renewed albeit small increase in French government bond yields, a sharp sell-off in European equity markets, and a fall in the euro which lost ground to both sterling and the dollar. EURGBP hit a fresh low of £0.8413 yesterday and is only marginally firmer this morning (£0.8420), while EURUSD traded down to a new low for the week of $1.0709 earlier this morning before recovering a touch to $1.0720. Considering the first round of voting in the French elections is still two weeks away, the single currency is likely to continue to come under pressure at times in the period ahead. Meanwhile, the pound has given up some more ground against the dollar to trade at around $1.2730.
French government 10-year bond yields rose by almost 5bps yesterday, while equivalent German yields fell by around 6bps or so. European equities took a pounding with the Euro Stoxx 50 shedding around 2%, and French stocks down by much the same. In the US, Treasury yields ended around 7bps lower on the day, while the S&P 500 closed at another all-time high on the back of a small gain of around 0.3%.
The Bank of Japan (BoJ) left interest rates on hold at its meeting overnight but its Governor said a rate increase is possible at its next meeting in July depending on the data. The BoJ also flagged that it would reduce its purchases of government bonds but gave no details at all on the timing or amounts involved. The yen is weaker post the meeting at around Y158 against the dollar.
There was more good inflation news out of the US yesterday, this time producer output prices which fell by 0.2% in May with the annual increase easing to 2.2% from 2.3% in April. Producer prices excluding food and energy were flat on the month and the y-o-y increase slowed to 2.3% from 2.5%.
Economic data due today include import prices and the University of Michigan’s survey of consumer confidence/consumer inflation expectations in the US, while there is a fairly heavy schedule of ECB and Fed speakers over the course of the day.