- Bond markets selloff continues on stimulus unwind bets
- Sterling rallies as BoE adds to ECB's hawkish bent
- Bank stocks lead Wall Street higher
The euro hit a one-year high against the dollar on Wednesday and German 10-year Bund yields continued to rise after doubling the previous day, on bets that Europe’s and Britain’s central banks are preparing to scale back economic stimulus.
The dollar index slid as Bank of England Governor Mark Carney said a debate on the need to raise interest rates is due “in the coming months,” adding to a hawkish tone out of the European Central Bank on Tuesday.
Carney’s remarks convinced traders that European monetary policy was shifting in a more hawkish direction, analysts said.
The monetary policy comments out of Europe and Britain come as the U.S. Senate delayed a healthcare legislation vote, a move seen as pushing back the timeline for other items of President Donald Trump’s agenda including a tax overhaul regarded as essential to support lofty stock valuations on Wall Street.
“Prospects for infrastructure spending and tax reform are fading by the minute” after the delayed healthcare vote, said Karl Schamotta, director of global product and market strategy at Cambridge Global Payments in Toronto.
U.S. economic data released on Wednesday showed contracts to buy previously owned homes unexpectedly fell in May, the third straight monthly decline, while mortgage applications fell the most in six months last week.
U.S. stocks recovered most of their broad losses from the previous session, however. Bank stocks led the way, supported by a steeper Treasury yield curve .The Dow Jones Industrial Average rose 159.1 points, or 0.75 percent, to 21,469.76, the S&P 500 gained 19.53 points, or 0.81 percent, to 2,438.91 and the Nasdaq Composite added 56.44 points, or 0.92 percent, to 6,203.07.
The pan-European FTSEurofirst 300 index lost 0.01 percent while MSCI’s gauge of stocks across the globe gained 0.58 percent.
Emerging market stocks lost 0.49 percent. MSCI’s broadest index of Asia-Pacific shares outside Japan closed 0.29 percent lower, while Japan’s Nikkei lost 0.47 percent.
Analysts said comments by ECB President Mario Draghi on Tuesday continued to support the euro even as sources said on Wednesday that he had intended to signal tolerance for a period of weaker inflation, not imminent policy tightening.
“There is a bigger story here that has to do with the repricing in general of monetary policy expectations,” said Alvise Marino, FX strategist at Credit Suisse in New York. “There is a bit of a concern in the markets about the fact that the balance of monetary policy expectations is moving a little bit in a more hawkish direction in Europe, and you’ve seen that with the BOE, you’ve seen that with the ECB.”
The dollar index fell 0.33 percent, with the euro up 0.26 percent to $1.1367.
The Japanese yen strengthened 0.18 percent versus the greenback at 112.17 per dollar, while Sterling was last trading at $1.2936, up 0.95 percent on the day.
Oil futures climbed to their highest in more than a week despite a surprise build in U.S. crude inventories, as buyers were encouraged by a small weekly decrease in U.S. production.
U.S. crude rose 0.84 percent to $44.61 per barrel and Brent was last at $47.36, up 0.94 percent on the day.
The back end of the U.S. Treasury yield curve rose after Carney’s comments.
Benchmark 10-year Treasury notes were down 6/32 in price to yield 2.217 percent, from 2.198 percent late on Tuesday.The 30-year bond last fell 17/32 in price to yield 2.769 percent, from 2.744 percent on Tuesday.
Ten-year German Bund yields rose to as high as 0.406 percent and were last at 0.368 percent, up from 0.352 percent on Tuesday.
Spot gold added 0.2 percent to $1,248.91 an ounce. U.S. gold futures gained 0.22 percent to $1,249.60 an ounce.
Copper rose 0.38 percent to $5,880.00 a tonne.
(Additional reporting by Sam Forgione, Karen Brettell and Scott DiSavino; Editing by Meredith Mazzilli)