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Tuesday 09:15 BST. European stocks are struggling following a mostly soft Asian session and the dollar is giving back some recent gains while Treasury yields nudge higher as central bank policy remains in focus.
The pan-European FTSE Eurofirst 300 is down 0.6 per cent, not helped by index futures indicating the S&P 500 will fall 6 points to 2,106 later in New York.
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US 10-year borrowing costs are adding 1 basis point to 2.20 per cent. The benchmark Treasury yield, which moves inversely to the price, jumped 6bp and the more policy sensitive two-year note added 4bp to 0.65 per cent on Monday after a key US manufacturing report showed its highest reading since February.
The news encouraged investors to increase bets that the Federal Reserve would begin this year raising interest rates from their record lows, reasoning that has been underpinning the dollar of late.
The buck early in the new session came within a whisker of 125 yen, a fresh 12-year low for the Japanese unit, as traders continued to contrast the coming Fed tightening with the Bank of Japan’s bond-buying stimulus efforts.
The dollar is now seeing some profit-taking, however, inching down 26 pips to Y124.50 and this probably contributed to the exporter-sensitive Nikkei 225 stock average dipping 0.1 per cent from its 15-year high.
The European Central Bank is another monetary guardian undertaking unorthodox policy — buying about €60bn of debt every month — and this has pressured eurozone sovereign debt yields and the common currency.
The euro is 0.4 per cent stronger on the day at $1.0964, still down about 20 per cent over the past 12 months, as the 10-year German Bund yield adds 5bp to 0.58 per cent.
A little bit of “haven” premium may be coming off the Bund price as hopes build that an emergency meeting of Greece’s creditors may help deliver a resolution to the “aid for reforms” negotiations.
There are contrasting fortunes for two other currencies also feeling the impact of monetary policy events
The Indian rupee is 0.4 per cent weaker at Rp63.82 per dollar after the Reserve Bank of India trimmed interest rates for the third time this year as lower energy costs deliver benign inflation conditions, allowing the RBI some leeway.
But the Sensex stock benchmark is down 1.5 per cent with traders citing disappointment that the RBI was not more forthcoming on the chances of further easing.
The Australian dollar is up 1.1 per cent to US$0.7685 after the Reserve Bank kept interest rates at their record low but also seemed to disappoint investors hoping for a clear easing bias.
The lower likelihood of still cheaper borrowing costs, the jump in the Aussie and a slide for industrial commodity prices later on Monday all contributed to a 1.7 per cent drop for the S&P/ASX 200 equity index, where miners bore the brunt.
Still, base metals are recovering a touch in the current session, with copper up 0.6 per cent to reclaim the $6,000 a tonne level, while in energy the price of Brent crude is advancing 1 per cent to $65.53 per barrel.
In China, the Shanghai Composite is jumped 1.7 per cent after a choppy start, following a 4.7 per cent jump at the beginning of the week — the fifth-biggest gain in the past six years. The world’s third-largest index by market capitalisation is now only 0.6 per cent below last week’s seven-year peak, hit just before Thursday’s 6.5 per cent sell-off.
The tech-heavy Shenzhen Composite, which had already fully recovered by Monday, rose another 3.5 per cent, notching up a record high and extending its year-to-date gain to 114 per cent.
Chinese equities are rallying on hopes for further monetary easing from Beijing, as data indicate the economy continues to slow in the second quarter. The rally has been driven by domestic retail investors but EPFR weekly flows data showed foreign buyers stuffed $4.6bn of cash into the market in the last days of May, a record amount.
Hong Kong’s Hang Seng index, like much of the region, was not participating in the optimism. It fell 0.5 per cent, reversing much of Monday’s gain.
