© Reuters. FILE PHOTO: The DAX chart of the German stock price index at the Frankfurt Stock Exchange
By Thyagaraju Adinarayan
LONDON (Reuters) – The euro was beaten and German bond yields hit a new record Tuesday in reaction to comments by European Central Bank President Mario Draghi on the possibility of further rate cuts or new ones. asset purchases.
Mr Draghi said that the ECB should relax its policy again if inflation does not return to its objectives and that there remains "a considerable margin" to do so. Inflation in the eurozone slowed to stand at 1.2% in May, its lowest level since more than a year.
German government bond yields, the benchmark index for Europe, fell for the first time in their history to -0.30%. The euro fell to its lowest level in two weeks against the dollar.
"The market reaction tells us more and more that when the top executives of a central bank stand up for their expectations, market changes continue." The same thing happened when the Fed confirmed its change. of dovish earlier this year, "said Themos Fiotakis, head of currency strategy and rates. at UBS.
(Chart: Draghi sends the Bund yield to a new record – https://tmsnrt.rs/2XXH7Rc)
Draghi, nicknamed "Super Mario", is expected to end his eight-year term this year without having ever executed a rate hike.
ECB signals were announced one day ahead of the much-awaited US Federal Reserve decision, in which its Draghi counterpart, Jerome Powell, was expected to set the stage for a rate cut later on. this year.
"In just a few short months, the market has ceased to be guided by the Fed to actively guide it," wrote interest rate strategists Bank of America Merrill Lynch (NYSE :).
The US central bank will likely leave borrowing costs unchanged, but the markets are planning almost completely a 25 basis point cut for July.
The meeting will also provide the most direct information on the depth of influence of policymakers on the trade war between the United States and China. [FED/DIARY]
Expectations of rate cuts, fueled by Draghi's dovish speech, drove the US treasury yield to the lowest since September 2017.
A Bank of America Merrill Lynch survey of fund managers revealed that uncertainty over the trade war pushed investors to rush into US Treasury bonds. Treasures were the "most populated" trade for the first time in his investigation.
(Graph: US interest rates – https://tmsnrt.rs/2Iogak7)
The impact of US restrictions on exports to China is already resonating in Europe with Siltronic, a German silicon wafer manufacturer, warning that spat would affect sales and profitability.
The warning hit the European technology stocks, but a sharp reversal of the euro and downward rate signals offset the weakness resulting in the rise of the pan-European STOXX index of 0.9% at 1031 GMT.
Another blow to the German economy, which is expected to grow by only 0.5% in 2019, revealed a survey of the influence of German investors on German investors in June, due to the recent weakness of economic statistics and the intensification of the trade dispute between the United States and China.
In Asia, the broadest index of MSCI shares outside the Japanese region outside Japan rose 0.6%, while that of Japan plunged 0.7%. The MSCI World Stock Index rose by 0.15%, under the impetus of Europe.
"The markets have been very shy over the last few sessions and are trading largely on the side … The oil drop and the rise in gold are also a worrying sign," said John Woolfitt, of Atlantic Markets.
worries about global growth eased by 0.8 percent on Tuesday, although tensions in the Middle East limited losses after last week's oil tanker attacks. [O/R]
Acting Secretary of Defense Patrick Shanahan announced Monday the deployment of about 1,000 additional troops in the Middle East for defensive purposes, citing concerns about a threat from Iran.
The, followed by the greenback against six major peers, remains at its highest level in two weeks.
The Australian dollar fell to a five-month low at $ 0.6830 after the June Reserve Bank of Australia meeting showed policymakers that it may be necessary to appease again to reduce unemployment and boost wages and inflation.
The central bank lowered its rates to a record low of 1.25% earlier this month to support the slowdown in the economy.
At the same time, the pound sterling stabilized after hitting a 5½ month low as traders awaited news of the contest for the leadership of the conservative ruling party.
"The fact that Boris Johnson is likely to become the new Prime Minister is like a sword of Damocles on the pound trend, and investors are reluctant to put too much faith in the currency," said M Marc-André Fongern, strategist at MAF Global Forex in Frankfurt.
In developing countries, equities should take a four-day lurch lost Tuesday as emerging market currencies rallied against the dollar as cautious optimism entered the markets before the Fed meeting.