Euro Surges As Europe Stocks Slump; Yields Rise After Central Bankers Spook Markets

Wednesday, June 28, 2017
By Paul Martin

by Tyler Durden
ZeroHedge.com
Jun 28, 2017

U.S. index futures point to a slightly higher open, as markets in both Europe and Asian fall.The EUR surges to one year highs as markets continue to reverberate from Draghi’s hawkish comments while yields rose around the globe following similar hawkish comments from Fed speakers on Tuesday.

Asian stocks closed softer overall with benchmark yields sharply higher following hawkish comment from Draghi and Yellen. The MSCI Asia Pacific Index fell 0.3 percent as declines in technology shares overshadowed gains in banks and raw-materials companies. Samsung Electronics Co., Taiwan Semiconductor and Tencent led the selloff with losses of at least 1.2 percent.

Australian 10-year yield jumps as much as nine basis points, their biggest rise since November; while CAD and AUD lead gains in broad-based dollar pullback. PBOC skipped open market operations for fourth day, and drained liquidity fro the market for the 6th day while strengthening the daily CNY fixing by most in almost four weeks; Shanghai Composite closed modestly in the red as Dalian iron ore ended near unchanged after yesterday’s torrid gains. Of note were comments by a PBOC adviser, who said he sees no further tightening in 2H monetary policy.

In the start of the overnight session, as usual eyes were on the yuan, which was on deck for its biggest two-day gain since June 1, with China’s central bank strengthening its daily fixing by the most in almost four weeks after an overnight drop in the dollar, and the PBOC strengthened its daily reference rate by 0.35% to 6.8053. The yuan continued to rise on speculation of central bank intervention, with the offshore currency up 0.2 percent after surging 0.6 percent Tuesday. As a reminder, on Tuesday the Yuan surged in afternoon trade amid talk of PBOC intervention. Speaking of the PBOC, the central bank drained a net 50 billion yuan in open-market operations, pulling funds from the financial system for the sixth day in a row.

The big action however continues to be the follow through from Draghi’s comments on Tuesday which unleashed a hawkish avalanche on Tuesday. As a reminder, Draghi said that “as the economy continues to recover, a constant policy stance will become accommodative, and the central bank can accompany the recovery by adjusting the parameters of its policy instruments – not in order to tighten the policy stance, but to keep it broadly unchanged”. In other words if prices rise as the ECB expect in 2018 ECB policy will become more accommodative as inflation picks up. Draghi also added that “all the signs now point to a strengthening and broadening recovery in the Euro area” and that “deflationary forces have been replaced by reflationary ones”. The ECB President also cited that risks of “hysteresis effects” had diminished and that “now we can be confident that our policy is working and that those risks have abated”. Draghi also suggested that political winds are now becoming tailwinds. As DB strategists called it, the speech seemed to mark a transition from the “whatever it takes” period to “it will take less” and a potential slow turning point in the direction of travel towards tighter policy. The final day of the Sintra ECB forum is today and a as reminder a policy panel between Draghi, the BoE’s Carney, BoJ’s Kuroda and BoC’s Poloz is due at 1.30pm BST which will be worth watching.

The Rest…HERE

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