Analysts at Westpac noted that yesterday’s Bloomberg story citing anonymous European officials turned out to be accurate.
Key Quotes:
“Four ECB members, notably chief economist Peter Praet in a published speech, stated that ending their asset purchase program (purchases of Eurozone bonds with newly created money) will be discussed at their 14th June meeting. Political turbulence in Italy and Spain and the slowdown in Eurozone growth appear not to have caused major concern at the ECB.
This caused a sharp response in European markets. EUR/USD rose from 1.1720 to just short of 1.1800. The yields on bonds that are currently benefiting from ECB buying rose sharply, including +10bp in France and the Netherlands, +14bp in Italy (10 year bonds). This caused spillover to the likes of the UK, where the 10 year gilt yield rose 9bp.”
“The US 10yr treasury yield rose from 2.93% to 2.98%, which was arguably consistent with the strong rally in US equities. The S&P 500 closed on its highs, up 0.9%, the Dow +346pts and the Nasdaq +0.7% to another record high. US 2yr yields rose from 2.49% to 2.52%. Fed fund futures continued to predict a rate hike next week and another by year end, but only about 20% chance of 2 hikes in H2 2018.
Higher yields and improved risk appetite helped USD/JPY as usual, up 0.4% on the day to 110.20. AUD was strongest in the G10 over the day, ahead of EUR. AUD/USD was 0.7635 before the GDP data and extended in London trade to 0.7677 – a one-month high. NZD/USD reached a one-month high at 0.7060 in the Sydney afternoon, but then slipped to 0.7030. AUD/NZD rose 0.5% to 1.0900.
GBP and CAD were net little changed on the day, though CAD was choppy on volatile oil prices. Copper prices posted healthy gains and spot iron ore also rose, supporting the AUD mood.”
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