Eurozone bonds sold as ECB policymaker points to move on rates


Monday 12:00 BST

What you need to know

  • Wall St futures point to gains for S&P 500 after its biggest weekly rise in 2 months
  • Comments from François Villeroy de Galhau precede bond sell-off and euro rally
  • Momentum from stronger stock gains in Asia fades in European trade
  • Investors track Italian coalition talks but Milan’s FTSE Mib trades in line with peers
  • Dollar continues to drift from highs
  • Malaysia markets choppy after election
  • Oil prices cool after rally

Leading quote

“François Villeroy de Galhau sounded rather hawkish and, therefore, positive for the euro,” says Koon Chow, strategist at UBP.

“He indicated that after the end of economic stimulus, we could get a rate hike not years into the future but just quarters. That suggests to me that action could come before the current consensus expectations of end 2019.”

Hot topic

Comments from a senior ECB official pointing to the end of stimulus spending and fresh guidance on the timing of a eurozone rate rise are drawing investors out of eurozone bonds, especially on the periphery of the currency area.

François Villeroy de Galhau, France’s top central banker, said that guidance on the timing of the eurozone’s first rate rise could come before the end of its stimulus spending, which is currently due to run until at least September.

The hawkish signal has been enough prompt selling of sovereign debt across the eurozone, which is at its most brisk on the periphery of the shared currency area.

It has also helped the euro, with the shared currency up 0.3 per cent at $1.1976, taking it up by over 1 per cent from its May 9 nadir for 2018.

The selling of sovereign debt is starker on the eurozone periphery. Spain’s benchmark 10-year yield is up 3.8 basis points at 1.312 per cent. Italian 10-year bond yields are up 2.5bp at 1.312 per cent. Investors also track coalition talks between Italy’s two main populist and Eurosceptic parties, which are serving as a reminder of political risk and limiting demand for stocks.

Germany 10-year Bund yields are up 3.8bp at 0.60 per cent and France’s benchmark bond yield is up 3.3bp at 0.826.

Equities

Milan’s FTSE Mib is slipping by 0.6 per cent, a marginally steeper fall that for its neighbours across the continent. London’s FTSE 100 is down 0.3 per cent, with Frankfurt’s Xetra Dax 30 down 0.4 per cent. The Europe-wide Stoxx 600 is also 0.3 per cent weaker.

According to futures trade, Wall Street’s S&P 500 will rise 0.2 per cent, building on the biggest weekly rise for the benchmark in two months.

China-focused stocks in Hong Kong were among Asia’s best performers. Hong Kong’s Hang Seng index rose 1.4 per cent while on the mainland, the CSI 300 gained 0.9 per cent.

Malaysian stocks were choppy in their first day of trading since the country’s stunning election result last week. The FTSE Bursa KLCI slumped as much 2.7 per cent in early trading in Kuala Lumpur, touching its lowest since early February, before swinging to be up 0.9 per cent. The move came after the new Malaysian prime minister Mahathir Mohamad moved to quell doubts about his reformist credentials following his unexpected victory over incumbent Najib Razak.

The Topix in Tokyo was up 0.56 per cent.

Forex

Most currencies are steady, with a general trend for the dollar to drift down from the 2018 high it reached on May 9.

The euro is 0.3 per cent stronger at $1.1975, its highest in six sessions.

Japan’s yen is 0.1 per cent weaker at ¥109.49 per dollar, while the pound is 0.2 per cent higher at $1.3573.

Indonesia’s currency was 0.3 per cent weaker at Rp13,985 per dollar.

Fixed income

Sovereign debt markets outside the eurozone are steadier, with the yield on US 10-year Treasuries up 1 basis point at 2.9768 per cent.

Commodities

Oil prices are cooling after rallying last week to their highest point since 2014. Brent crude, the international benchmark, is off 0.6 per cent at $76.65 a barrel. US marker West Texas Intermediate is down 0.5 per cent at $70.37.

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