Euro slumps, bonds reverse on ECB; oil retreats

Bloomberg

The euro erased gains, bonds pared losses and equities jumped after the European Central Bank suggested financial markets misinterpreted comments from Mario Draghi on the rise of inflation.
Draghi’s speech was intended to strike a balance between recognizing the currency bloc’s economic strength and warning that monetary support is still need, according to people familiar with the situation. The ECB president said Tuesday that “deflationary forces have been replaced by reflationary ones,” sparking a rally in the shared currency.
The about-face sent the euro tumbling from the highest level versus the dollar since last year’s Brexit vote and pushed yields on bonds in the region lower. US stock futures rose and the dollar climbed versus most major peers.
Traders appeared to be reappraising the outlook for global borrowing costs and monetary policy in the wake of the comments from the usually dovish Draghi. The ECB said today his speech was intended to be balanced. While Yellen qualified her assessment that asset valuations look high by some measures, the note of caution came just as markets were buffeted by a series of events, including an IMF cut to its US growth forecast, Google suffering the biggest ever EU antitrust fine, a fresh blow to the Republican agenda in Washington and a global cyberattack.
The Federal Reserve is set to announce the results of the second part of its annual bank stress test, which will determine whether lenders can increase dividends and share repurchases. China’s PMI might have declined in June after unexpectedly remaining unchanged in May, reflecting government offers to cut overcapacity and leverage. That reading is due Friday. Also slated this week: Japanese inflation, factory output, unemployment, household consumption and housing starts.
The euro retreated 0.1 percent to $1.1326 as of 8:29 a.m. in New York, after briefly touching $1.1379, the highest level since June 2016. The currency surged 1.4 percent on Tuesday.
The Stoxx Europe 600 Index was little changed even as technology shares tumbled 0.7 percent. Futures on the S&P 500 Index added 0.3 percent. The underlying gauge lost 0.8 percent Tuesday, the most since May 17, as technology and health-care shares declined.
The yield on 10-year Treasuries added less than one basis point to 2.21 percent after jumping seven basis points Tuesday. The yield on German bunds fell two basis points. WTI futures fell 0.5 percent to $43.98 after climbing 4 percent in the previous four sessions. Gold rose 0.3 percent to $1,251.35 an ounce, climbing for a second day.