Stocks, bonds rally as ECB’s Draghi fuels stimulus hopes

Bloomberg

Stocks rallied with bonds on Tuesday as comments from ECB officials added fuel to investors’ hopes for easier monetary policies from the world’s biggest central banks.
Futures on the S&P 500, Nasdaq 100 and Dow Jones indexes advanced along with the Stoxx Europe 600, while Japan’s Topix bucked the trend as most Asian gauges rose earlier. The euro turned weaker after European Central Bank President Mario Draghi said additional stimulus may be needed if the economic outlook doesn’t improve.
That move pared briefly when President Donald Trump weighed in, accusing the ECB in a tweet of weakening its currency to make the region’s exports more competitive. Three of the central bank’s officials told Bloomberg an interest-rate cut would probably be the first step in any stimulus.
At the same time, data showed investor confidence in Germany’s economic outlook worsened dramatically in June, adding to expectations of ECB support. European sovereign bonds leaped, led by Italian and Greek notes, while Treasuries also climbed. France’s 10-year yield fell to 0 percent for the first time, with the country set to join the list of European nations with benchmark debt that have negative rates. Oil fluctuated, with OPEC nations still unable to agree on a date for their next meeting, adding to uncertainty over whether production cuts would be extended.
With central banks around the world moving towards looser policy as trade tensions weigh on the global economy, investors are looking for signals from the Fed tomorrow on the likelihood of interest-rates cuts. That’s the headline act in a week that includes the ECB gathering in Portugal, as well as Bank of England and Bank of Japan policy announcements.
Central banks in Australia, Russia, India and Chile have recently loosened policy. The Reserve Bank of Australia said that further easing is more likely than not.
Elsewhere, Bitcoin steadied after a four-day 17 percent surge.
The Federal Reserve, Bank of Japan and Bank of England all set monetary policy, along with central banks in Norway, Brazil, Taiwan and Indonesia.
The Fed meeting began on Tuesday with a decision and press conference the next day. Officials are expected to debate a rate cut to shelter the US economy, in part, from the fallout caused by escalating trade disputes.
In the UK there was expected to be a second ballot on the leadership contest to choose Theresa May’s successor as leader of the country’s ruling party. Final May CPI data for Britain are due on Wednesday. UK retail sales are set for release on Thursday.
The Stoxx Europe 600 Index surged 1.3 percent in New York. Futures on the S&P 500 Index climbed 0.6 percent on the biggest increase in more than a week. France’s CAC 40 Index surged 1.8 percent on the largest jump in more than five months. Hong Kong’s Hang Seng Index increased 1 percent on the biggest climb in more than a week. The MSCI Emerging Market Index advanced 0.7 percent, the first advance in a week.
The Bloomberg Dollar Spot Index fell less than 0.05 percent. The Japanese yen jumped 0.3 percent to 108.23 per dollar. The euro fell 0.2 percent. South Africa’s rand surged 1.3 percent.
The yield on 10-year Treasuries sank six basis points to 2.03 percent on the biggest tumble in more than two weeks.
Britain’s 10-year yield decreased six basis points to 0.793 percent. Italy’s 10-year yield decreased 20 basis points to 2.103 percent.