Morning Market Recap: Euro Sells Off After ECB Says Has 'No Bias'

Market Updates | Written by CEP News | Jul 03 08 13:13 GMT |
(CEP News) - The euro is down more than a cent after the European Central Bank suggested it has "no bias" on rates after hiking the main refinancing rate by a quarter-point to 4.25%.

Markets had been anticipating further rate hikes later in the year but ECB President Jean-Claude Trichet said, "current rate stance will contribute to achieving our price stability objective" and "starting today, I have no bias."

Implied year-end rate expectations, using EONIA swaps, have fallen 15 basis point to 4.52%. The December Euribor contract is up 0.075 to 94.795. The euro is down 0.0139 to 1.5744 against the U.S. dollar, down 0.0038 to 1.6042 against the Canadian dollar, down 0.0027 to 0.7943 against the pound sterling and is higher by 0.01 to 168.23 against the yen.

In the United States, markets reacted favourably to the jobs report. Equities are poised for a strong open and the U.S. dollar is stronger. Treasuries were more skeptical as some of the details of the report were soft.

U.S. non-farm employment fell by 62k jobs, the Bureau of Labor Statistics said. That was virtually in-line with the -60k consensus estimate. Markets appeared to have a bias for a worse number after reports earlier in the week showed large drops in private and manufacturing payrolls.

At the same time as the payrolls report, U.S. jobless claims for the week ending June 28 rose to 404k from 384k the week before.

Bonds briefly rallied on the soft claims data but bonds sold off as stocks rallied in relief.

U.S. two-year yields are down 2.6 bps to 2.55%, with five-year yields down 2.1 bps to 3.28%, 10-year yields up 1.4 bps to 3.97% and 30-year yields up 3.2 bps to 4.53%. The Eurodollar September 08 contract is up 2.0 ticks to 97.09. The yield curve is steeper, with the 10/2-year spread up 4.4 bps to 142.35 bps.

Yields on two-year Canadian government bonds are down 0.8 bps to 3.23%, with five-year yields flat at 3.46%, 10-year yields flat at 3.76% and 30-year yields flat at 4.08%. The Canadian 10-year note is yielding 21.51 bps less than the U.S. 10-year note.

In Germany, returns on two-year German bonds are down 16.9 bps to 4.46%, with five-year yields down 11.8 bps to 4.56%, 10-year yields down 6.6 bps to 4.59% and 30-year yields down 4.1 bps to 4.81%.

Yields on UK two-year bonds are down 5.5 bps to 5.11%, with five-year yields down 5.2 bps to 5.07%, 10-year yields down 5.4 bps to 5.07% and 30-year yields down 3.3 bps to 4.66%.

U.S. equity market futures are higher with contracts on the Dow Jones Industrial Average up 63 points to 11,274, the S&P 500 up 9 points to 1,272 and the Nasdaq up 9 points to 1,834.

European stock markets are also higher, with the Eurostoxx up 25 points to 2,865, the UK FTSE 100 up 34 points to 5,460 and the German DAX up 44 points to 6,350.

Asian markets were lower, with the Japanese Nikkei closing down 21 points to 13,265 and the Hang Seng Index down 462 points to 21,243.

The Canadian dollar is down 0.0064 to 0.9815 against the U.S. dollar (1.0188 USD/CAD) and up 0.2630 to 104.8650 against the yen.

The U.S. dollar is up 0.9390 to 106.8500 against the yen and the Dollar Index is up 0.369 to 72.398.

The pound sterling is down 0.0108 to 1.9823 against the U.S. dollar and up 0.0023 to 2.0200 against the Canadian dollar.

WTI crude oil is up $0.33 to $143.90. The front month gold contract at the Chicago Board of Trade is down $13.70 to $932.20 per ounce.

All data taken at 9:10 a.m. EDT.

By Adam Button, abutton@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it , edited by Cristina Markham, cmarkham@economicnews.caThis email address is being protected from spam bots, you need Javascript enabled to view it

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