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Sydney - Stocks fell and the euro slipped with most currencies against the dollar after Mario Draghi’s dovish message to the European Parliament and as investors assessed the path for higher US borrowing costs.
European shares slumped, while stocks in Japan reversed losses even as the yen strengthened. Hong Kong and China markets were shut while the UK and US resume trading after Monday holidays. The euro dropped for a fourth straight day, while South Africa’s rand extended losses to a second session after President Jacob Zuma survived a bid by some members of his party to oust him.
The key challenge for investors remains gauging the ability of the world’s economy to withstand rising borrowing costs. Despite the record highs posted by global equities, the rally in bond markets suggests traders are cautious.
Donald Trump’s ability to come through with reform policies also remains an issue. Fed Bank of St. Louis President James Bullard said the new administration will need to fulfill the expectations that have driven the stock market higher.
“Washington does have to deliver at some point,” Bullard said in an interview on Bloomberg TV in Tokyo. “I think that is a concern going forward, whether the honeymoon period would end at some point and maybe the reality of American politics would settle in.”
He also said the dollar recently has weakened slightly because of “changes in perceptions of policies of other central banks in tandem with US monetary policy.” European Central Bank President Draghi, speaking in Brussels, signaled there’s little urgency to start unwinding the central bank’s €2.3trn bond-purchase program at the next policy meeting on June 8.
Don’t let the quiet start to the week fool you.
Here are some of the key events coming up:
Euro-area data this week may show the strongest economic confidence in a decade on Tuesday. The preliminary headline inflation rate for the region will come on Wednesday. France will release figures on consumer confidence and economic output, while Germany and Spain also report on inflation indicators.
Fed speakers are out and about as the FOMC’s June 13 to June 14 meeting approaches. Lael Brainard and Robert Kaplan will be in New York on Tuesday and on Wednesday, respectively. The US jobs report on Friday may bolster the case for a rate hike, with a gain of 185 000 positions expected.
Brazil’s central-bank decision on Wednesday will probably see a cut of 75 to 100 basis points from the current 11.25%, according to economists. China’s May manufacturing PMIs on Wednesday might indicate that the nation’s 2017 growth has already peaked. The EIA is due to release its monthly supply reports on Wednesday.
Here are the main moves in markets:
Currencies
The euro fell 0.3% to $1.1135 as of 09:18, dropping for a fourth straight session. The British pound lost 0.1%. The Malaysian ringgit and Mexican peso weakened at least 0.3%. The Bloomberg Dollar Spot Index climbed 0.1%. The yen was the only major currency to strengthen against the dollar, rising 0.4% to 110.84 per dollar. The rand retreated 0.5%, adding to the previous session’s 0.6% decline.
Stocks
The Stoxx Europe 600 Index fell 0.5%, with banks slumping more than 1%. Japan’s Topix rose 0.2% after erasing an earlier decline of 0.5%. Data on Tuesday showed Japan’s jobless rate stayed at the lowest in more than two decades last month, but household spending remained mired in a long slump.
South Korea’s Kospi dropped 0.4%, falling for a second day from a record. Singapore’s Straits Times Index slid 0.4%. Futures on the S&P 500 Index fell 0.1%. The underlying gauge closed at a record high on Friday.
Commodities
Gold was flat at $1 267.48 an ounce. Brent oil held near $52 a barrel after prices swung last week following the agreement by OPEC and its allies to extend cuts by nine months.
Bonds
The yield on 10-year Treasuries declined less than one basis point to 2.24%. Australia 10-year yields fell two basis points to 2.39%.
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