Europe underperforms, yen slides again
Traders are nervous ahead of tomorrow’s European Central Bank meeting as there is chatter the bank will use the meeting as an opportunity to confirm that rates will be hiked in July. It is no secret the ECB are keen to tighten monetary policy and in turn try and curtail rising prices, after all CPI in the eurozone is at a record high of 8.1%. Equity markets in Europe are in the red for fear of a hawkish ECB announcement tomorrow. The speculation the bank will lift rates in the months ahead has driven up government bond yields in the euro area. The bund yield – the yield on the 10-year German government bond – hit its highest mark since 2014. When yields rise, it typically puts pressure on equities as investors re-think their asset allocations. Stocks in Germany, France, and Italy are down on the session.
In London, the mood is a little bearish as banking, mining and travel stocks are in the red, but strong gains in oil companies is why the FTSE 100 has not lost as much ground as the indices in mainland Europe. For a change, volatility in US stocks is lower than in Europe. The 10-year yield is hovering around 3% and that is playing on traders’ minds, but the NASDAQ is holding up well as it is up 0.1%, while the S&P 500 is down 0.3%. Worries about rising yields comes at a time when the OECD downgraded its global growth forecast for 2022 from 4.5% in December to 3%.
Things have gone from bad to worse for the yen now that it was confirmed the Japanese economy shrank by 0.1% in the first three months of 2022. The yen is weaker against all major currencies, in fact it has fallen to a new 20-year low versus the US dollar. GBP/USD, NZD/USD and AUD/USD are under pressure thanks to the rise in the greenback. EUR/USD is up over 0.25% as dealers look ahead to tomorrow’s ECB meeting.
China’s economy is gradually reopening but the excitement has worn off as far as industrial metals are concerned, as copper, platinum and palladium are offside. China is a major importer of minerals and seeing as it doesn’t look like it will be back to full steam anytime soon, the commodities have retreated.