Yields rise as ECB trims bond buys
NEW YORK (Reuters) – Bond yields rose and the euro dipped on Thursday after the European Central Bank said it will slow its stimulus program starting in April, while Wall Street struggled to extend the previous session’s records.
European stocks rose after the ECB decision to reduce the long-running bond-buying scheme to €60 billion a month, from €80b., from April to December 2017.
However, initial market reaction was tempered after ECB President Mario Draghi said it was not an outright winding-down of quantitative easing (QE), as policy makers want more evidence of a sustained pickup in inflation in Europe.
“This isn’t going to last forever, but they are saying we are going to keep doing this until inflation comes back,” said Larry Milstein, head of US government and agency trading at R.W. Pressprich & Co. in New York.
The benchmark 10-year Treasury note’s yield was last up 5 basis points to 2.396%, retreating from a session high of 2.427%. The German 10-year Bund yield was up 8 basis points to 0.429%.
The S&P 500 benchmark index was flat, with the leading percentage losses from the industrials, utilities and health-care sectors.
The Dow Jones Industrial Average was down 7.92 points, or 0.04%, to 19,541.7 in afternoon trading, the S&P 500 had lost 0.91 points, or 0.04%, to 2,240.44, and the Nasdaq Composite had added 13.04 points, or 0.24%, to 5,406.80.
The euro was last down 1.2% to $1.0626 after surging to $1.0875 right after the ECB’s statement.
The dollar rose 0.8% against a basket of major currencies after the ECB news and ahead of the US Federal Reserve meeting next week. A stronger greenback has been the consensus since Donald Trump’s election as US president, but some analysts have begun to question the rally’s durability.
“We are still in our camp of pushing the euro lower into the new year,” said Alessio de Longis, a portfolio manager and macro strategist with Oppenheimer Funds in New York. “If we are right on the dollar’s strength next year, then it should break parity.”
After initially turning negative following the ECB announcement, European shares extended gains, with the STOXX last up 1%, underpinned by the continued rally in banks, which rose 1.8%.
The gains in European stocks came after MSCI’s broadest index of Asia-Pacific shares outside of Japan rose 1%, hitting their highest point in almost a month.
Risk appetite got a boost when China reported upbeat trade figures, with exports and imports both beating forecasts. Resource imports were strong, a major reason prices for bulk commodities have been rising.
Oil futures reversed course and rose after a three-day decline related to oversupply worries.
Brent futures were up 72 cents at $53.72, and US crude inched up 73 cents to $50.50, as market watchers focused on a weekend meeting of OPEC and non-OPEC producers that may result in an agreement to cut crude output further.
Gold nudged 0.2% lower as the dollar rose.