European stocks rallied and the euro held its weakest level against the dollar since April ahead of a European Central Bank meeting this week that is expected to see policymakers providing further monetary stimulus.
The Stoxx Europe 600 stock index rose 1.2 percent while the euro fell 0.1 percent to $ 1.1763 as traders bet the ECB to expand their bond purchase plans at a meeting Thursday after its pandemic ended Expanded emergency purchase program to the tune of 1.85 trillion euros.
The yield on the benchmark 10-year Bund, which is moving in the opposite direction to its price and which determines the yields that investors can expect from other European assets, fell by 0.01 percentage points to minus 0.419 percent.
That yield traded around minus 0.15 percent a month ago and has been in a broad rally in sovereign debt since April 2019, sparked by the vigorous efforts of central banks to prop up the global economy.
Traders are betting it will hit zero again as the delayed rollout of coronavirus vaccination gained momentum in the euro zone, prompting the ECB to slow the pace of its emergency pandemic bond purchases and move closer to a rate hike.
Those bets were dashed by the proliferation of the highly transferable Delta variant in Europe and the ECB’s announcement earlier this month that it would temporarily shoot inflation above a 2 percent target.
“We believe that the ECB will in some way expand asset purchases and signal a timeline for rate hikes that pushes them even further into the future,” said Christopher Jeffery, head of inflation and interest rate strategy, Legal & General Investment Management.
He added that much of the recent rally in Bunds has been driven by US markets, where investors have been propelled in a flight of US Treasuries spurred by rising Covid infection rates.
The 10-year government bond yield rose 0.03 percentage points to 1.235 percent on Wednesday, but remained close to its lowest level since early February.
The dollar index, which measures the greenback against a basket of currencies, rose 0.2 percent to its highest level since the beginning of April, spurred on by the weaker euro and renewed pandemic concerns.
Rochelle Walensky, director of the U.S. Centers for Disease Control and Prevention, told lawmakers Tuesday that the Delta variant is responsible for 83 percent of new infections in the U.S., and an even larger percentage in areas where it Vaccination rates remained low.
The futures markets signaled that Wall Street’s S&P 500 would rise 0.4 percent in early New York trading, while the tech-driven Nasdaq Composite would tend to open flat.
In the UK, the pound sterling fell another 0.2 percent against the dollar to $ 1.3598, increasing its loss to nearly 1.3 percent this week as infection numbers soared. The FTSE 100 was up 1.5 percent, with exporters benefiting from the weaker pound and retailer Next raising its profit forecast.
In Asia, Tokyo’s Topix shot up 0.8 percent after five days of burglaries driven by fears of the spread of the Delta variant. Hong Kong’s Hang Seng index closed 0.2 percent lower.
Brent crude, the international oil benchmark, rose 0.6 percent to $ 69.76 a barrel but stayed close to one after an agreement by members of producer group Opec + to increase production by 400,000 barrels a day from August Two month low.
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