Equities around the world jumped yesterday and the euro tumbled on signals the European Central Bank may accelerate its one trillion euro bond-buying programme over the next two months.
The dollar gained 1.6 per cent against the euro and was broadly ahead for a second day, while US Treasuries fell on government data showing that US housing starts in April rose to a nearly seven-and-a-half-year peak.
Wall Street, which closed at record highs on Monday, reacted little to the upbeat housing data and was last down on weak results from retailer Wal-Mart.
The Dow Jones industrial average fell 12.61 points, or 0.07 per cent, to 18,286.27, the S&P 500 was down 1.7 points, or 0.08 per cent, to 2,127.5 and the Nasdaq Composite declined 5.70 points, or 0.11 per cent, to 5,072.74.
European markets shot up after senior ECB policymaker Benoit Coeure talked of adjusting the bank's buying programme. He said that the speed of the recent spike in bond yields, which has effectively wiped out the benefits of quantitative easing, was worrisome and that the ECB could “moderately” increase its buying in May and June, and possibly in September, to ensure it doesn’t fall behind on its target over summer.
That pushed the euro back below $1.12 for the first time in a week, and the FTSEurofirst 300 jumped 1.4 per cent as gains of 1.8 on Germany’s DAX and in Paris outpaced a 0.4 per cent rise on London’s FTSE.
Bond yields, which move inversely to prices, also tumbled, with those on 10-year German Bunds down 7 basis points.
A small rise in core eurozone inflation, meanwhile, was offset by the UK where it turned negative for the first time since the 1960’s. That knocked sterling as it fell for a third straight day against the broadly stronger dollar.
The dollar index was last up 1.20 per cent, reflecting strong gains by the US currency against the yen and Swiss franc. The euro last traded off 1.65 per cent at $1.1127.
Treasuries were also hurt by large offerings of corporate bonds, with yields on the 10-year note last at 2.2673 per cent on a price decline of 11/32.
Oil prices sagged for a second day as the stronger dollar took its toll alongside oversupply concerns triggered by a jump in Saudi Arabian exports. US crude dropped $1.55 to $57.88 a barrel, while Brent fell 2.3 per cent to $64.76.