The euro rose to a 10-day high yesterday after hawkish comments from the European Central Bank, putting more upward pressure on bond yields and sinking some stocks as worries over Italy also weighed.
Robust growth is making the central bank increasingly confident that inflation is on its way back to target, ECB chief economist Peter Praet said yesterday, raising the likelihood it may use a meeting next week to reveal more about the end of its bond-buying programme.
Mr Praet’s comments supported the euro, which rose 0.5 per cent to 1.1769, weakening the dollar and looking likely in part to help US stocks, which were set to open higher.
S&P 500 futures were up 0.2 per cent as trade tensions with China also eased, while the technology-focused NASDAQ was set to hit a record for the second day in a row.
In Europe bonds sold off, with the yield on Germany’s benchmark 10-year bond up nearly eight basis points to 0.44 per cent, on track for their biggest daily rise in nearly a year.
The continent’s benchmark Stoxx 600 index was flat, with interest rate-sensitive consumer staples and utilities stocks among the heaviest fallers.
Italian stocks underperformed, falling as much as 1.4 per cent before recovering some losses to trade down 0.3 per cent.
Investors said the new government’s big-spending fiscal plans, a major worry for markets over the last few weeks, were unlikely to be helped by the ECB tightening its own policy.
Italian borrowing costs also rose more than most in Europe, with the 10-year yield rising 20 basis points to 2.96 per cent.
“Profligate ECB bond buying in the face of profligate Italian fiscal policy is an interesting conflict,” said Paul Donovan, chief economist at UBS Global Wealth Management.
“We believe the bond buying programme will conclude by the end of this year.”
MSCI’s world equity index, which tracks shares in 47 countries, was up 0.27 per cent, mainly as a result of a strong showing from Asian stocks. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.68 per cent.
Meanwhile, oil prices steadied yesterday after Venezuela raised the prospect of a halt to some crude exports, easing worries about oversupply.
Brent crude was broadly flat at $75.31 per barrel.