Government Bonds Rise Sharply; Dollar Strengthens

 
Snapshot: 

        -Dollar gains; 10-year Treasury yield at 2.195%; Stock futures higher; Brent crude steady, gold lower
        -Watch for: The Retail Economist/Goldman Sachs weekly chain store sales index; new residential construction housing starts and building permits; Johnson Redbook retail sales index; earnings from: Wal-Mart, Home Depot
        News: ECB's Coeure: Speed of Reversal in Bond Prices Is Cause for Concern; Eurozone Exports Boosted by Weaker Euro; ECB Ready to Go Further if Inflation Target Not Met-French Central Bank Chief
        The euro slid against the U.S. dollar and European stocks surged Tuesday after comments by two European Central Bank officials.
        In early trade, the euro was down more than 1% against the buck at just over $1.119 after the ECB published comments delivered by one of its board members stating that the recent reversal in bond prices was worrisome for the speed at which it happened.
        Benoit Coeure said that the central bank would moderately front-load its purchases in its bond-buying program because of less market liquidity in the summer and that this move wasn't due to market conditions.
        Separately, ECB governing council member Christian Noyer said the ECB was ready to go further if needed to meet its inflation target.
        The dollar had already strengthened against the euro late Monday after European markets closed when economists at the Federal Reserve Bank of San Francisco published a paper in which they argued that issues with seasonal adjustments in the official growth statistics had depressed winter figures, and that first quarter GDP was actually much higher than initially estimated.
        U.S. Treasurys reverse their early weakness and pick-up strongly after bullish ECB commentary sparks a sharp core bond market rally. ECB's Coeure said that QE bond buying would be front-loaded in mid-May to June to counter holiday-related liquidity worries while Bank of France Governor Noyer, also an ECB Governing Board member, said QE will go on past September 2016 if needed.
        The June contract adds 8/32 to trade at 127-200 while the yield on the 10-yr cash falls to 2.195%.
        European government bonds rose sharply, sending yields lower. By midmorning, the yield on the 10-year German bond was 0.09 percentage point lower on the day at 0.56%. The yields on Spanish and Italian 10-year bonds were 0.17 percentage point lower at 1.672% and 1.740% respectively.
        U.S. stock futures are pointing to a stronger open Tuesday as markets await Wednesday's release of the Federal Open Market Committee's meeting minutes.
        The minutes will likely show an FOMC that wanted to keep the prospect of a 2015 rate hike on the table but which was cautiously watching the weak first-quarter economic data to determine whether it marked a cyclical downturn or a one-off interruption due to inclement winter weather.
        "Despite the weaker than expected confidence for the US homebuilders signalling a slowdown, the Dow reached a record high at 18,325 and remains well supported this early morning," said Jonathan Sudaria at London Capital Group.
        On Tuesday, investors will be eyeing housing starts and building permits for April, which are expected to come in at +10.2% on-month at 1.02 million units annualized, versus +2.0% in March at 926,000 units.
        Similarly with home prices, economists expect the improved North American weather to have unleashed construction activity in the residential sector as a healthy jobs market creates more opportunities for new home buyers.
        Oil prices were steady amid lacklustre trade in Asian hours as investors weighed reports of more violence in the Middle East against increasingly bearish supply fundamentals.
        On the New York Mercantile Exchange, light, sweet crude futures for delivery in June traded at $59.52 a barrel, up $0.09 in the Globex electronic session. July Brent crude on London's ICE Futures exchange fell $0.08 to $66.19 a barrel.
        Gold prices on the London spot market were lower Tuesday, as the dollar firmed against major currencies, including the euro and sterling.
        Spot gold was down 0.4% at $1,220.46 a troy ounce in morning trading -- down sharply from its three-month high at $1,232.41 an ounce in the previous session.
        "The firm U.S. dollar took its toll ... with the result that gold shed almost all of its gains again," said Commerzbank.
        ECB's Coeure: Speed of Reversal in Bond Prices Is Cause for Concern
        The recent reversal in bond prices is worrisome more for the speed at which it happened, a European Central Bank Executive Board member said in remarks delivered Monday.
        Eurozone Exports Boosted by Weaker Euro
        A weaker euro helped boost exports of goods from the eurozone to the rest of the world in March, pushing the currency area's trade surplus higher and aiding its economic recovery.
        ECB Ready to Go Further if Inflation Target Not Met-French Central Bank Chief
        The European Central Bank is ready to take additional steps to boost inflation if its current quantitative easing program proves insufficient, the head of France's central bank Christian Noyer said Tuesday.
        U.K. Flirts With Deflation as Prices Fall
        Consumer prices in the U.K. fell in April compared with a year earlier for the first time in more than half a century, underscoring the weakness of inflation throughout much of the developed world.
        Pimco Steers Clear of Emerging-Market Contingent Convertible Bonds
        As banks world-wide rush to sell a new type of high-yield hybrid security to bolster their cash buffers in response to tightening global standards, one of the biggest buyers is staying away from those issued by emerging-market lenders.
        U.S. Home Builders Remain Wary
        Confidence among U.S. home builders fell for the fourth time in five months, a sign the housing market may be slow to pick up after an up-and-down winter.
        Supreme Court Adds Protections for 401(k)s
        The Supreme Court put companies managing 401(k) retirement plans on notice they have a continuing duty to be judicious on plan investment decisions, adding protections for the worker savings plans.
        Write to Sarka Halas at sarka.halas@wsj.com
        (END) Dow Jones Newswires

        May 19, 2015 06:13 ET (10:13 GMT)

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