Euro Climbs Before ECB as Treasuries Drop for 4th DayJoseph Ciolli
The euro rose from an almost three-month low and European stocks fell as the region’s central bank prepared for a meeting on stimulus measures this week. Treasuries slid for a fourth day, the longest drop since October, while U.S. shares were little changed.
The euro advanced 0.2 percent to $1.3622 as of 4 p.m. in New York, appreciating against 13 of its 16 most-traded peers. The Stoxx Europe 600 Index dropped 0.5 percent and the Standard & Poor’s 500 Index slid less than 0.1 percent. The yield on 10-year Treasury notes added six basis points to 2.59 percent. Copper fell 1.1 percent, while coffee entered a bear market. The ruble weakened for a seventh day against the dollar, the longest streak since January.
Euro-area inflation slowed more than economists forecast in May, raising pressure on the European Central Bank to deploy measures as soon as this week to kindle prices and drive growth. ECB President Mario Draghi is likely to signal that any interest-rate cut won’t necessarily be the final one, according to two euro-area central bank officials. Reports later this week will probably show the American unemployment rate last month remained near its lowest level since September 2008.
“Traders are sitting on their hands, waiting for the response from the ECB before setting their bets up,” Chad Morganlander, a fund manager at Stifel Nicolaus & Co., which oversees $160 billion, said by phone from Florham Park, New Jersey. “There’s an overall anticipation that the ECB will be aggressive and that the jobs numbers on Friday will be better than expected.”
With Draghi warning about the risk of a negative price spiral, the Governing Council is considering measures from negative interest rates to conditional liquidity for banks. The central bank has prepared investors for the prospect of stimulus when it announces its rate decisions on June 5. “We are ready to act,” ECB Vice President Vitor Constancio said on May 30.
The ECB president will probably reiterate his commitment to keep borrowing costs at present or lower levels, the people said, asking not to be identified because the talks aren’t public. While a final decision won’t be made until June 5, policy makers are debating a cut of 10 or 15 basis points in both the benchmark and deposit rates, the people said.
Anemic growth in the euro zone has added to the case for ECB stimulus, as policy makers continue to struggle with the legacy of the debt crisis. The inflation rate fell to 0.5 percent from 0.7 percent in April, the European Union’s statistics office said.
“All eyes are on the ECB meeting on Thursday,” Ion-Marc Valahu, a co-founder and fund manager at Clairinvest in Geneva, wrote in an e-mail. “Equities are mostly down as investors do not think that the ECB will do enough.”
In the U.S., Krispy Kreme Doughnuts Inc. dropped 15 percent after cutting its earnings forecast because of mounting costs and slow first-quarter sales. Quiksilver Inc. slumped 41 percent after the surfwear retailer posted a wider loss than analysts had predicted. Hillshire Brands Co. jumped 9.5 percent after confirming that Pilgrim’s Pride Corp. has increased its bid for the food producer.
A Commerce Department report showed factory orders climbed 0.7 percent in April. Economists estimated a rise of 0.5 percent. A release tomorrow may show companies added fewer workers in May.
Investors in Treasuries have increased bets the prices of securities would drop in value to the most since May 2006, according to a survey by JPMorgan Chase & Co. The proportion of net shorts or bets the price of the securities will decrease, was 29 percentage points in the week ending yesterday, up from 18 percentage points the previous week, according to JPMorgan.
Germany’s bund yield increased three basis points to 1.40 percent and the rate on similar-maturity U.K. gilts jumped three basis points to 2.64 percent.
The ruble declined 0.4 percent against the dollar to 35.0559 as weakening economic growth curbed appetite for Russia’s currency. Russian manufacturing remained in a contraction in May with the PMI indicating a “steady, but moderate, deterioration of business conditions,” HSBC Plc said yesterday.
Arabica coffee for July delivery fell 0.7 percent to $1.7115 a pound after rains eased drought damage for plants in Brazil, the world’s top producer and exporter. Growers are facing less severe crop losses than first estimated after showers last month reduced the impact of the worst dry spell in 50 years, Brazil’s Agriculture Minister Neri Geller said yesterday.
Qatar stocks dropped as concern deepened that the nation may lose the right to stage the 2022 soccer World Cup. The benchmark QE Index tumbled as much as 3.3 percent, the most since August. A panel looking into the awarding of the tournament said yesterday it will issue a report in July into the possibility of corruption in the process.
The Hang Seng China Enterprises Index of mainland companies in Hong Kong added 1.2 percent as trading resumed after a holiday. The HSBC and Markit Economics PMI was at a four-month high of 49.4 in May, up from 48.1 in April. At the same time, the number was below the 49.7 median forecast in a Bloomberg News survey of analysts.
Thailand’s SET Index rose 0.9 percent, heading for the highest close since Oct. 29, and the baht rose for the first time in seven days. The junta pledged this week to step up investment to help spur economic growth and said it will relax a curfew in some tourist areas that was imposed following the May 22 coup.