European Central Bank says markets over-reacted to Draghi's stimulus signals

Randall Craig
June 29, 2017

Overall confidence in the USA outlook was generally weaker despite an increase in consumer confidence to 118.9 for June from 117.6 the previous month. "But with the United States dollars already significantly overvalued on most of our metrics (by about 15 percent), medium-term risks are mainly to the downside", they added.

Most of tech rebounded Wednesday with Facebook, Apple, Amazon and Netflix all trading higher.

The dollar remained on the defensive after US Senate Republican leaders postponed a vote on a healthcare overhaul on Tuesday, as they faced resistance from party members.

"As each day goes by, it's clearer that maybe not much is going to get done.companies where Wall Street analysts have factored in tax cuts into their numbers look a bit vulnerable", said Phil Smeaton, chief investment officer at Sanlam.

It jumped 10 basis points from 0.24 percent to 0.34 percent on Tuesday to strike a one-month high, and then a further 6 bps on Wednesday to 0.40 percent.

The euro declined against its major opponents in the European session on Wednesday, after a media report showed that the market had misinterpreted remarks by the European Central Bank Mario Draghi as a signal towards reducing the monetary stimulus.

ANALYST TAKE: "While Draghi is among the more dovish policy makers at the central bank, there has been persistent speculation that the ECB will announce further reductions in asset purchases later this year and a more positive assessment of the economy from the President may suggest he's willing to back it", said Craig Erlam, senior market analyst at OANDA.

At the same time, the European Central Bank probably would not want to see the euro rise too rapidly, he said.

In Asian and early European trade, the euro rose another 0.7 percent, adding to a 1.4 percent daily gain on Tuesday. Yields move inversely to prices.

TreasuryOne dealer Andre Botha said emerging markets lost ground in reaction to a surging euro following Draghi's comments. The Fed has been gradually raising its key interest rate from record lows and hints about the pace of more hikes will be of interest to investors.

In other words The IMF reckons Trump will not get through his tax plan, his infrastructure plan or any of his other "policies" that could add to U.S. growth so this year's estimate for GDP growth has been cut to 21% from 2.3% and there will be no change next year with 2018's dropped to 2.1% from 2.5%.

Japan's Nikkei Stock Average fell 0.5% but higher sovereign-debt yields supported shares of Japanese insurers which are heavy buyers of such securities. Meanwhile, a weakening in the dollar has also given some support to base metals prices this morning.

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