Chinese shares sink; euro rides high as yields spike

Reuters Tokyo | Updated on January 24, 2018

The euro continued riding high on Thursday thanks to a spike in euro zone debt yields, while in Asian equities, Chinese shares slid and tempered risk sentiment.

China's CSI300 index lost 1.7 per cent, while the Shanghai Composite Index dropped 1.8 per cent. The country’s equities have sagged recently on concern that waves of new share offerings will sap liquidity in other stocks.

MSCI’s broadest index of Asia-Pacific shares outside Japan fell 1.1 per cent.

Greece debt deal

Japan’s Nikkei and South Korea’s Kospi, on the other hand, gained 0.3 per cent and 0.5 per cent, respectively as some markets focused on hopes that Greece could be inching closer to a deal that would save it from default.

Risk appetite warmed in some quarters after Greece’s international creditors had signalled on Wednesday they were ready to compromise to avert a default.

ECB policy meet

In foreign exchange, the European common currency rode the momentum gathered overnight when the European Central Bank raised its inflation forecast for 2015, in line with recent data suggesting deflationary pressures were not as pronounced as feared.

ECB President Mario Draghi followed up by saying the central bank saw no reason to adjust its monetary policy stance following the recent surge in European bond yields.

The prospect of the ECB not front-loading its bond purchases pushed euro zone yields up and propelled the euro higher.

The benchmark German 10-year Bund yield climbed to within a hairsbreadth of 0.9 per cent overnight, from around 0.5 per cent at the start of the week.

The euro was steady at $1.1269, having rallied about 2.5 per cent so far this week.

“Unless there is a very big upside surprise in Friday’s US labour market report, the EUR/USD should make its way towards $1.15. The road may be bumpy and the rally could stall at the May high of 1.1466 but the path of least resistance for the EUR/USD is higher,’’ wrote Kathy Lien, managing director of FX strategy for BK Asset Management.

US Treasury yields

US Treasury yields rose in tandem with their European counterparts and while the dollar lost ground against the euro, higher yields helped it rebound modestly against the yen.

The dollar was up 0.2 per cent at 124.46 yen after pulling away from the previous day’s low of 123.79. The currency had climbed to a 13-year high above 125 yen on Tuesday when the dollar enjoyed a broad rally on upbeat US economic indicators.

Crude oil

In commodities, crude oil struggled after sliding overnight on concern generated by a big build in distillates and with OPEC expected to reject output cuts at its meeting on Friday.

US crude fell 0.1 per cent to $59.57 a barrel after plunging 2.6 per cent the previous day.

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Published on June 04, 2015
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