Sun, December 04, 2022

ECB President: Euro Wary on Expected Fed Rate Cuts

Sign of the European Central Bank with the headquarters in the background.

On Thursday, pushing world stocks to new 18-month highs and on bets the U.S. Federal Reserve would cut interest rates this month and that other major central banks would embrace looser monetary policy, the government bonds held near multi-year lows.

In the wake of their recent rally and with Germany’s 10-year Bund yields just off a historic low of minus 0.39%, the benchmark debt yields held near record lows.

Pushed down by bets that the European Central Bank’s next chief will maintain a dovish policy stance to buoy the euro zone economy, the U.S. 10-year Treasury notes had hit their lowest since November 2016 on Wednesday.

A chief economist at Market Securities in Paris, Christophe Barraud said, “For central banks, everyone is expecting dovish moves, not only for U.S. but also for Europe and even Japan.”

In addition, he also said, “Everybody is an optimistic for quick central bank moves.”

In June, after a report showed U.S. companies added fewer jobs than expected, the fall in U.S. Treasuries occurred. Also, even as the current U.S. economic expansion marked a record run last month, the labor market is softening on raising concerns.

The market’s focus is now on Friday’s U.S. non-farm payrolls because Wall Street is closed for the Independence Day holiday.

Meanwhile, economists are expecting to have an increase of 160,000 in June compared with 75,000 in May.

On Wednesday, U.S. President Donald Trump repeated the call for the United States to manipulate currencies separately and pump money into their economies.

Naming the 

The Managing Director of the International Monetary Fund, Christine Lagarde.

Late on Tuesday, after EU leaders agreed to name Christine Lagarde as the ECB’s new president, government borrowing costs were cut down to record lows in the euro zone.

The maintenance of the dovish stance is widely expected by the market to be continued by current International Monetary Fund head Lagarde as stated by former ECB President Mario Draghi.

Rates strategist at Mizuho Peter McCallum said, “We don’t expect it to be breached today.”

He also added, “There will not be enough catalysts to get through that point and there is a lot of supply.”

A day earlier, after hitting its highest since February last year, the action in bond markets buoyed stocks.

At record closing on Wednesday, the three major U.S. stock indexes finished high. Amid thin volumes, equity markets across Europe were flat, with the euro STOXX 600 unchanged.

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