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 Investors digested figures from the previous day that showed
relatively strong euro zone economic growth in the first quarter,
contrasting with disappointingly weak U.S. retail sales in April.
The euro rose above $1.14, bringing its gains against the U.S.
currency in the last month to nearly 9 percent as the difference
between benchmark U.S. and euro zone 10-year yields shrinks from the
euro-lifetime high touched in March.
European stock markets were a sea of red on Thursday, with investors
worried about volatility and the tightening of financial conditions
resulting from the plunge in bond prices and spike in yields.
Asian stocks ex-Japan were broadly flat while Japan's Nikkei 225
index fell 1 percent, weighed down by the yen's strength against the
sagging dollar.
"The euro is continuing to rebound, supported by the ongoing
adjustment higher in euro zone yields. (This)... is in part
supported by strengthening growth in the euro zone and higher
inflation expectations," said Lee Hardman, currency strategist at
BTMU in London.
The euro was up more than 0.5 percent on the day at $1.1415, as the
U.S.-German 10-year yield spread narrowed to a three-month low of
152 basis points. In mid-March, the yield advantage in favor of the
dollar was over 190 basis points.
This pulled the dollar index, a measure of its against a basket of
six currencies, down to a four-month low of 93.175.
With higher U.S. interest rates seeming ever more distant, investors
bailed out of long dollar positions, taking the index's losses to
around 7 percent from a 12-year peak of 100.390 set in March.
ANXIOUS
Wednesday's weak U.S. retail sales report prompted investors to push
back the likely lift-off date for a rate hike by the Federal
Reserve, giving gold a steer to five-week highs above $1,218 an
ounce.
But this failed to reverse the bond selling, as German and U.S. bond
yields still surged to their highest in over five months.
The startling rise in yields has made equities look more expensive
in comparison to debt and kept global share markets subdued.
Australian, Singaporean and Thai stocks declined, while Chinese and
South Korean shares posted modest gains.
In early European trade, the FTSEuroFirst 300 index of leading
European shares was down 0.6 percent, Germany's DAX down 0.5 percent
and Britain's FTSE 100 was 0.7 percent.
"The bond market moves are making investors quite anxious," said
Oanda senior market analyst Craig Erlam.
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In bonds, the yield on German 10-year paper rose as high as 0.778
percent, closing in on the 2015 high of 0.799 percent touched last
week, before easing back toward 0.72 percent.
The 10-year Treasury yield eased back from Wednesday's five-month
closing high of 2.28 percent, but analysts say the momentum in
yields remains upwards.
While Fed officials keep insisting a rate hike could come from June
onward, markets are not convinced the U.S. central bank will be able
to move at all this year.
Bond moves are likely to be the main market driver on Thursday, but
investors will also keep close tabs on talks between Greece and its
creditors.
Finance Minister Yanis Varoufakis said on Thursday Greece's debt was
not viable and repayments to the European Central Bank should be
pushed back.
ECB president Mario Draghi will deliver a speech to the
International MOnetary Fund in Washington later on Thursday.
In commodity markets, oil gave back a little of recent hefty gains
after weak U.S. data raised prospects of lower global demand.
U.S. crude futures were off 37 cents at $60.14 a barrel, while Brent
lost 25 cents to $66.56.
(Reporting by Jamie McGeever; Additional reporting by Sudip
Kar-Gupta; editing by John Stonestreet; To read Reuters Global
Investing Blog click on http://blogs.reuters.com/globalinvesting;
for the MacroScope Blog click on
http://blogs.reuters.com/macroscope; for Hedge Fund Blog Hub click
on http://blogs.reuters.com/hedgehub)
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