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 Weak manufacturing data from Germany took the wind out of European
shares and the euro in early trading, but for the most part moves
were minor and there was little reaction from the region's bond
markets.
The dollar, meanwhile, was up for its fifth straight day against a
basket of other major currencies - its longest streak of gains since
October - supported by the steady climb in U.S. bond yields since
last week's robust U.S. jobs report.
"Overall the dollar is a bit stronger and that will remain in place
over the next week," said Vasileios Gkionakis Global Head of FX
Strategy for UniCredit in London.
"Rates in the U.S. are going to grind higher, dollar/yen is going to
grind higher and probably in the next week or two against the euro
as well."
German industrial output fell 1.8 percent on the month in May, its
biggest drop in more than 2 years, confounding expectations of
unchanged industrial output in Europe's powerhouse.
The DAX in Frankfurt fell 0.3 percent, a top faller in Europe along
with the French CAC, which was down 0.4 percent after
pharmaceuticals heavyweight Sanofi warned currency effects would
dent its earnings.
"It's just more evidence that overall economic growth has slowed
down in the second quarter from the strong first quarter," Ioan
Smith, director at KCG, said.
The pan-European FTSEurofirst 300 .FTEU3 was down 0.1 percent to
1,392.31, having gained 1.7 percent last week, its biggest weekly
rise since March.
EARNINGS
Global shares rallied broadly last week, pushing MSCI's All World
share index to a record high, as U.S. employment growth smashed
forecasts and unemployment fell to near a six-year low of 6.1
percent.
Investors are now looking at whether record share prices will be
justified by quarterly earnings reports and forecasts in the United
States and elsewhere, with aluminum producer Alcoa kicking off the
U.S. earnings season on Tuesday.
Analysts polled by Reuters expect earnings growth of 6.2 percent for
the second quarter, and a return to double-digits in the third and
fourth quarters of 10.9 percent and 11.9 percent, respectively.
"People said the U.S. earnings would be bad for January-March but in
the end the profits were up. I would expect decent results (this
time)," said Tsuyoshi Shimizu, chief strategist at Mizuho Asset
Management.
Despite the improvement in the job market, the Federal Reserve is
widely expected to keep interest rates near zero for at least a year
even as it trims its bond-buying stimulus.
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In addition, two other major central banks - the European Central
Bank and the Bank of Japan - are committed to stimulus, keeping
cheap money sloshing around possibly for years.
Still, U.S. bond yields jumped after the jobs data, with the
rate-sensitive two-year yield staying near a 10-month high.
The two-year U.S. yield stood at 0.528 percent on Monday, having
risen to 0.532 percent on Thursday, when the jobs report came out.
DOLLAR DEMAND
The dollar index rose to 80.300, the highest level in a week and a
half, having recovered from a two-month low of 79.740 on Tuesday.
As a result, the euro was on the back foot at $1.3586 down from last
week's six-week high of $1.3701. The yen traded at 102.11 yen to the
dollar, also off a six-week high of 101.235 set a week ago.
In emerging markets, the Indonesian rupiah jumped 1.5 percent to hit
a five-week high of 11,680 rupiah to the dollar as local share
prices rose ahead of the presidential election on Wednesday.
Former special forces chief Prabowo Subianto and Jakarta Governor
Joko "Jokowi" Widodo are running neck-and-neck in opinion polls but
markets were buoyed by Jokowi's good chances as he is seen as more
market-friendly.
Among commodities, U.S. crude oil futures traded little changed at
$103.97 per barrel, near Friday's low of $103.67, as Libya geared up
to resume exports after the end of a rebel group's almost year-long
blockage of two major ports.
With safe-haven assets out of favor, spot gold slipped 0.6 percent
to $1,312.40 an ounce, after five consecutive weekly gains. Silver
fell 1 percent.
(Editing by Susan Fenton)
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