dinsdag 27 juni 2017

Euro, Bund Yields Extend Spike After Hawkish Draghi Shocks Markets

Draghi's overly-optimistic expectations for growth were taken as hawkish by the markets and earlier weakness in Bunds (yields spiking) and strength in EUR (surging to 2-week highs) have continued. As we noted earelier, speaking at the ECB's annual policy forum, Draghi highlighted a recovering euro zone economy that “the threat of deflation is gone and reflationary forces are at play” and that that the effects that keep inflation subdued are temporary and won’t let inflation deviate from its trend over the medium term. but added that stimulus in the form of the ECB's monetary support was still needed. The market broadly interpreted his unexpected comments as opening the way for the start of tapering even as core inflation readings fail to reach fresh highs. As Reuters adds, Draghi's comments "sounded to investors like he was ready to give more ground on German demands that the ECB get on with starting to reduce the volume of extra euros it is feeding monthly into the economy."
# A 7bps spike in Bund yields has taken out the Fed spike highs...


And EURUSD is testing Fed-spike highs...


Draghi's comments contrasted with a dovish tone he took on Monday, saying that super low interest rates create jobs, foster growth and benefit borrowers, while rejecting calls to exit super easy monetary policy quickly....