The Euro Rises Sharply Following Draghi’s Hawkish Comments

The Euro soared and yields rallied as European stock markets moved lower across the board following comments from the ECB’s Draghi. Risk appetite waned after some disappointing U.S. data Monday, which rekindled concern about the health of the global recovery and Asian markets closed mixed: Nikkei and CSI 300 managed to move higher, while Hang Seng and ASX closed with slight losses. In Europe DAX and CAC 40 are underperforming, after Draghi offered the clearest hint of policy adjustments so far. The ECB President stressed that the central bank will be cautious in its move. U.S. stock futures are also in the red while oil prices have moved cautiously higher with WTI trading at USD 43.70 per barrel.

Euro Soars as Draghi Says Monetary Policy Might Change

Eurozone yields jump higher, and the Euro soared testing the June highs as Draghi hints at policy change. Bund futures tanked and yields spiked higher after Draghi suggested that with policy becoming more accommodative as the recovery strengthens, the ECB may have to change official policy to keep the stance unchanged. He stressed that this wouldn’t mean tightening and that the economy still needs a substantial amount of stimulus, but this was the clearest sign yet that the ECB is heading for QE tapering.

UK June distributive sales survey beat expectations, with the headline realized sales reading rising to +12 from +2 in May, up on the median forecast for an unchanged outcome. The outlook was less impressive, with sales volumes expected to stall in the year to July, with new orders also anticipated to be flat. The soft outlook is a concern, offsetting the perky headline. The survey follows UK consumer credit data from the BBA showing weakness in May numbers, with consumer lending falling to a growth rate of 5.1% year over year, the slowest rate since October 2015. Higher inflation showed that the CPI was at 2.9% year over year in May, along with political uncertainties, pose a threat to consumer activity.

Italian confidence jumps higher in June, with manufacturing confidence rising to 107.3 from 106.9, while consumer confidence jumped to 106.4 from 105.4 in the previous month. The overall Economic Sentiment Indicator nudged to 106.4 from 106.2 and data suggests that the Italian economy continues to catch up, even if structural problems remain and the banking sector continues to struggle.