The euro sagged to a seven-month trough on Monday as the prospect of more policy easing in Europe benefited the US dollar, while activity in Asian shares was crimped by a holiday in Japan.
The strength of the dollar also combined with worries about Chinese demand to clobber commodity prices again, sending copper to its lowest in over six years. Financial spreadbetters expect European stocks to open mixed, with Britain's FTSE 100 about 0.4 per cent lower, while Germany's DAX and France's CAC 40 start the day about 0.05 per cent and 0.04 per cent higher, respectively. The head of the European Central Bank, Mario Draghi, last week offered the strongest hint yet that the ECB will unveil fresh stimulus measures at its Dec. 3 policy meeting.
The contrast with the US Federal Reserve could not be more stark as it seems destined to lift rates in December for the first time in a decade, underpinning the dollar. The impact was clear in bond markets where yields on two-year German debt hit their lowest ever at negative 38 basis points, while US yields were at their highest since mid-2010.
As a result the premium offered by US paper yawned out to 130 basis points, the fattest since 2006. The drag from negative yields pulled the euro down to $1.0613, breaching the recent low of $1.0615. It also peeled off to 130.52 yen, again the lowest since April, before bouncing back to 130.74. Against a basket of currencies the dollar firmed 0.3 per cent to 99.881, while also rising to 123.19 yen.
Equities were quieter, with MSCI’s broadest index of Asia-Pacific shares outside Japan off 0.2 per cent. South Korea’s main index gained 0.7 per cent while Australian stocks added 0.4 per cent. Wall Street could find support from news of another blockbuster merger.
Sources told Reuters that Pfizer Inc was due to secure formal board approval for its acquisition of Allergan Plc for more than $150 billion, creating the world's biggest drug maker. The E-Mini contract on the S&P 500 was little changed at 2,089.25 on Monday. The Dow ended Friday up 0.51 per cent, while the S&P 500 added 0.38 per cent and the Nasdaq 0.62 per cent. The S&P 500 boasted its best week in almost a year, while Europe's main stock index enjoyed its strongest week in a month. "Interestingly, markets are treating the prospects of policy divergence reasonably well," said Jo Masters, a senior economist at Australia and New Zealand Bank. "But with two of the world's major central banks about to head on divergent policy paths, can such smooth sailing continue over the months ahead?" they wondered. "Increased policy tension is likely to mean that volatility remains elevated."
The strength of the dollar kept commodity prices under pressure. Gold hovered around $1,070.56 an ounce having touched its lowest level in nearly six years. Copper slipped to a fresh six-and-a-half year low, as traders bet metals prices had further to fall given China’s slowing factory demand. Oil prices sank again with US crude off $1.05 at $40.85 a barrel, while Brent lost 69 cents to $43.97.
Reuters
