London: European and US stock markets marked time Tuesday as traders mulled the prospect of higher US interest rates.
The euro gained ground on the dollar, which had risen for five straight sessions on the prospect of a quick rise in American interest rates that make the currency more valuable to hold.
“The dollar buying has paused, at least for the time being. After rising for five consecutive days, some bullish traders are undoubtedly booking profit ahead of this week’s key fundamental events,” said Forex.com analyst Fawad Razaqzada.
“The rising bond yields in the US should keep the dollar supported as the market looks forward to two or three more rate increases from the Federal Reserve this year.”
Right on cue, the yield on the 10-year US Treasury bond hit the psychological 3.00 percent mark for the first time in more than four years, a signal the Federal Reserve will need to speed up rate hikes, fuelling investor unease.
On Wall Street, a batch of mostly solid corporate earnings offset rate rise anxiety, however, and ten minutes into the session the Dow Jones Industrial Average was up 0.2 percent at 24,505.22 points.
Razaqzada suggested concerns over trade could “discourage even the hawkish policymakers from trying to tighten monetary policy” and “if the ECB does come across as being more dovish than hawkish then this could undermine the euro further and underpin” an “overbought” dollar.
For Lukman Otunuga, Research Analyst at FXTM, “the story behind the dollar’s incredible appreciation in recent days continues to revolve around rising US bond yields and easing geopolitical risks.”
Otunuga said the main risk for the currency this week will be the release of US first quarter GDP figures, which are expected to show economic growth cooling as consumer spending eases.
An improving US economy, expectations that its inflation will continue to rise on the back of an oil price rally and President Donald Trump’s tax cuts have lifted the yield on 10-year US government bonds.
Higher yields are a signal interest rates could rise and could weigh on markets as traders shift from equities to safer bond investments.
Confidence among business leaders in Europe’s biggest economy Germany fell back in April, a closely-watched survey showed Tuesday, as executives responded to a broader clouding-over of the global economic outlook.
The Ifo institute’s closely-watched barometer lost 1.2 points month-on-month, for a reading of 102.1.
Elsewhere Tuesday, shares of technology firms struggled after Apple suffered another sell-off Monday on worries about the key smartphone sector.
Russian aluminium giant Rusal meanwhile soared more than 40 percent after the US Treasury said it would consider lifting sanctions if tycoon Oleg Deripaska gives up control of the company.
In oil markets, both main contracts gave up some of Monday’s gains that saw them hit levels not seen since late 2014, with ongoing unrest between crude kingpin Saudi Arabia and Yemen rebels providing support.
Key figures around 1400 GMT
New York – Dow: UP 0.3 percent at 24,532.92
London – FTSE 100: UP 0.2 percent at 7,415.30 points
Frankfurt – DAX 30: DOWN 0.2 percent at 12,549.95
Paris – CAC 40: DOWN 0.1 percent at 5,430.93
EURO STOXX 50: DOWN 0.2 percent at 3,506.81
Tokyo – Nikkei 225: UP 0.9 percent at 22,278.12 (close)
Hong Kong – Hang Seng: UP 1.3 percent at 30,636.24 (close)
Shanghai – Composite: UP 2.0 percent at 3,128.93 (close)
Euro/dollar: UP at $1.2213 from $1.2207 at 2100 GMT
Dollar/yen: UP at 108.99 yen from 108.72
Pound/dollar: UP at $1.3961 from $1.3941
Oil – Brent North Sea: DOWN six cents at $74.81 per barrel
Oil – West Texas Intermediate: DOWN 51 cents at $68.58
AFP