Euro jumps, bonds fall on rate bet amid tech rout

Sydney - The euro rallied to a one-year high and government bond yields jumped on the prospect of higher interest rates. A selloff in technology stocks extended into the Asian trading session.

The euro jumped to the highest level since last year’s Brexit vote after ECB chief Mario Draghi offered upbeat remarks. Treasury yields rose the most since January after Janet Yellen signaled the US economy can withstand higher interest rates and said asset valuations were rich.

Samsung Electronics, Taiwan Semiconductor Manufacturing and Tencent led tech shares lower on the MSCI Asia Pacific Index. The yuan surged both onshore and overseas for a second day amid speculation of central bank intervention. Oil resumed its decline on signs of a supply glut.

Central banks remain the key drivers for markets this week. Draghi said he sees room for paring back stimulus, while Yellen joined her deputy saying some asset valuations are frothy. Those comments come ahead of more appearances from policy makers at the conference in Portugal that concludes on Wednesday.

US equities volatility jumped the most in six weeks amid of host of issues weighing on investors. The International Monetary Fund cut its outlook for the US economy, removing assumptions of President Donald Trump’s plans to cut taxes and boost infrastructure spending.

Other risks to the markets include oil’s slide into a bear market and the continuing selloff of technology stocks, while a cyberattack that hit port operators from New York to Rotterdam also spooked traders.

Here’s what lies ahead for investors:

The Federal Reserve is set to announce the results of the second part of its annual bank stress test, which will determine whether lenders can increase dividends and share repurchases.

China’s PMI might have declined in June after unexpectedly remaining unchanged in May, reflecting government offers to cut overcapacity and leverage. That reading is due Friday. Also slated this week: Japanese inflation, factory output, unemployment, household consumption and housing starts.

Here are the main moves in markets:

Currencies 

The euro rose 0.3% to $1.1373 as of 08:14, after surging 1.4% on Tuesday. The Bloomberg Dollar Spot Index was down less than 0.1% after falling 0.6% in the previous session. The yen climbed 0.1% to 112.22 per dollar after the Japanese currency weakened 1% over the past two sessions.

The Australian and New Zealand dollars rose more than 0.3%, while the South Korean won dropped 0.5%.The offshore yuan climbed 0.2% after surging 0.6% on Tuesday.

The onshore currency also rose 0.2%. The Canadian dollar jumped 0.5%, adding to a 0.4% gain on Tuesday. Bank of Canada Governor Stephen Poloz said in a CNBC interview that interest rate cuts “have done their job” and that levels are now “extraordinarily low.”

Stocks

Futures on the S&P 500 Index dropped 0.1%. The underlying gauge lost 0.8% on Tuesday, the most since May 17, as technology and health-care shares declined. Japan’s Topix slipped 0.3%, with a rally in banks overshadowed by declines in technology companies. Australia’s S&P/ASX 200 index rose 0.7% as basic materials shares rallied.

South Korea’s Kospi index lost 0.4%, with Samsung down 1.2%. The Taipex tumbled 1.2% as Taiwan Semiconductor dropped 1.4%. The Hang Seng retreated 0.5%, with Tencent off 1.5%.

Investors are watching the Hong Kong market closely after a string of small-cap stocks suddenly plunged Tuesday, with traders pointing to links between some of the companies and a brokerage that’s under regulatory investigation. The Shanghai Composite lost 0.2%.

Bonds

The yield on 10-year Treasuries added three basis point, after jumping seven basis points on Tuesday to 2.21%. The yield on German bunds climbed three basis points, after rising 13 basis points in the previous session. French yield added 0.4 basis points. Australian 10-year government bond yields rose 11 basis points to 2.45%.

Commodities

WTI futures fell 0.5% to $44.04 after climbing 4 percent in the previous four sessions. Oil tumbled into a bear market last week on concerns that expanding global supply will counter output cuts from OPEC and its partners including Russia. Gold rose 0.3% to $1 251.39 an ounce, climbing for a second day.

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