Euro hits six-month high on back of strong economic data

Pound subdued following Manchester bombing

Stacks of President Donald Trump’s budget proposal are seen on Capitol Hill. The White House will present Mr Trump’s first full budget plan to politicians on Tuesday. Photograph: Alex Wong/Getty Images

Stacks of President Donald Trump’s budget proposal are seen on Capitol Hill. The White House will present Mr Trump’s first full budget plan to politicians on Tuesday. Photograph: Alex Wong/Getty Images

 

Shares climbed and the euro hit a six-month month high before running out of steam on Tuesday, as the latest economic data made for encouraging reading, especially in Germany.

Investors continued to grapple with US uncertainty as President Donald Trump’s first full budget plan loomed, and a suicide bombing in Britain subdued the pound.

But the euro zone PMI surveys showing the bloc’s firms on their strongest run since 2011 as well as best manufacturing sector jobs growth in the survey’s 20-year-history bolstered signs the bloc is finally outperforming.

London’s FTSE, Frankfurt’s DAX and the CAC in Paris were up 0.3 per cent, 0.5 and 0.7 per cent as what was expected to be a modestly higher start for US markets neared. The euro hit $1.12680 to beat the previous day’s high by a whisker, only to fade back to $1.12225 as traders locked in some of this month’s 3.5 per cent surge.

“We’ve got a good pace of growth here. The fact we have maintained this high level in May is great news for second quarter GDP,” said Chris Williamson, chief business economist at IHS Markit which compiles the monthly PMI data.

It was not all smooth going though. Signs that euro zone governments and the International Monetary Fund remain some way apart on Greece’s debt problems nagged at bond markets and hit Greek shares. Greece’s short-dated government bond yields rose sharply as the IMF’s chief negotiator stuck to its stance that there needs to be more realism on what Athens can deliver after almost a decade in crisis.

The prospect of the ECB scaling down its multi-trillion euro stimulus programme if data remains as strong as it is, nudged up yields on German Bunds and other higher-rated government debt.

“The risk-off environment is already erased and we are back to the levels we saw yesterday on the back of the very bright economic outlook,” said DZ Bank analyst Rene Abrecht.

Trump caution

Asian trading had seen a modest pull back in risk appetite with MSCI’s broadest index of Asia-Pacific shares dropping back from near two-year highs. Tokyo’s Nikkei closed down 0.3 per cent as Japanese manufacturing activity expanded at the slowest pace in six months, while trading in China was choppy on concerns over a regulatory crackdown on lending practices. Its president Xi Jinping said later that authorities will also regulate overseas operations of Chinese companies more closely.

The dollar remained in the doldrums too. It was stuck at a 6½ month low against a basket of other major currencies as low 10-year US Treasury yields also underscored the dwindling hopes for significant near-term US fiscal stimulus.

The White House will present Mr Trump’s first full budget plan to politicians on Tuesday. Its proposals include a $3.6 trillion cut in government spending over 10 years, balancing the budget by the end of the decade. Congress holds the federal purse strings and often ignores presidential budgets, which are proposals and may not take effect in its current form. But the plan, which is to advocate selling half of strategic US oil reserves, weighed on crude futures, offsetting optimism over expectations that other major oil producers would agree to extend supply curbs this week.

Global benchmark Brent retreated 0.8 per cent to $53.44 a barrel and US crude futures dipped to $50.71, having hit their highest level in more than a month overnight.

The weaker dollar lifted gold slightly, however. Spot gold climbed 0.1 per cent to $1,261.56 an ounce in its third straight session of gains. “This broad dollar weakness remains,” Saxo Bank’s head of FX strategy John Hardy said. “But I think it is getting a bit stretched on the euro story and I think the market may feel that as well.” – (Reuters)