Global stocks, gold and bond prices slip on talk of ECB taper

EghtesadOnline: Asian shares and gold retreated on Wednesday and bond yields were near two-week highs as markets were rattled by a media report flagging the possible withdrawal of the European Central Bank's bond buying program.

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05 October 2016

European markets are also poised for a subdued start, with spreadbetters expecting Britain's FTSE 100 to open as much as 0.2 percent lower, Germany's DAX to begin the day down 0.5 percent and France's CAC 40 to be off as much as 0.7 percent, reports Reuters.

MSCI's broadest index of Asia-Pacific shares outside Japan slipped 0.4 percent. Japan's Nikkei closed up 0.5 percent, aided by a weaker yen.

China markets are closed for the National Day holiday.

Bloomberg reported on Tuesday that the European Central Bank (ECB) would probably wind down its 80 billion euro ($90 billion) monthly bond purchases gradually before ending its quantitative easing program, citing unnamed officials at euro zone countries' central banks.

ECB media officer Michael Steen later tweeted that the central bank's decision-making body has not discussed reducing the pace of its monthly bond buying.

Rates will remain low until inflation gets up to the ECB's target, ECB chief economist Peter Praet told bankers on Tuesday.

Ric Spooner, chief market analyst at CMC Markets in Sydney, wrote that international bond markets "appear to be at a stage where nervousness about the prospect of central bank stimulus ultimately ending is outweighing the positive impacts of any near term moves to temporarily extend that stimulus."

"This is reflected by bond yields rising and gold crashing," he said.

Gold plunged 3.3 percent on Tuesday, its biggest tumble since September 2013, to its lowest level since Britain's vote to leave the European Union. It recovered some of those losses on Wednesday, climbing 0.3 percent to $1,272.12 an ounce.

The yield on the benchmark 10-year U.S. Treasury notes surged to a near two-week high of 1.6920 percent on Tuesday. At 0625 GMT Wednesday, it was at 1.6760 percent.

German 10-year government bonds also touched an almost two-week high of minus 0.043 percent on Tuesday before closing at minus 0.091 percent. On Wednesday, they set a two-week high of minus 0.042 percent before slipping to minus 0.052 at 0629 GMT.

In a note, Citi analysts wrote that the Bloomberg report was a "remarkably hawkish surprise", given that a consensus "probably viewed an extension of the quantitative easing program as the more likely outcome".

"Following on from the Bank of Japan's policy maneuvers earlier, such a shift from the ECB would likely confirm the end of experimental and extreme monetary easing in the G3." they added. "Notably, in the U.S. too we have continued to receive a parade of hawkish guidance from Fed speakers."

Richmond Fed President Jeffrey Lacker argued on Tuesday that borrowing costs might need to rise significantly to keep inflation under control.

Lacker, one of seven policymakers who currently do not have a vote but who participate in policy discussions, made clear on Tuesday he would have been in the camp gunning for higher rates.

Chicago Fed President Charles Evans said on Wednesday that he would be "fine" with raising U.S. interest rates if economic data warrants doing so, in a speech in Auckland, New Zealand.

Traders have priced in a 63 percent chance of the Fed raising rates in December, according to the CME Group's FedWatch tool.

The dollar, which received a boost overnight from growing expectations for a rate hike this year, inched back on Wednesday.

The dollar index, which tracks the greenback against six major global peers, slipped 0.2 percent to 95.987 after advancing 0.5 percent on Tuesday. Earlier on Tuesday, it touched its highest point in almost two months.

The dollar edged up 0.1 percent to 102.96 yen, after jumping 1.2 percent to its strongest level since Sept. 14 on Tuesday.

Sterling remained near its 31-year low hit on Tuesday on concerns about Britain's exit from the European Union, after British Prime Minister Theresa May said on Tuesday the country's separation from the EU will not be "plain sailing".

The British pound was last up 0.1 percent at $1.2736, after surrendering almost 2 percent over the past two days.

The euro dropped as much as 0.7 percent on Tuesday, but recovered to end the day little changed. It was last trading up 0.1 percent at $1.12155.

Oil defied the stronger dollar to surge, thanks to a report suggesting U.S. fuel inventories may have fallen for a fifth straight week.

U.S. crude futures advanced 1 percent to $49.15, after touching a three-month high earlier in the session.

Brent crude added 0.9 percent to $51.32. It hit a four-month high on Tuesday.