Stock update

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Before the European Central Bank meeting later this week could mark the beginning of the end of monetary stimulus during the crisis, European stock markets weakened and government bonds weakened.

The Stoxx 600 Index fell 0.3% in early trading, slightly lower than the all-time high of 475.8 reached in mid-August. The London FTSE 100 Index fell 0.4%.

The yield on German 10-year government bonds rose 0.03 percentage points to minus 0.33%, close to the highest level since mid-July. The yield on the German government bonds is inversely proportional to its price. The Italian equivalent bond yield rose by 0.04 percentage points to 0.73%.

After a brief recession last year, the Eurozone economy grew 2% faster in the second quarter of 2021 than in the first quarter. Compared with the same month in 2020, consumer price inflation in August reached a 10-year high of 3%.

The European Central Bank has been buying 80 billion euros of government and corporate bonds every month to keep borrowing costs low during the pandemic. It is widely expected that its monthly purchases will be reduced to about 60 billion euros.

Elisa Belgacem, senior credit strategist at Generali Investments, said the move “may have a short-term impact on market sentiment.” “But the market is fully prepared for the ECB’s cuts, and I don’t think there will be any major reactions to bond prices.”

In Asia, data showed that China’s exports in August increased by 26% from the same period last year, in stark contrast to recent manufacturing data that showed weakening industrial activity, and the Chinese stock market rose. The Shanghai and Shenzhen 300 Index rose 1.2%, led by raw material stocks.

In Tokyo, the Topix Index rose 1%, continuing the rally that began last week after Prime Minister Yoshihide Suga announced his resignation, boosting his successor’s hopes of launching economic stimulus measures to combat the spread of the coronavirus.

The futures market suggests that the Wall Street S&P 500 index will rise 0.1% at the opening in New York, while the top 100 stocks in the technology-focused Nasdaq index will rise 0.1%.

The 10-year U.S. Treasury yield rose 0.04 percentage points to 1.36%, as expectations rose for the U.S. central bank’s announcement of a reduction of $120 billion in crisis-period bond purchases later this year.

In the foreign exchange market, the euro held steady against the US dollar, buying 1.1865 US dollars. The pound fell 0.2% against the dollar to 1.1381 US dollars. The U.S. dollar index, which measures the U.S. dollar against six other currencies, rose 0.2%.

The oil benchmark Brent crude oil rose 0.2% to US$72.35 per barrel.