Borrowing costs in Germany showed no signs of halting their downward charge as the market began to feel the effects of QE. Ten year yields on German government bonds fell to a fresh low last week, touching 0.139% briefly on Thursday as the ECB’s mammoth €1.1tn stimulus package continued to loosen the monetary environment. Having started the year above 0.5%, ten year bund yields have come down significantly and with the ECB’s quantitative easing programme only in its second month a growing number of market participants are concerned that yields could soon fall below zero, highlighting the shortage of high quality euro denominated debt issues only two months in.
The euro posted a continuation of last week’s moves lower, trading under pressure for a sixth straight session against the dollar as it moved closer and closer to parity. Intraday moves saw the single currency trade towards 1.0521 before partially recovering towards the end of the European session. Recent dollar strength has pushed the euro back to its weakest level in a month and could potentially hit a fresh twelve year low, bringing the year-to-date losses in the euro against the dollar to just over 13%. While exporters will stand to benefit from a weaker currency, further gains in the greenback against the euro could see parity between the two reached in the coming weeks as diverging monetary policies of the US Fed and ECB see substantial flows out of EUR and into USD.
It was a mixed session for European stock indices today with eurozone equity benchmarks lifting higher while London’s blue chip index pared recent gains. Both the DAX and the CAC after sputtering at the start of the day traded marginally higher, supported by a weaker euro as overall risk appetite remained stable. Stocks in London in contrast sank lower from the open and spent the entire session in negative territory as weaker than expected Chinese trade data dragged down London listed mining groups. Among the indices worst performers, BHP Billiton led the charge lower, erasing as much as 3% throughout the day with Antofagasta and Anglo American closely following with losses of 2.5% and 2.4% respectively.