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New York markets pre-open: Dollar dips as US preps China tariffs; bonds rally

SNL Image

? Dollar weakens as Trump set to impose tariffs on China.

? Bonds rally, euro advances after ECB monetary policy decision.

? European stocks down after mixed trading in Asia.

? S&P 500 set to open lower.

The dollar retreated against major currencies and 10-year Treasury yields dipped as the U.S. reportedly readied tariffs on Chinese goods, potentially triggering retaliation. European bonds rallied and the euro gained after the European Central Bank decided to end asset purchases after December and said interest rates should remain steady for more than a year. Oil fell and futures pointed to the S&P opening lower.

Ten-year Treasury yields fell 1 basis point to 2.927% by 7:02 a.m. ET amid reports the U.S. was preparing tariffs on up to 900 products from China. While China's retaliation is expected, the long-run market impact will depend on whether Trump chooses to counter-retaliate or "take it on the chin," said Chris Turner, head of foreign exchange strategy at ING. "The likelihood of more protectionist threats means that global asset prices will remain stuck in a 'Trade War trap' and lack any clear direction," he added.

The Euro Stoxx 50 slipped 0.17% and the FTSE 100 dropped 0.74%, following a mixed day for Asian markets. The Shanghai Composite slid 0.73% as the U.S. tariffs loomed and Hong Kong's Hang Seng index lost 0.43%, while Japan's Nikkei 225 closed up 0.50%.

The DAX Index fell 0.22% in Frankfurt, as Chancellor Angela Merkel faced off with her junior coalition partner over the interior minister's plans to give police the power to turn back asylum seekers at the border.

The euro rose 0.19% against the dollar as of 7:05 a.m. ET after eurozone headline inflation accelerated in May, as expected, and as the ECB communicated a dovish stance. The Fed's having lived up to hawkish expectations and the ECB having laid out a "definitive trajectory for quantitative easing and a far-off date for its earliest rate hikes" help eliminate market uncertainty and supports risk-taking over the second half of June, said Guy Stear, analyst at Société Générale.

Yields on 10-year German Bunds rallied as the market reacted to ECB forward guidance rather than the bond purchase tapering, said analysts at TD Securities. Investors also bought Italian bonds, with yields on that nation's 10-year debt falling 11 basis points to 2.63%.

The "continued divergence" between U.S. and EU monetary policy is likely to widen further between now and the end of 2019 with ECB President Mario Draghi set to leave the role in October 2019 and a plausible chance the Fed will hike another six times before the ECB even begins to raise rates, said Michael Hewson, chief market analyst at CMC Markets UK.

"With those sorts of rate differentials, it is hard to argue how the euro can go any other way but down," he added.

The yen was little changed against the dollar after the Bank of Japan kept its monetary policy unchanged, suggesting it was in no hurry to withdraw its massive stimulus program. Sterling appreciated 0.22% against the dollar. The Argentine peso plunged June 14 on worries over the central bank's ability to arrest the currency's slide, and as the country named Luis Caputo as its new central bank chief, Bloomberg News reported.

Brent crude oil dropped 1.1% to $75.10 per barrel on the ICE Futures Exchange. Gold fell 0.4% to $1,302.70 per ounce.


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The day ahead:

8:30 a.m. ET — U.S. Empire State manufacturing survey (Econoday consensus: 19.1)

8:30 a.m. ET — Canada manufacturing sales (Econoday consensus: 0.7% monthly)

9:15 a.m. ET — U.S. industrial production (Econoday consensus: 0.1% monthly)

10 a.m. ET — U.S. consumer sentiment (Econoday consensus: 98.5)

1 p.m. ET — U.S. Baker-Hughes rig count

4 p.m. ET — U.S. Treasury international capital