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New York markets pre-open: Eurozone bonds sell off on ECB hawks; US yields up

SNL Image

? Eurozone bonds sell off on hawkish comments from ECB officials.

? U.S. yields up, dollar down ahead of trade data.

? European markets rise after Asia registers gains.

? S&P 500 set to open higher.

U.S. Treasury yields gained and the dollar slipped ahead of U.S. trade data as investors remained wary of mounting global trade tensions. Eurozone bonds sold off on hawkish comments from European Central Bank officials referring to a possible end of quantitative easing. European stock markets gained, and futures pointed to the S&P 500 opening 0.19% higher.

ECB Chief Economist Peter Praet said the governing council will discuss the timing of ending its quantitative easing, or QE, program at its June 14 meeting. He also said the "underlying strength" of the eurozone economy should move inflation toward the ECB's target.

Separately, Jens Weidmann, head of Deutsche Bundesbank and a board member at the ECB, said it is "plausible" the ECB might end asset purchases in 2018.

Ten-year yields for Spain and Portugal rose by 8 and 4 basis points, respectively, as did yields on French bonds, by 9 points, as of 7:03 a.m. ET. German Bunds fell as 10-year yields added nearly 8 basis points to 0.451%. The euro strengthened about 0.50% against the dollar.

Considering that political risks may re-emerge and downside risks to the bloc's economic outlook have increased, "clear hints at an end of QE, while keeping full flexibility, at next week's meeting still seems the most likely outcome," said Carsten Brzeski, chief economist at ING Germany. "Then, the July meeting could bring the announcement of a QE extension at a lower pace at least until December."

"Even though there seems to be a general understanding on an end to QE, the devil is definitely in the detail," according to ING.

Pressure mounted on Italian bonds as 10-year yields climbed more than 9 basis points to 2.850% after Prime Minister Giuseppe Conte vowed to pursue radical policies but ruled out leaving the euro. The new government is understood to be on a collision course with EU deficit rules. The FTSE MIB was down 0.25% in Milan.

Sterling gained 0.17% and the yen slipped 0.36% against the dollar ahead of U.S. trade data. Ten-year U.S. Treasury yields gained 3 basis points to 2.958% as of 7:01 a.m. ET as investors await the U.S. Federal Reserve's interest rate decision June 13 and evaluated the global trade environment.

The EU on June 6 confirmed plans to put tariffs on about €2.8 billion of annual U.S. imports. The European Commission is also under pressure from domestic steel producers to impose an import quota on the metal from the rest of the world. Mexico is targeting U.S. food and steel products in retaliatory tariffs.

The prospects of reaching some agreement on tariffs at the upcoming G-7 summit starting June 8 have dimmed, CMC Markets U.K.'s Michael Hewson said.

"The current resilience of the U.S. economy may embolden the U.S. administration to calculate that they have slightly more leverage in this particular trade standoff, which means they may well dig in their heels for a lot longer than investors suspect," Hewson said.

European stock markets rose, following gains in Asia. The Euro Stoxx 50 was up 0.14% and the FTSE 100 added 0.54% as of 7:01 a.m. ET. The Shanghai Composite was broadly stable, and Hong Kong's Hang Seng index closed 0.53% higher.

Brent crude oil was little changed at $75.36 per barrel on the ICE Futures Exchange ahead of a U.S. petroleum status report June 6.

Gold fell 0.31% to $1,298.20 per ounce.

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The day ahead:

8:30 a.m. ET — U.S. international trade (Econoday consensus: $49 billion deficit)

8:30 a.m. ET — U.S. productivity and costs (Econoday consensus: nonfarm productivity 0.7% quarterly, unit labor costs 2.8% quarterly)

8:30 a.m. ET — Canada merchandising trade (Econoday consensus: C$3 billion deficit)

10 a.m. ET — Canada Ivey Purchasing Managers' Index

10:30 a.m. ET — U.S. Energy Information Administration petroleum status report