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Thursday, 2 June 2016

Euro slips on ECB's cautious view, oil falls on OPEC


The euro declined on Thursday on the European Central Bank's cautious economic outlook, while oil prices took a hard knock after OPEC failed to reach a deal to freeze output.

Stock prices across major markets fell near one-week lows, bogged down by a 2-percent slump in Japan.

U.S. and German government bond prices, as well as gold, firmed on safe-haven bids.

The ECB nudged up its inflation forecast for 2016 but predicted price growth would remain below target through 2018 as depressed energy costs have held down prices of other goods and services.

"I think some people had been expecting the revisions to be higher than that, given the rise in oil prices," Rabobank strategist Lyn Graham-Taylor said, referring to oil's rise of nearly 80 percent since January to $50 a barrel.

Oil's recovery had been driven by hopes OPEC would reach an accord on a production freeze in an effort to address the global supply glut and sluggish demand.

On Thursday, the group of the world's major oil exporters failed to come to an output policy with Iran insisting on the right to ramp up production.

The disinflationary effect of cheap oil on the euro zone, together with weak regional growth, would lead the ECB to stick to its negative interest rate policy for a protracted period. This ultra loose policy stand will likely undercut the euro.

The euro was down 0.2 percent at $1.1166 EUR and 1 percent weaker at 121.31 yen.

The euro's decline offset the dollar's weakness against the yen and other major currencies. The dollar index .DXY was little changed at 95.378.

The drop in oil prices hurt U.S. energy stocks, dragging major regional market indexes lower.

The Dow Jones industrial average .DJI fell 33.42 points, or 0.19 percent, to 17,756.25, the S&P 500 .SPX slipped 5.3 points, or 0.25 percent, to 2,094.03 and the Nasdaq Composite .IXIC declined 7.77 points, or 0.16 percent, to 4,944.48.

On the other hand, Europe's broad FTSEurofirst 300 index .FTEU3 managed a 0.15 percent gain at 1,352.41.

Earlier, Tokyo's Nikkei .N225 tumbled 2.3 percent.

The MSCI world equity index  which tracks shares in 45 nations, fell 0.22 percent to 401.29.

In the bond market, the benchmark 10-year Treasury note was up 13/32 in price for a yield of 1.799 percent, which was its lowest level in two weeks.

German 10-year Bund yield DE10YT=RR fell nearly 2 basis points at 0.118 percent.

Spot gold prices XAU= rose $0.3 or 0.02 percent, to $1,212.70 an ounce.

Reference: RICHARD LEONG

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