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European Bonds Yields Collapse as US Markets Churn


Today's financial recap and tomorrow's financial outlook.

The big story in financial markets -- the US dollar's incredible momentum against the euro -- remained in play today.

The euro fell to $1.05, a 12-year low relative to the US dollar, while the 10-year German Bund hit a record low of 0.199%. Yields in Spain, Italy, Finland, and Austria also all hit record lows, according to Bloomberg.

Traders have been speculating that the Federal Reserve will raise interest rates as soon as June, which is driving US dollar strength. Meanwhile, on Monday, the European Central Bank began its quantitative easing program, flooding the markets with liquidity and reducing the value of the euro.

Many market participants now expect the euro to fall to $1 or even lower.

European equity markets were very strong today, with France, Germany, and Italy all posting 2%+ gains.

The action stateside was a bit more sedated.

The S&P 500 fell 0.2% to 2040.24 after an intraday rally fizzled out as traders continue to take profits. For the second day in a row, index leader Apple (AAPL) was notably weak.

However, we did see relative strength in some important sectors. Biotechnology stocks outperformed again, with the iShares NASDAQ Biotechnology Index ETF (IBB) rising 0.3%.

Housing stocks also performed well as US Treasury yields continued to pull back in. Shrinking yields in Europe may be pushing investors towards relatively higher-yielding US government bonds. Financials and transports also performed well.

The small-cap Russell 2000 impressed with a 0.6% gain. Traders may be rotating into small caps as a function of the strong dollar, since smaller companies tend to have higher domestic sales and thus face less currency risk.

As such, export-heavy industries like industrials and consumer staples remained under pressure.

Thursday's Financial Outlook

The US economic calendar gets busy again tomorrow, with retail sales, jobless claims, import prices, business inventories, and natural gas inventories all on tap.

Names of interest reporting earnings include discount retailer Dollar General (DG), homebuilder Hovnavian (HOV), and mortgage servicer Ocwen Financial (OCW).

And overseas, Australia's employment report, Japanse consumer confidence, German CPI, and Euro-Zoen industrial production will be reported overnight or early tomorrow.

Twitter: @T3Live
No positions in stocks mentioned.
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