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Dollar rises on strong housing report and ECB bond comment

US stocks ended mixed on Tuesday closing mostly lower while Dow eked out a small gain. The S&P 500 closed 0.1% lower, snapping three-day record-scoring streak. The Dow Jones Industrial Average edged higher 0.1%, hitting its second consecutive record high. The housing data showed construction of new US homes jumped 20.2% in April to the highest level since late 2007 and housing permits soared. The sharp increase in housing starts has investors worried that the Fed may move to raise interest rates sooner as the economy accelerates. Recent disappointing economic reports had pushed back expectations for the timing of interest rate hike, with markets pricing in a rate increase late in the year. Trading volume was low at 5.9 billion shares, over 6% below average this month. The dollar extended its gains after the positive housing report and fall in euro-zone bond yields, with the ICE US dollar index rising 1.1%. Today at 12:00 CET Mortgage Applications will be released in US. At 19:00 CET the Federal Reserve will release April 28-29 FOMC meeting minutes.

European stocks rallied on Tuesday after a European Central Bank policymaker said ECB would step up purchases of assets in May and June and buy fewer bonds in summer to mitigate the impact of purchases on markets during a period when liquidity is expected to be lower. Euro-zone bond yields fell after the remark by the ECB board member Benoît Coeuré, making equities more attractive investment alternative and driving euro below $1.12 for the first time in a week. The pan-European FTSEurofirst 300 index closed up 1.7 percent at 1606 points, as investors discounted disappointing ZEW survey results that showed German investor morale fell by more than expected in May. Greece’s Athex Composite also rose after the labor minister said Greece would soon conclude a deal that could unlock more loans. Today at 10:00 CET March Construction Output will be released in euro-zone. Tomorrow at 8:00 CET preliminary Manufacturing, Services and Composite PMIs for May will be released in France by Markit. At 8:30 CET preliminary PMIs for May will be released in Germany. And at 9:00 CET preliminary Markit Manufacturing, Services and Composite PMIs for May will be released in euro-zone. The tentative outlook is neutral.

Nikkei rose 0.9 % to a 15-year high today after data showed Japan's economy grew at higher-than-expected annual rate of 2.4 percent in the January-March period. The surprisingly good performance of economy makes it likely that the Bank of Japan will not take additional easing measures at the policy meeting ending on Friday. Tomorrow at 00:50 CET financial data on purchases of foreign and domestic bonds and stocks will be published in Japan. At 02:35 CET preliminary Manufacturing PMI for May will be released by Markit. The tentative outlook is positive for the yen.

Oil prices fell on Tuesday to the lowest level of the month as dollar continued strengthening. Investors are looking forward to the release of US Energy Information Administration data today at 15:30 CET. Previous reports indicated inventory declines for the past two weeks, but production was up last week. An increase in US output will add pressure to oil prices.

Gold prices fell from a more than three-month high to their lowest settlement in a week on the back of stronger dollar.



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