GLOBAL MARKETS-'Super Mario' shock: euro slides, yields hit new lows

* European stocks rise 0.9%, euro drops 0.3% after Draghi's
speech
* German bond yields hit fresh record low of -0.30%
* Oil extends fall, growth woes outweigh Middle East
concerns
* Sterling steadies, dollar rises 0.1%
* Aussie stocks rise, AUD slides as RBA flags further easing

By Thyagaraju Adinarayan
LONDON, June 18 (Reuters) - The euro took a beating and
German bond yields hit a fresh record low on Tuesday in reaction
to European Central Bank President Mario Draghi's comments
indicating a possibility of new rate cuts or asset purchases.
Draghi said the ECB would need to ease policy again, if
inflation did not head back to its targets, and that there was
still "considerable headroom" to do so. Inflation in the euro
zone slowed to 1.2% in May, the lowest in more than a year.
German government bond yields, the benchmark for Europe,
fell to -0.30% for the first time ever and the euro slumped to a
two-week low versus the dollar, while European stocks shook off
early weaknesses to trade 0.9% higher.
"From the market reaction, we are increasingly learning that
when a central bank's senior leaders vindicate expectations,
market shifts extend. The same thing happened when the Fed
confirmed its dovish shift earlier this year," said Themos
Fiotakis, head of FX and rates strategy at UBS.
Draghi, nicknamed "Super Mario", looks set to end his
eight-year term this year without having ever executed a rate
rise.
The ECB's signals came a day ahead of a widely anticipated
U.S. Federal Reserve policy decision, where expectations were
running high that Draghi's counterpart Jerome Powell would
probably lay the groundwork for a rate cut later this year.
"In just a few months, the market has turned from being
guided by the Fed to actively guiding the Fed," interest rate
strategists at Bank of America Merrill Lynch wrote.
The U.S. central bank is likely to leave borrowing costs
unchanged, but markets are almost fully pricing in a
25-basis-point rate cut for July.
The meeting will also provide the most direct insight yet
into how deeply policymakers have been influenced by the
U.S.-China trade war. FED/DIARY
Rate cut hopes, fuelled by Draghi's dovish speech, led the
U.S. treasury yield US10YT=RR to the lowest since September
2017.
Uncertainty over the trade war has sent investors storming
towards U.S. Treasuries, a Bank of America Merrill Lynch's fund
manager survey showed. Treasuries were the "most crowded" trade
for the first time in its survey.
The impact of U.S. restrictions on exports to China is
already resonating in Europe with German silicon wafer maker
Siltronic WAFGn.DE warning that the spat would hit its sales
and profitability.
The warning knocked European technology stocks, but a sharp
reversal in the euro and rate cut signals offset the weakness
driving the pan-European STOXX index .STOXX 0.9% higher as of
1031 GMT.
In another blow to the German economy, which is expected to
grow by just 0.5% in 2019, a survey by ZEW institute showed the
mood among German investors deteriorated sharply in June due to
recent weak economic data and the escalating U.S.-China trade
dispute. In Asia, MSCI's broadest index of Asia-Pacific shares
outside Japan .MIAPJ0000PUS edged up 0.6%, while Japan's
Nikkei .N225 dipped 0.7%. MSCI's gauge of stocks across the
globe .MIWD00000PUS rose 0.15%, boosted by Europe.
"Markets have been very tentative over the last few
sessions, trading largely sideways...Oil dropping and gold
rising is also an ominous sign," said John Woolfitt at Atlantic
Markets.
Crude oil slipped a further 0.8% on Tuesday on global growth
worries, although losses were capped by tensions in the Middle
East after last week's tanker attacks. O/R
Acting U.S. Defense Secretary Patrick Shanahan announced on
Monday the deployment of about 1,000 more troops to the Middle
East for what he said were defensive purposes, citing concerns
about a threat from Iran. The dollar index, tracking the greenback against six major
peers, is holding tight at two week highs.
The Australian dollar AUD=D4 fell to a fresh five-month
low of $0.6830 after minutes from the Reserve Bank of
Australia's June meeting showed policymakers thought it might
have to ease again to push down unemployment and revive wages
and inflation. The central bank cut rates to a record low of 1.25% earlier
this month to support the slowing economy.
Meanwhile, sterling steadied GBP=D3 after hitting 5-1/2
month lows as traders waited for news on the contest for the
leadership of the ruling Conservative party.
"The fact that Boris Johnson will most likely become the new
prime minister hangs like a sword of Damocles over the trend of
the pound. With this in mind, investors are currently rather
reluctant to place too much trust in the currency," said
Marc-André Fongern, a strategist at MAF Global Forex in
Frankfurt.
In the developing world, stocks were set to snap a four-day
losing run on Tuesday, while emerging markets currencies edged
firmer against the dollar as cautious optimism crept into
markets ahead of the Fed meeting.

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Draghi sends Bund yield to new record low https://tmsnrt.rs/2XXH7Rc
U.S. interest rates https://tmsnrt.rs/2Iogak7
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