Top Things to Know Today - page 25
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Global bond prices tumbled on Monday, pushing yields to multi-month highs as the post-U.S. election global sell-off in sovereign debt continued.
The yield on the U.S. 10-year Treasury note was up 14.8 basis points at 2.266% by 5:57AM ET (10:57GMT), after rising to as high as 2.267%, a level not seen since January 4.
Meanwhile, the 30-year yield gained 12.7 basis points to 3.040%, while the two-year yield rose 8.5 basis points to 0.992%.
U.S. yields have been on a tear following Donald Trump's U.S. election win last week, as traders reassessed the implications of a Trump presidency, with many seeing it ushering in higher economic growth and rising inflation.
Elsewhere, in Europe, yields on 10-year German Bunds were up by 7.3 basis points to 0.380%, the strongest since late-January, while the U.K.’s benchmark 10-year gilt yields were 11.5 basis points higher at 1.480%, surpassing the levels last held shortly before the Brexit referendum in June.
Bond prices and yields move inversely.
2. Expectations for a December Fed rate hike top 90%
Market expectations for a rate hike at the Federal Reserve's December policy meeting topped 90% on Monday, amid growing optimism surrounding the effects of a Donald Trump presidency on the U.S. economy.
According to Investing.com's Fed Rate Monitor Tool, odds for a rate hike at the Fed's December 13-14 meeting rose to 90.6%, up from 81.1% on Friday and compared to 71.5% in the days leading up to the election last week.
After a historic week in which U.S. politics dominated market sentiment, investors will get back to the business of watching the Fed and economic data in the coming days.
Fed Chair Janet Yellen is due to testify on the economic outlook before the U.S. Congress Joint Economic Committee on Thursday, while retail sales and inflation data will also be in the spotlight.
3. U.S. dollar index breaks above 100
The U.S. dollar rallied to an 11-month high against a basket of major currencies on Monday, boosted by rising U.S. yields and expectations for higher interest rates in the coming months.
The dollar index was recently up 0.85% at 99.83, after climbing by more than 1% to 100.03 earlier, a level not seen since December 2015.
Against the yen, the dollar was up 1.2% at 107.98, having risen to 108.00, its highest since June 3, while the euro was at 1.0760 after hitting the 10-month low of 1.0728 earlier in the day.
The greenback has been boosted in recent sessions amid optimism that increased fiscal spending and tax cuts under a Trump administration will spur economic growth and inflation, which would ultimately lead to an era of higher interest rates.
4. Emerging market rout deepens
A rout in emerging markets intensified on Monday, as investors feared higher U.S. interest rates under incoming President Donald Trump will spark capital outflows.
Emerging currencies, such as the Turkish lira, Brazilian real and South African rand remained on the defensive, weighed down by the specter of investor money being siphoned away by higher U.S. rates.
Emerging market currencies in Asia weren't spared, either, with the Chinese yuan, South Korean won, Indonesian rupiah, Malaysian ringgit and Singapore dollar also falling.
Emerging markets are being hit by an exodus of capital as speculation builds that the U.S. is heading into an era of rising interest rates and more protectionist trade policies under President-elect Trump.
5. Dow points to another all-time high as Trump rally set to resume
U.S. stock markets pointed to sharp gains at the open on Monday morning, with the blue-chip Dow futures rising 100 points to yet another all-time high on continued hopes that the policies of President-elect Donald Trump will deliver strong economic growth.
Last week, the Dow recorded its biggest weekly gain since 2011, while the S&P 500 saw its biggest weekly gain since October 2014. The Nasdaq Composite rose 3.8%, its biggest one-week jump since February.
Meanwhile, European and U.K. stocks were broadly higher in mid-morning trade, boosted by gains in the financial sector, as markets continued to digest Donald Trump’s election last week and the implications of his presidency for the U.S. economy.
Earlier, Asian shares closed mixed, with Japan’s Nikkei outperforming regional markets following stronger-than-expected economic data.
Government data in Japan showed that its third-quarter gross domestic product expanded an annualized 2.2% in the three months ended September, beating expectations of a 0.9% expansion.
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France's former president Nicolas Sarkozy has conceded defeat
Sarkozy called on his supporters to vote for Fillon in the second round of conservative primaries
Dollar rally shows signs of fatigue.
Global stocks mostly higher.
Fed rate hike odds approach 100%.
ECB President Draghi speaks to European Parliament.
U.K. GDP shows no Brexit effect, the bond rout has stopped making sense, and Turkey's central bank fails to stem lira selloff. Here are some of the things people in markets are talking about today.
Brexit effect
The U.K. economy continues to be resilient, with GDP rising 0.5 percent in the third quarter as consumers and businesses increased their spending. Net trade added 0.7 percentage point to GDP as exports rose and imports fell in the first full quarter since the Brexit vote lead to a collapse in the sterling. New data also show the fallout from the referendum result is not showing up in London property prices, where home values have surpassed 14 times earnings for the first time.
Bond rout
Technical indicators suggest the bond rout should be coming to an end, but so far the market hasn't being paying attention. The speed of the selloff, the size of the treasury yield premium over the S&P 500 dividend yield, and fair value all point to the Treasury rout coming to an end. For now, however, it seems that fears over inflation and the Fed rate decision in December continue to trump those technical indicators.
Lira falls
Yesterday's surprise decision by the Turkish central bank to hike rates by 0.5 percent failed to reverse the selloff in the lira, which fell to another record low this morning. The short-lived bounce in the currency immediately following the decision, which fully reversed within 75 minutes of the announcement, shows investors think there is still more to be done to stem the weakening currency. Criticism from Turkish President Recep Tayyip Erdogan on the direction of monetary policy is also making investors nervous as there may be an increased risk of political intervention.
Markets quiet
Equity markets are relatively calm this morning in light trading. Overnight, the MSCI Asia Pacific Index rose 0.7 percent while Japan's Topix index added 0.4 percent, to reach the highest level since January. In Europe, the Stoxx 600 was 0.1 percent higher at 5:21 a.m. ET as the index drifted towards its third weekly advance. S&P 500 futures gained 0.2 percent.
Black Friday
The annual post-Thanksgiving shopping frenzy in the U.S. begins today. The battle between traditional brick-and-mortar stores and online retailers is set to intensify as Wal-Mart Stores Inc. and Target Corp. increase discounts and their online selection as they attempt to keep up with Amazon.com Inc. Overall, retailers are looking forward to a bumper holiday season as consumers breathe a sigh of post-election relief with their spending power boosted by rising wages in the strong U.S. job market.
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Italy votes, OPEC meets as risks keep coming
After a year of huge shocks to the market, investors' nerves will be tested twice more in the coming week as OPEC debates an oil output cut and Italy provides the first of several upcoming major European electoral tests.
By far the greater unknown of the two, investors fear Italy could be plunged into political uncertainty if pro-euro Prime Minister Matteo Renzi fails to pass his Dec. 4 constitutional referendum as polls suggest.
Renzi's statements that he will resign if the ballot - which is designed to streamline Italian government - fails has markets concerned that this might open the door to the opposition 5-Star Movement, which has denounced the single currency.
The risk of instability returning to Italy, the euro zone's third-largest economy and second-most indebted, has sent jitters through financial markets and led the European Central Bank's vice president to say that it would react to any "economic shock" from the vote.
"The outcome of this referendum could result in serious difficulties for the euro zone in the medium term," said Commerzbank (DE:CBKG) economist Marco Wagner, citing the possibility that it could bring the euroskeptic 5-Star to power.
"Its spending policies would probably push up Italy's sovereign debt even further, and there would then be a serious risk of a 'buyers strike' by investors, a sharp rise in yields on Italian government bonds, and the euro zone sliding toward a second government debt crisis."
If Renzi's near-three year premiership comes to an end, many observers expect a temporary government to be formed, possibly of technocrats without party affiliation, charged with drafting a new electoral system ahead of a potential early election.
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Sterling dips on euro bounce, focus on Draghi hearing
Sterling touched a two-week high against the dollar but slid back against the euro on Monday, with the day's main focus likely to be European Central Bank chief Mario Draghi's testimony in the European Parliament.With 10 days until a policy meeting long expected to signal the pace of quantitative easing next year, Draghi's comments have the potential to shift the euro higher after two better days driven in part by suggestions the bank could hold off on any signal of easier policy.
The single currency, also helped by Sunday's victory for Francois Fillon in the French right's presidential primary, was 0.2 percent higher against sterling on Monday after racking up its worst run of weekly losses against the pound since early 2015 last week.
Against the dollar, sterling was just 0.1 percent higher at $1.2488, having touched $1.2532 in Asian trading.
"While the Cable (dollar) rate may not be directly impacted, Draghi’s comments are sure to influence the EURGBP rate," London currencies exchange LMAX said in a morning note.
The pound's long-term correlation with the dollar has kicked back in as the U.S. currency rallied in the past month and some major investors began to argue the market had come far enough to account for the initial risks related to Britain's planned departure from the European Union.
That has made sterling among the best performing major currencies and given food to thought to the bears calling for a fall to $1.15 or lower in the first half of next year.
Lee Hardman, a currency analyst with Japan's MUFG in London, argued that the breakdown of third-quarter gross domestic product numbers also offered more hope. Business investment again topped expectations to grow by 0.9 percent on the quarter, although it was still down 1.6 percent year on year.
"The BoE has been warning that business investment would be the most vulnerable to heightened uncertainty related to the Brexit vote, but so far the negative impact is not yet evident," Hardman said.
"If the UK economy continues to defy expectations for a material slowdown in growth in the year ahead, it will create scope for pound weakness to reverse further."
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The Labor Department is scheduled to release data on nonfarm payrolls (NFP) at 8:30AM ET (13:30GMT) in what will be Friday’s main market event.
Expectations are for the report to confirm the continued strength of the U.S. labor market.
The consensus forecast is that Friday’s report will show the economy created 175,000 jobs in November, up from 161,000 in October.
The unemployment rate is expected to hold steady at 4.9% and average earnings are expected to increase by 0.2%.
2. Dollar holds steady ahead of NFP, rate hikes eyed
The dollar slipped slightly lower against the other major currencies on Friday, as investors remained cautious ahead of the release of key U.S. employment data later in the day, although overall optimism over the strength of the economy still lent support.
As of 4:54AM ET (9:54GMT), the U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was down just 0.02% at 101.00.
Friday’s data is expected to confirm a solid U.S. labor market and cement expectations for the Federal Reserve (Fed) to proceed with policy normalization at the December 13-14 meeting, supporting the American currency.
With expectations for a rate hike in December already baked into markets, the data could adjust bets for the second increase in 2017. According to Investing.com’s Fed Rate Monitor Tool, Fed fund futures were pricing in a 60.7% chance of another 25 basis point hike in June.
3. Oil slips after 15% jump
Investors took profits in crude on Friday after an aggressive agreement among major oil producers to cut production and tackle the global supply glut earlier in the week sparked a two-day rally that pushed black gold up nearly 15%.
West Texas Intermediate oil was trading flat, on track for weekly gains of around 10%.
U.S. crude oil futures lost 0.82% to $50.64 at 4:55AM ET (9:55GMT), while Brent oil fell 0.98% to $53.41.
4. European stocks jittery ahead of Italian referendum
European stocks traded down on Friday with nerves on edge as Italian citizens are set to vote on December 4 in a referendum on whether to overhaul their national constitution, which is designed to help Prime Minister Matteo Renzi implement badly needed economic reforms.
However, Italy was widely expected to reject the constitutional reforms with markets concerned that the defeat would cause a political upheaval in Europe’s third largest economy, including Renzi’s possible resignation and dissolution of the government.
Many market players are concerned that a “no” vote could pave the way the anti-euro Five Star movement to gain power in the government, which could cause a selloff in the Italian stock market, particularly in the country's banks, and the single currency.
5. ECB expected to extend QE program
Investors in the euro were also looking ahead to the European Central Bank’s (ECB) monetary policy decision in the coming week.
According to a Reuters’ poll released on Friday, the ECB was expected to extend its QE program by six months.
A move at next Thursday's ECB meeting may help multiply the impact of the stimulus on the euro's exchange rate, especially since the U.S. Federal Reserve is widely expected to raise interest rates a week later, boosting the dollar.
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Shares in Banca Monte dei Paschi di Siena (MPS) (MI:BMPS), the oldest and most troubled of the Italian banks, soared more than 7% on Wednesday after Reuters reported that Rome could take a €2 billion ($2.15 billion) stake in the lender that would increase the government’s stake to 40%.
Italy’s La Stampa also reported that Rome was considering taking a €15 billion ($16.1 billion) loan from European authorities to shore up its financial sector, though the Italian Treasury later denied the report.
Italian banks led the advancers on the FTSE MIB, with the top three gaining more than 5%.
2. Global stocks breathe sigh of relief over Italian bank bailout report
European stocks traded sharply higher on Wednesday on relief over the reports that Italian banks would receive state aid, while investors also looked ahead to the European Central Bank’s (ECB) policy decision. Markets widely expect the ECB to extend its asset purchase program by around six months in its attempt to support the economy and drive inflation higher.
U.S. futures pointed to a slightly higher open on Wednesday as market participants eyed the euphoria in Europe and waited for the publication of the job openings and labor turnover survey (JOLTS) for October at 10:00AM ET (15:00GMT) and consumer credit for the same month at 3:00PM ET (20:00GMT).
At 5:58AM ET (10:58GMT), the blue-chip Dow futures gained 23 points, or 0.12%, S&P 500 futures inched up 1 point, or 0.03%, and the Nasdaq 100 futures edged forward 2 points, or 0.04%.
Earlier, Asian stocks closed mostly higher on Wednesday with the Nikkei bolstered by President-elect Donald Trump's announcement that Japan's Softbank Corp. (T:9984) would invest $50 billion in the U.S. and aim to create 50,000 jobs in the next four years.
3. Pfizer hit with record $106 million fine
The U.K.’s Competition and Markets Authority (CMA) fined Pfizer (NYSE:PFE) with a record £84.2 million ($106.3 million) fine for its part in driving up the cost of an epilepsy drug by as much as 2,600%.
“Extraordinary price rises have cost the NHS (National Health Service) and the taxpayer tens of millions of pounds,” the CMA said in its decision.
Pfizer used to market Epanutin itself but sold distribution rights to privately-held Flynn in September 2012.
The blue chip drugs giant rejected any wrongdoing and said it would appeal all aspects of the decision.
4. Oil holds steady ahead of inventories, producer meeting
OPEC and non-OPEC oil producers are scheduled to meet this Saturday in Vienna to agree details of the output cut, designed to reduce the global supply glut.
Nerves over whether the agreement will be effective held back larger gains after the American Petroleum Institute (API) reported late Tuesday a draw of 2.2 million barrels on crude stocks.
The Energy Information Administration will report official inventory data at 10:30AM ET (15:30GMT) amid expectations for a fall of 1.032 million barrels.
U.S. crude oil futures inched up 0.10% to $50.98 at 5:59AM ET (10:59GMT), while Brent oil edged forward 0.06% to $53.96.
5. EU antitrust regulator fines JP Morgan, HSBC and Credit Agricole for euribor rigging
The European Union’s (EU) antitrust regulator announced fines on Monday for JP Morgan (NYSE:JPM), HSBC (LON:HSBA) and Credit Agricole (PA:CAGR) for conspiring to rig the euribor rate.
“Banks have to respect EU competition rules just like any other company operating in the single market,” the regulator’s commissioner Margrethe Vestager said, adding that the three banks had manipulated the euribor rate for their own interests.
JP Morgan was fined €337.2 million ($361.5 million), Credit Agricole €114.7 million ($123.0 million) and HSBC €33.6 million ($36.0 million).
All three banks have rejected the allegations and suggested they may take the case to European courts.
Oil prices surged to the highest levels since July 2015 after major producers reached a deal to cut output over the weekend.
Producers from outside OPEC agreed to cut output by 558,000 barrels per day from January 1 after OPEC announced plans last month to cut output by 1.2 million bpd.
Oil prices received an additional boost after Saudi Arabia indicated that it may be prepared to make deeper cuts than it initially pledged.
U.S. crude was trading at $53.78 a barrel at 10:50 GMT, up $2.29 or 4.45% from its last close, while global benchmark Brent futures were at $56.57 a barrel, up $2.23 or 4.16%.
2. Italian bank rescue efforts to continue
Attempts to rescue Italy’s banks looked set to continue after foreign minister Paolo Gentiloni was chosen to replace Matteo Renzi as prime minister.
Italy's third biggest lender Monte dei Paschi (MI:BMPS) said on Sunday it would continue with a plan to raise €5 billion from private investors after the European Central Bank refused to give it more time to raise the money it needs to avoid collapse.
Italy’s Treasury said Monday it is ready to bail out the bank if necessary.
3. Euro zone, U.S. yields climb
Prices of euro zone bonds fell on Monday, sending yields higher amid expectations that the deal to cut oil output will drive up inflation. Yields rise when bond prices fall.
The yield on UK 10-year bonds hit 1.5% for the first time since May, up from 1.43% late Friday.
The yield on Germany’s 10-year Bund hit 0.408%, up from 0.347% on Friday, while France’s 10-year yield touched an 11-month high of 0.919%.
Meanwhile, the yield on the U.S. 10-Year Treasury note rose above 2.5% for the first time since October 2014, amid near certainty that the Federal Reserve will hike rates for the first time in a year at the conclusion of its meeting this week.
4. U.S. futures point to lower open on Wall Street
Wall Street futures pointed to lower open for the major U.S. indexes.
The Dow futures were almost flat, S&P 500 futures slid 2.37 points or 0.11%, while the tech-heavy Nasdaq 100 futures were down 21.87 points or 0.45%.
There were no major U.S. economic reports scheduled for release on Monday.
5. Trial of IMF chief Christine Lagarde begins
The International Monetary Fund’s managing director Christine Lagarde goes on trial in Paris on Monday over a €400 million payout to a French businessman when she was France’s finance minister.
Lagarde has denied the charges of negligence in approving the payment to Bernard Tapie in 2008.
If found guilty of negligence leading to misuse of public funds Lagarde could face up to a year in jail and a fine of €15,000.
A guilty verdict would also threaten the credibility of the IMF and risk a leadership crisis.
Goldman Sachs to settle U.S. rate-rigging lawsuit for $56.5 million
Goldman Sachs Group Inc (N:GS) has agreed to pay $56.5 million to resolve a U.S. class action lawsuit accusing it and other banks of rigging an interest rate benchmark used in the $553 trillion derivatives market.
The proposed settlement was disclosed in papers filed in federal court in Manhattan on Friday. It came after seven other banks agreed in May to pay a combined $324 million to resolve the litigation.
As part of the deal, Goldman has also agreed to provide lawyers for the plaintiffs evidence including transaction data, documents and witness interviews, which could be used in litigations against the remaining banks, the court papers said.
Neither a spokesman for Goldman Sachs nor a lawyer for the plaintiffs immediately responded to a request for comment late on Friday.
The case is one of many pending in Manhattan federal court accusing banks of conspiring to rig rate benchmarks, securities prices or commodities prices.