The euro's surge to an almost two-year high put a cap on the global market rally in Friday's quiet session, with most major exchanges consolidating after a second strong week of gains. The MSCI Asia-Pacific index declined for first time in ten days while the European Stoxx 600 index was fractionally in the green as were US equity futures ahead of earnings reports from General Electric, Honeywell, Schlumberger and others. Oil gained with Brent flirting with $50, zinc rallied along with most base metals. European stocks are little changed, while Asian stocks decline with Tokyo shares falling for first time in three days. Also overnight, AUD traders were caught wrongfooted for the second time in one week after the Aussie fell sharply following an unexpectedly dovish speech from RBA Deputy Governor Debelle, who said there’s no significance in the board’s neutral rate discussion, which earlier this week sent the Aussie surging. "No significance should be read into the fact the neutral rate was discussed at this particular meeting," Debelle said in text of speech. "Most meetings, the board allocates some time to discussing a policy-relevant issue in more detail, and on this occasion it was the neutral rate."
In addition to the drop in AUDUSD, Australian sovereign yields all dropped 5-7 basis points in bull steepening move; three-year yield drops as much as nine basis points to 2.00% - the steepest decline since March on a closing basis. Kiwi rallied to highest since September 2016 on Finance Minister Joyce comments; yen little changed. S&P futures near unchanged. WTI crude holds near $47; Dalian iron ore falls 0.7%.
But most of the attention was on the EUR in the aftermath of Thursday's paradoxical Draghi press conference, which led to a "bipolar" market reaction, seen as dovish by rates while hawkish by FX.
Summarizing the market reaction, Yann Quelenn, a market strategist at Swissquote Bank said,“Draghi tried to talk the Euro down, even going so far as to suggest that ECB’s quantitative easing could be increased and prolonged. But the currency markets were not buying Draghi’s line, and neither are we. Available bonds are too scarce, and turn to a taper is too clear to disguise."
As a result, bonds jumped even as the euro headed for its strongest level against the dollar in almost two years on bets the European Central Bank will start tapering its stimulus program despite Draghi's sounding particularly dovish, with the greenback already under pressure from U.S. political developments. Yields on Italian bonds dropped...
While the EUR surged to the highest since August of 2015, and is up 11% for 2017...
While the US dollar dropped to the lowest since August amid growing political concerns after reports that U.S. special counsel Robert Mueller expanded his investigation of Trump less than a day after the president told the New York Times that any digging into his finances would cross a red line...
In Asia, MSCI's broadest index of Asia-Pacific shares outside Japan, which has gained about 5 percent in the past two weeks, eased 0.2 percent, dragged down by a fall in material and financial shares. Japan's Nikkei dropped 0.2 percent.
"We can be pretty sure that when Draghi sat down for his press conference yesterday the last thing he expected to see was the euro hit its highest level in over two years and for equity markets to slide back," said CMC Markets analyst Michael Hewson. "The strength of the euro does appear to be acting as a bit of a headwind for European stocks as they look to close the week sharply lower, in contrast to the performance of UK and US stocks this week."
As of 6:10am ET, S&P500 futures were little-changed close to a record-high level as investors looked forward to a Federal Reserve meeting and manufacturing data next week. E-mini contracts were almost flat at 2,472.25 after the cash index ended Thursday within one point of its record-high close. Nasdaq 100 futures were also little-changed as the benchmark index climbed to all-time intraday highs for the second consecutive day. Contracts on the Dow Jones Industrial Average also held steady on Friday.
European stocks are little changed, while Asian stocks decline with Tokyo shares falling for first time in three days.
In currencies, the Bloomberg Dollar Index was down 0.1 percent, in line for a weekly loss of 0.8 percent, at 10:41 a.m. in London, as the greenback weakened against most of its G-10 peers. The yen was up 0.2 percent at 111.71 per dollar. The euro climbed 0.1 percent to $1.1642 after reaching a 23-month high earlier in the session. The common currency has gained 1.6 percent this week, its second straight five-day advance.
In commodities, oil headed for a second weekly increase as U.S. crude inventories continued to shrink. West Texas Intermediate was 0.4 percent higher at $47.09 a barrel. Copper advanced 1.3 percent to $6,033 a ton, a four month high, leading a rally in industrial metals. Gold was poised for its first back-to-back weekly advance since June 2. Bullion for immediate delivery added 0.2 percent to $1,247.25 an ounce.
In rates, the yield on U.S. 10-year Treasuries fell two basis points to 2.24 percent. Benchmark yields in Germany dropped three basis points to 0.5 percent, down nine points this week. Yields in France dipped three basis points.
*) Market Snapshot;
- S&P 500 futures rise 0.2% to 2475.20
- STOXX Europe 600 unchanged at 384.07
- EUR/USD: +0.1% to 1.1641
- USD/JPY: -0.2% at 111.71
- Brent Futures up 0.7% to $49.62/bbl
- Gold spot up 0.3% to $1,247.58
- U.S. Dollar Index down 0.2% to 94.17
*) Top Overnight News;
- Trump Inquires About Power to Pardon; Aussie Tumbles After RBA Comments; Power Struggle at Guggenheim
- Trump Removal of Mueller Likely Would Trigger Justice Purge
- Ten of the nation’s biggest lenders including JPMorgan Chase & Co. and Bank of America Corp. together made $30 billion last quarter, just a few hundred million short of the record in the second quarter of 2007
- Mario Draghi said policy makers are still waiting for inflation to catch up with the economic recovery as they put off discussions on winding back stimulus until after the summer
- President Donald Trump’s interview with the New York Times on stirred speculation he may consider firing Special Counsel Robert Mueller for investigating Trump’s business dealings as part of the Russia probe
- The International Monetary Fund agreed to a new conditional bailout for Greece, ending two years of speculation on whether it would join in another rescue and giving the seal of approval demanded by many of the country’s euro-area creditors
- OPEC and Russia’s plan to clear the global oil glut hasn’t worked as they hoped, but there’s little expectation the world’s largest producers will act more aggressively when they meet this weekend
I- nvestors may turn to equity at the expense of debt given he rolling five-year return on global stocks has outpaced government debt over the past three months as weighted by the standard deviation of gains
- ACS Studies Counterbid to Atlantia’s $19 Billion Abertis Offer
- Paysafe Gets 590p/Share Takeover Proposal from CVC, Blackstone
- Microsoft Regains Turnaround Momentum on Strong Cloud Growth
- EBay Rattles Investor Faith With Slow Merchandise Growth
- Visa’s Kelly Extends First-Year Win Streak as Outlook Raised
- Zinc’s Rally Set to Endure as Top Producer Predicts $3,000
- Google Says Russia Leads in State Requests to Remove Content
- Exxon to Challenge Treasury Finding It Violated Russia Sanctions
- Credit Suisse’s Once-Mighty Stocks Unit Withers Under Thiam
- Delta Wins Lease Deal for Air Terminal at New York’s LaGuardia
*) Asia equity markets traded marginally in the red, following the lacklustre close on Wall St. amid a slew of earnings releases which were ultimately mixed. ASX 200 underperformed, led by the soft resources, metals and energy sectors, whilst Nikkei 225 also traded in the red to conform to the tone in the region, as JPY's indecision during the session offered no direction for the currency. Elsewhere, Shanghai Comp. and Hang Seng both traded subdued, with the PBoC's increased open market operations of CNY 140bln failing to lift the Chinese bourses. Finally, 10yr JGBs trade marginally higher amid the cautiousness in the region, with the curve steepening as the super-long end underperforms. Participants also await the auction for 10yr, 20yr and 30yr government paper.
# Top Asian News;
- HNA Group’s Dealings With U.S. Travel Startup to Be Probed
- OZ Minerals Says CFO Luke Anderson to Leave Co. in September
- Bank Indonesia Says Rate Review Delayed by Swearing-in Ceremony
- RBA’s Aussie Dollar Rollercoaster Shows Dilemma for Global Peers
- Reliance to Give One Free Share for Each Held After 8-Year Gap
- Huhtamaki Shares Fall as Indian Tax Reform Hits Demand
- China Artificial Intelligence Bid Seeks $59 Billion Industry
- AAC Drops Most in 7 Years as Jefferies Cites Revenue Warning
*) European equity markets trade mixed amid currency influence. Subdued trade has been evident, following yesterday's ECB press conference, with EU bourses trading range bound for the morning. The FTSE out-performs as it benefits from the weaker GBP. Telecoms out-perform as earnings continue to dictate the state of play, following a strong report from T-Mobile US being followed by a beat for Vodafone. Fixed Income markets have been led by bunds, with the latest ECB survey being responsible for a second round of bidding in German paper. The survey cut the inflation forecast by 0.10% for 2017 - 2019, with the statement stating that risks are still tilted to the downside.
# Top European News;
- U.K. Government Borrowing Jumps as Inflation Boosts Debt Costs
- Landis+Gyr Trades Below Offer in Largest Swiss IPO Since 2006
- European Banks’ 2Q Likely to Be Better Than U.S. Peers: HSBC
- SKF CEO Says Electric Cars May Hurt Part of Bearing Business
- ECB: Professional Forecasters Cut Inflation Outlook Through 2019
- Siemens Slams Brakes on Russia After Turbines Spotted in Crimea
- Hochtief Slumps as ACS Mulling Abertis Bid Lowers Buyout Chance
- Swatch’s Strong Forecast Bolsters Decision to Keep Workers
# In currencies, RBA Deputy Governor Debelle stated no automatic reason to conform to recent hikes abroad. New Zealand Finance Minister Joyce stated NZ firms are coping well with NZD at current levels, added NZD reflects strong NZ economy. FX markets have slowed this morning, as FX traders seem non-excitant following yesterday's volatility. The price action largely came overnight from the antipodeans. Comments from New Zealand's Finance Minister Joyce stated that NZ firms are coping well with NZD at current levels further adding that a strong NZD reflects strong NZ economy and he is unperturbed by NZD strength. NZD/AUD broke through 0.94 as bulls arrived, consolidating just below at 0.9390, a firm break of this level could see a test of 0.9480. Further, Aussie weakness aided the NZD/AUD push, as RBA Deputy Governor Debelle stated that there is no automatic reason to conform to recent hikes abroad.
# In commodities, precious metals have continued their bullish grind, spurred by the Trump reports yesterday. Gold looks toward 1250.00, as July's recovery continues. Oil continues to struggle to find any real direction, however, WTI's July 43.65 upward trendline continues to provide support, WTI bulls would need to see a firm break of 48.50 to indicate a change in momentum.
# No economic data is scheduled in the US....