Futures Flat, Global Stocks Near Record High After Minutes Fail To Spark Dollar Rally

One day after the FOMC Minutes guided to a rate hike "fairly soon", but not soon enough in the eyes of the market (March hike odds dropped after the release), the dollar has posted minimal gains, while global stocks held near record highs on Thursday; S&P futures were fractionally in the green to start the session; crude climbed back above $54 after API showed U.S. stockpiles fell. US and euro zone government bond yields fell or held steady as concerns of an imminent rate hike faded.

The rally that has taken the value of global equities to over $70 trillion and the MSCI All-Country World Index to a record, appears to again be losing momentum as investors grapple with political uncertainty and the Fed’s schedule for lifting borrowing costs. The minutes showed many Fed policymakers said it may be appropriate to raise rates "fairly soon" if jobs and inflation data met expectations. But they also highlighted deep uncertainty over President Donald Trump's economic program and wrestled with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds a rising dollar may pose.

Stocks in Europe were mixed in early trading before rising led by telecommunications companies, following solid earnings from Telefonica SA. Bank stocks were stronger on the back of solid earnings from Barclays whose profit before tax of £3.2bn for 2016, rose threefold from the £1.1bn the year before. Its reorganisation has included the sale of its Africa business and selling off "non-core" assets.The STOXX 600 stocks index was marginally higher and close to 14-month highs touched on Tuesday. A 4 percent fall in miner Rio Tinto and a fall of nearly 5 percent in EasyJet, which were among companies whose shares went ex-dividend, weighed on the index.

The MSCI Asia index ex-Japan edged up 0.1 percent, trading near the highest level since July 2015 it hit on Wednesday. Earlier, the index lost as much as 0.15%. Japan's Nikkei closed fractionally lower, as banks fell, and Australian shares ended down 0.4 percent. MSCI's world index also nudged higher and was within half a point of Wednesday's record high.

The dollar edged up less than 0.1 percent against a basket of major currencies but held below highs hit on Wednesday, having fallen immediately after the minutes were released. The euro, which has been buffeted by investor nerves over France's presidential election, to be held in April and May, was flat at $1.0556. The yen was also barely changed at 113.28. Sterling strengthened 0.2 percent to $1.2468.

As discussed yesterday, in addition to Trump's policies on taxes, spending and trade, markets are now trying to gauge his attitude to the dollar. Trump said before his inauguration that the dollar's strength against the Chinese yuan was "killing us", raising concern in the "strong dollar" policy espoused by recent U.S. administrations could change. However, in an interview with the WSJ, Treasury Secretary Steven Mnuchin praised the strong dollar on Wednesday, saying it reflected confidence in the economy.

French bonds advanced after a pact between independent presidential candidate Emmanuel Macron and centrist Francois Bayrou, which for now has helped ease fears the country could elect a leader who favors leaving the European Union. "Yesterday's developments in France were positive for French bonds and broader risk appetite," said Orlando Green, European fixed income strategist at Credit Agricole in London.

Earlier this morning, French OATs extended gains, led by the 10y-30y sector, as 30y bonds fall as much as 4bps following latest OpinionWay poll showing gains for Macron in second round. Poll shows Macron would beat Le Pen 60%-40% in the second round; that compares with 59%-41% spread in Wednesday’s poll.Italian bonds underperform with 10y yields rising 6bps, leading losses, as concession is built ahead of next week’s supply, which include two issues in the 10y bucket for €2-3BN. German 10Year bonds edged up 1 basis point to 0.28%, having closed on Wednesday at 0.27 percent.

Stronger-than-expected demand at sale of 20-year debt causes Japan’s sovereign curve to flatten; bonds rise in Singapore ahead of this year’s first 10-year sale.

Oil prices rose after data showed a decline in U.S. crude stockpiles as imports fell. Brent crude last traded at $56.56, up 72 cents a barrel. Prices have been rising since the Organisation of Petroleum Exporting Countries and other oil producers agreed output cuts last year. "It's a battle between how quick OPEC can cut without shale catching up," said Tony Nunan, oil risk manager at Mitsubishi Corp in Tokyo.

Copper fell almost 1 percent to $5,982 a tonne on concern about fresh regulation that could affect China's property boom. Gold rose less than 0.1 percent to $1,238 an ounce, supported by uncertainty over the Fed rate outlook. Zinc and nickel also fell more than 1 percent.

Market Snapshot

• S&P 500 futures up 0.1% to 2,362.75
• STOXX Europe 600 little changed at 373.55
• German 10Y yield fell 0.5 bps to 0.274%
• Euro down 0.2% to 1.0542 per US$
• Brent Futures up 1.5% to $56.67/bbl
• Italian 10Y yield fell 5.3 bps to 2.194%
• Spanish 10Y yield fell 0.3 bps to 1.69%
• MXAP little changed at 146.12
• MXAPJ little changed at 470.84
• Nikkei down 0.04% to 19,371.46
• Topix down 0.05% to 1,556.25
• Hang Seng Index down 0.4% to 24,114.86
• Shanghai Composite down 0.3% to 3,251.38
• Sensex little changed at 28,862.89
• Australia S&P/ASX 200 down 0.4% to 5,784.66
• Kospi up 0.05% to 2,107.63
• Brent Futures up 1.5% to $56.67/bbl
• Gold spot little changed at $1,237.58
• U.S. Dollar Index up 0.2% to 101.39

Top Overnight News via BBG

• Barclays shares rose to the highest in more than a year as its capital ratio exceeded expectations and the bank signaled progress in efforts to divest its Africa unit and sell off unwanted assets
• Carlyle Group is closing the money raising process this week for its fourth fund that will focus on distressed debt and special-situations after reaching its target of $2.5 billion
• Mohamed El-Erian is warning traders not to get complacent about the prospect of a Fed interest-rate hike next month
• Germany’s central bank increased risk provisions to manage losses it anticipates to make once ECB starts to raise interest rates
• Smaller Chinese banks have sold record amounts of short-term debt this month before possible new rules that would constrain their ability to issue the securities
• The U.K. won’t be able to retake complete control of its destiny though Brexit, European Central Bank chief economist Peter Praet said
• Allergan (AGN) has “no interest” in Valeant Pharmaceuticals (VRX), most likely not even “in pieces,” Allergan CEO Brent Saunders said during an interview at Bloomberg headquarters in New York.
• PSA Ready for ‘Opportunities’ as Profit Gain Helps Opel Stance
• Tesla (TSLA) Keeping Model 3 Steady Overshadows CFO Exit, Cash Needs
• HP (HP) Sales Soar Past Estimates on Personal-Computer Strength
• Exxon (XOM) Caves to Oil Crash With Historic Global Reserves Cut

Asia equity markets traded mixed following a weak lead from Wall Street where the Dow Jones outperformed amid rising du Pont and Dow Chemical merger bets. ASX 200 (-0.4%) underperformed amid losses seen in the metals and mining sector as Rio Tinto (-5.2%) shares sunk, while Nikkei 225 (-0.1%) traded in the red amid a firmer JPY and a mild pullback of yesterday's gains in Toshiba (-4.7%) shares. Shanghai Comp. (-0.3%) traded in the red following a weak CNY 50bIn liquidity injection by the PBoC, while Hang Seng (-0.3%) was led lower following reports that Chinese banks could pass on higher funding costs to customers amid increasing short-term borrowing rates. 10yr JGBs traded higher amid the risk-off tone in the region with the yield curve beginning to flatten in the super long end, while participants look ahead to the auction for 20yr government paper.

Top Asian News

• SoftBank Denies It’s Looking for Stake in Merged Vodafone- Idea
• Chinese State Fund’s Broker Says It’s Buying Hong Kong Stocks
• Emerging-Markets Hedge-Fund Assets Reach Record in ’16, HFR Says
• Hong Kong Property Stock Rally Gathers Pace on Earnings Outlook
• Japan Stocks to Watch: NTT Docomo, Takata, Tepco, Mitsui & Co
• China Said to Appoint Guo Shuqing as Banking Regulator Head: WSJ
• Adelson’s Sands Missing Stock Rally as Rivals Pull in VIPs
• China Expands Drug Insurance Coverage in Boost to Pharma Stocks
• BAT Forecasts Earnings Growth Amid Race for Smoking Alternatives

European bourses opened mixed but now trade mostly higher as earnings dictate play, Barclay's (+3.5%) profits almost treble to GBP 3.2bIn and the Co. reported strong progress in restructuring and Glencore (+2.4%) also impressed investors with annual profits rising 48% off the back of higher commodities prices and strong trading results. Telecoms outperform after Orange reported better than expected earnings. Fixed income, underperformance has been noted in the periphery as Italian yields trade wider by 1.7% with Italian press reporting that former PM Renzi is looking to call new elections in early June. Analysts at Citi noting a June election would be challenging but not impossible. The GE/FR spread had tightened post yesterday's news that Centrist Bayrou has pulled out of the French election race lending support to Macron, however there has been a bit of an unwind in recent trade.

Top European News

• Glencore Completes Turnaround as Profit Soars on Trading
• Copper Strike Poses Supply Threat Even After Miners Return
• Leviathan Partners Approve $3.75 Billion Gas-Development Plan
• Downbeat Outlook Eclipses Magyar Telekom Profit as Shares Fall
• U.K. Claim That Burning Biomass Is Clean Seen as ‘Flawed’
• Centrica Sees No Reason for Further Rough Impairments Now:

In currencies, the Bloomberg Dollar Spot Index gained 0.1 percent, after falling 0.2 percent on Wednesday. The yen added 0.2 percent to 113.14 per dollar, following a 0.3 percent gain the previous day. The euro weakened 0.2 percent to $1.0538 after gaining 0.2 percent on Wednesday. It's been a very quiet morning in FX, with the FOMC minutes offering little fresh insight into Fed thinking. UST yields hold their ground however, but this may waiver as the count down to the March FOMC looms. This explains the range bound markets seen today, which looks set to continue over coming weeks. EUR/USD has been in focus, but looks reluctant to retest 1.0500 after yesterday's brief dip below here, but all now depends on whether Le Pen's performance in the polls changes to any notable degree. USD/JPY is also largely sidelined, but if stocks hold up, we expect little deviation from 112.50-114.50, and testing these limits looks unlikely any time soon. The crosses have also stabilised, most significantly EUR/JPY, having recovered 1 JPY from yesterday's lows circa 118.50.

In commodities, West Texas Intermediate crude climbed 1.4 percent to $54.33 a barrel, rebounding from a 0.9 percent drop in the previous session. Movement across the spectrum of commodities remains confined to near term ranges, highlighted by the WTI test of USD55.00 earlier in the week - which was swiftly rejected. This may change later today ahead of the DoE report, with prices better supported despite the raft of inventory data to its detriment. Production cuts (and more to come?) are perhaps yet to feed through, and this looks to be driving the support seen on dips. Gold (and Silver) continue to dance to the tune of the USD, but we are ever watchful on equities which relentlessly push higher. Copper is back testing USD2.70 again, but all base metals have slipped a little on the back of the overnight CAPEX data. Less so Nickel as the Philippines environment minister underlined her backing from the president.

Looking at today’s calendar, in the US we’ve got initial jobless claims and the Kansas City Fed’s manufacturing survey. Away from the data the Fedspeak continues with Lockhart (1.35pm GMT) and Kaplan (6.00pm GMT) both scheduled. The ECB’s Praet is also due to speak at various stages through the day.

US Event Calendar

• 8:30am: Chicago Fed Nat Activity Index, Jan., est. 0.00, prior 0.14
• 8:30am: Initial Jobless Claims, Feb. 18, est. 240k, prior 239k; Continuing Claims, Feb. 11, est. 2068k, prior 2076k
• 9am: House Price Purchase Index QoQ, 4Q, prior 1.5%; FHFA House Price Index MoM, Dec., est. 0.5%, prior 0.5%
• 9:45am: Bloomberg Consumer Comfort, Feb. 19, prior 48.1
• 11am: Kansas City Fed. Manf. Activity, Feb., est. 9, prior 9
• 1pm: Fed’s Kaplan Speaks in Fort Worth

DB's Jim Reid concludes the overnight wrap

If you're someone who is disillusioned with global politics at the moment then yesterday you were perhaps offered an escape route assuming you have 39 years of travelling time left in you and you can source a spaceship that can move at the speed of light. If you tick both boxes then hop along to the Trappist-1 star system and its newly discovered seven earth sized planets, three of which scientists have deemed to be in the 'habitable zone'. I read about this last night while watching the 'Brit Awards' (UK version of the Grammys) where tributes were paid to the likes of David Bowie. I couldn't help be thankful that our planets have better names than the ones scientists discovered yesterday. I'm not sure "Is there life on 'E' 'F' or 'G'?" would quite have worked played with a haunting piano line.

In markets yesterday planet F referred to the Fed and France as they were the two big macro stories. Starting with the former, the main passage to note from the FOMC minutes last night was that “many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming information on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee's maximum-employment and inflation objectives increased”. While there was that mention of “many participants” the “fairly soon” aspect of timing makes it hard to argue that March is any closer for the next move. That said it was highlighted that “a few participants noted that continuing to remove policy accommodation in a timely manner, potentially at an upcoming meeting, would allow the Committee greater flexibility in responding to subsequent changes in economic conditions” suggesting that there are a few members who would clearly be happy going next month.

In terms of the mention of future balance sheet strategy the only real takeaway was the reference that “participants also generally agreed that the committee should begin discussions at upcoming meetings about the economic conditions that could warrant changes in the existing policy of reinvesting proceeds from maturing Treasury securities and principal payments from agency debt and mortgage-backed securities, as well as how those changes would be implemented and communicated”. So no real new insight on that front. With regards to Trump and the question marks there, the minutes showed that “most participants continued to see heightened uncertainty regarding the size, composition and timing of possible changes to fiscal and other government policies, and about their net effects on the economy and inflation over the medium term, and they thought some time would likely be required for the outlook to become clearer”.

All in all then a fairly balanced set of minutes. Bloomberg’s calculator shows the probability of a Fed hike in March at 34% this morning which is actually down slightly from 36% the day before. May is at 62% from 59% - so not particularly big moves. Markets elsewhere didn’t really do much in the aftermath either. 10y Treasury yields closed out at 2.414% which was down 1.6bps on the day, having traded as high as 2.452% earlier on. The Greenback finished slightly lower (-0.15%) while risk assets were subdued. The S&P 500 (-0.11%) suffered only its third negative day in the last 3 weeks although the Dow (+0.16%) did finish higher and in doing so marked a three-decade record of nine consecutive new record closing highs. While we’re on the Fed it’s worth noting that Fed Governor Powell also spoke yesterday and said that a hike is warranted “fairly soon” should the economy continue on its current path. When asked if March is on the table, his reply was “Yes”.

Meanwhile in France the latest update is the news that centrist candidate Francois Bayrou will now team up with independent candidate Macron in forming an alliance in the presidential election. The news should be a small positive for Macron. Bayrou had been running at around 5-6% in the recent polls and a portion of that should now transfer to Macron in the first round. An Elabe poll released on Tuesday found that Macron would get 17% of votes in the first round if Bayrou decided to run, and 18.5% without Bayrou running. So that suggests a 1.5% swing in Macron’s favour. The same poll showed Fillon as benefiting from an extra 1% from Bayrou not running with the rest split around the far left and right. So as we noted a very marginal positive for Macron. The suggestion is that Bayrou has a strong influence on the centrist electorate so it could still be a bigger boost to Macron further down the line.

European bond markets were notably stronger yesterday including a bounce back for 10y OATs (-7.4bps) to 1.006%. They outperformed Bunds (-2.1bps to 0.275%) while peripherals were a bit more mixed (yields flat to 6bps lower). It’s worth highlighting that 2y Bund yields finished down another 2bps yesterday at -0.902% and so extending their record low. They are in fact now down 24bps from the highs in January which has coincided with political uncertainly steadily climbing higher. European equities were alot more mixed yesterday. The Stoxx 600 finished -0.01%, the DAX +0.26% but the peripherals were much weaker with the IBEX and FTSE MIB -0.88% and -0.83% respectively.

This morning bourses in Asia are generally trading in the red with commodity related names in particular underperforming. The Nikkei (-0.27%), Hang Seng (-0.48%), Shanghai Comp (-0.39%) and ASX (-0.26%) are all lower as we goto print. Yesterday’s declines across base metals don’t appear to be helping although Oil (+0.88%) has bounced back over $54/bbl following a -1.36% loss yesterday. Sovereign bond yields in Asia have also generally tracked lower.

Staying in Asia it’s worth noting that the National People’s Congress (NPC) in China is now just around the corner with the event kicking off on March 5th. As a reminder this is where the government sets out its working plan for the year. Our China Chief Economist Zhiwei Zhang published a report yesterday previewing the event with what he expects to hear. He thinks that the government will set a growth target broadly unchanged from last year, keeping 6.5% as the floor. He is curious if the government will send signals on how they are going to handle the pressure from the US on trade issues. Further opening up some service sectors may be one option. Zhiwei highlights that investors should also pay close attention to press conferences during the NPC. Experience in the past suggests that messages from those press conferences may have a significant impact on the market.

Also worth highlighting yesterday are our published takeaways from DB’s Bank Capital Forum 2017. Every year, the event brings together major investors, issuers and senior regulators to discuss the latest market and regulatory developments in banking. This year’s main topic was bank resolution and the keynote address was delivered by Dr. Elke König, Chair of the EU Single Resolution Board. It was followed by a regulatory outlook panel, issuer panel and investor panel. The report should be in your inbox, contact [email protected] if not.

Wrapping up, yesterday’s economic data in the US was reserved to the January existing home sales report which revealed that sales rose a better than expected +3.3% mom in January (vs. +1.1% expected). In Europe the notable data was the Germany IFO survey. The headline business climate reading jumped 1.1pts to 111.0 (vs. 109.6 expected) and so matching the December level again which is the highest since March 2014. Firms were most upbeat about the current assessment of the economy with that component rising 1.5pts to 118.4 while the expectations component rose 0.8pts to 104.0. Meanwhile in the UK Q4 GDP was confirmed at a slightly above market +0.7% qoq (vs. +0.6% expected) but earlier downward revisions meant annual growth was revised down two-tenths to +2.0% yoy. Finally there were no surprises in the final January CPI print for the Euro area at -0.8% mom. That puts the headline annual rate at +1.8% while the core is at +0.9%.

Looking at today’s calendar, this morning we’re kicking off in Germany again where we’ll get the final revisions to Q4 GDP (no change from the +0.4% qoq flash expected) along with the various growth components. Also due out will be various confidence indicators in France for February along with the UK’s CBI distributive trades survey for February. This afternoon in the US we’ve got initial jobless claims and the Kansas City Fed’s manufacturing survey. Away from the data the Fedspeak continues with Lockhart (1.35pm GMT) and Kaplan (6.00pm GMT) both scheduled. The ECB’s Praet is also due to speak at various stages through the day.