Futures Slide, Global Rally Fizzles; Oil Set For Longest Rally On Record

Bond markets have been turning too. U.S. Treasury debt prices erased early gains after a soft 30-year bond auction and in reaction to Powell’s comments on the Fed “substantially” reducing the size of its balance sheet. The 10-year U.S. Treasuries yield last stood over 2bps lower at 2.7168%.

Finally, in commodities, the notable mover was crude as oil rose for a 10th consecutive day, heading for its longest run of gains on record, as OPEC cutbacks reined in supply while the plunging dollar boosted demand. Futures returned to a bull market this week after recovering more than 20% from the lows reached in December. Saudi Arabia gave assurances on Wednesday that the production cuts by OPEC and its partners that came into effect this month will be deep enough to prevent any surplus.

 

“Sentiment in the oil market has turned around this week,” said Jens Naervig Pedersen, senior analyst at Danske Bank A/S in Copenhagen. The reversal “is on the back of a combination of OPEC+ production cuts taking effect, a stabilization in risk sentiment in equity markets and a weaker dollar. In addition, the oil market will be monitoring trade talks, which seem to progress slowly.”

In us political news, President Trump said he will most likely declare an emergency if there is no border deal but added should be able to make a deal with Congress, while there were earlier reports that US President Trump had been briefed regarding plan to use Army Corps of Engineers funding to border wall construction. Also commented that he has the absolute right to declare a national emergency and is not doing it yet but will do if shutdown carries on.

In the latest Brexit news, it is looking increasingly likely to be delayed beyond March 29th amid a backlog of essential bills, according to Cabinet Ministers cited by the Evening Standard. However, this has been dismissed by a UK PM May spokesperson. UK PM May launched an appeal to Britain’s biggest unions last night in an attempt to win Labour support for her Brexit deal.

The partial U.S. government shutdown threatens to extend into a fourth week with about 800,000 federal workers set to miss their first paychecks. Economic data include CPI inflation readings

Market Snapshot

  • S&P 500 futures down 0.3% at 2,588
  • STOXX Europe 600 up 0.3% to 350.07
  • MXAP up 0.5% to 151.74
  • MXAPJ up 0.4% to 491.54
  • Nikkei up 1% to 20,359.70
  • Topix up 0.5% to 1,529.73
  • Hang Seng Index up 0.6% to 26,667.27
  • Shanghai Composite up 0.7% to 2,553.83
  • Sensex down 0.3% to 36,012.53
  • Australia S&P/ASX 200 down 0.4% to 5,774.58
  • Kospi up 0.6% to 2,075.57
  • German 10Y yield fell 2.0 bps to 0.235%
  • Euro up 0.2% to $1.1522
  • Brent Futures up 1% to $62.30/bbl
  • Italian 10Y yield rose 0.9 bps to 2.527%
  • Spanish 10Y yield fell 2.4 bps to 1.427%
  • Brent Futures up 1% to $62.30/bbl
  • Gold spot up 0.5% to $1,293.34
  • U.S. Dollar Index down 0.2% to 95.38

Top Overnight News from Bloomberg

  • Chinese Vice Premier Liu He is said to be scheduled to visit Washington on January 30 and 31 for further trade talks
  • Fed Vice Chairman Richard Clarida said the central bank should be ready to adjust monetary policy if headwinds to the economy from financial markets or global growth prove persistent, suggesting caution about moving ahead with interest-rate increases
  • Japan’s Prime Minister Shinzo Abe told Theresa May the whole world wants to avoid a no-deal Brexit even as she faces likely defeat when Parliament votes on her plan next week
  • The Trump administration was said to have directed the U.S. Army Corps of Engineers to examine whether the wall could be funded using money from emergency funding. Trump cancels trip to Davos gathering as shutdown grinds on
  • The European Central Bank should wait until the spring before tweaking its policy and keep all options open amid economic weakness and a fragile global outlook, according to Governing Council member Francois Villeroy de Galhau
  • Fast-money traders seem to have lost their stomach for betting on an interest rate lift-off in the heart of Europe. They entered 2019 with the smallest value of short wagers against German bunds in more than two years, according to exchange-traded product data
  • A trader who wants BNP Paribas SA to pay him 163 million euros ($188 million) over a “fat-finger” mistake is betting that Paris judges will help him avoid having to give up most of the claim
  • Emmanuel Macron next week launches a three- month national debate that he hopes will dissipate the anger displayed in the recent violent protests, without derailing the reforms he insists France needs
  • An American military official tells AP the U.S.-led military coalition has begun the process of withdrawing troops from Syria

Asian equity markets traded mostly higher following the 5th consecutive session of gains on Wall Street as global sentiment remained underpined by perceptions of a more patient Fed approach. ASX 200 (-0.3%) and Nikkei 225 (+1.0%) were mixed with the initial upside in Australia clouded by weakness in the key financials and mining related sectors, while the Japanese benchmark outperformed as it coat-tailed on the recent USD/JPY moves. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (+0.5%) conformed to the overall positive risk tone following the recent trade-related optimism with Vice Premier Liu He said to possibly visit the US later this month and amid hopes of further supportive measures as China may adopt more tax cuts for the manufacturing sector. Finally, 10yr JGBs were lacklustre on profit taking following recent gains and with demand also limited by the upside in riskier assets.

Top Asian News

  • Nissan Shunned in Bond Market on Ghosn But Banks Seen Supportive
  • Why Ghosn’s Still Jailed and What It Says About Japan: QuickTake
  • What India’s Top Three Mutual Funds Bought and Sold in December
  • Chinese Stocks Post Biggest Weekly Gain in Nearly Two Months

Major European indices are mixed [Euro Stoxx 50 Unch], having pared back some of the initial gains from the open. Some initial outperformance was seen in the FTSE 100 (+0.1%) which is lead by strong performances in UK housing names after the sector was upgraded by BAML, with Persimmon (+4.4%), Taylor Wimpey (+4.8%) and Barratt Development (+2.6%) at the top of the index, however, the index was later pressured on currency effects as Sterling whipsawed on Brexit developments. Sectors are similarly in the green with some slight outperformance seen in energy names. Other notable movers include, Richemont (+2.3%) after the Co’s Q3 revenue of EUR 3.92bln was in line with the expected EUR 3.93bln and posting a 5% rise in constant currency sales for the October-December period. Meanwhile, Suez (-3.1%), Veolia (-2.6%) and Sage Group (-2.6%) are all in the red after being downgraded.

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