US Futures Pressured By European Weakness; Oil Flat

For the fourth day in a row, US traders arrive at their desks with US equity futures rangebound if with a modestly heavy bias, down around 4 points as of this moment, pressured by some recent weakness in European stocks, where DB continues to post modest gains following yesterday's report that Germany is pursuing "discrete talks" over the fate of the German lender. Oil has regained earlier losses following comments by Algeria's oil minister who said that OPEC could cut 1% more than agreed upon while sterling continues to slide on growing concerns of a "hard Brexit."

As has been so often the case, the Fed is back in the financial-market spotlight, with strengthening speculation that an interest rate hike is imminent pushing the dollar for an eighth day against the yen, dragging gold lower, and spurring the yield on two-year Treasuries to the most in 10 years versus German notes. Ahead of tomorrow's nonfarm payrolls report, where consensus expects a 172,000 print (up from 151,000), the market-implied probability of a Fed hike by December rose to 62% from 51% at the start of last week, after yesterday's record surge in the non-manufacturing ISM number. The dollar climbed against most of its peers following further evidence that the world’s biggest economy is sufficiently robust to cope with higher borrowing costs. Adding to the upward pressure in both the dollar and rate hike odds, Fed Vice-Chairman Stanley Fischer said on Wednesday that ultra-low rates are not necessarily here to stay,

After Tuesday's mini taper tantrum following a Bloomberg report that the ECB is considering tapering QE before its end, Bunds saw a sharp selloff however this morning the three-day losing streak ended before the European Central Bank releases the minutes of its last policy meeting, which is expected to unveil that Tapering is not among the expressed concerns. Banks in the region rose for a third day driven higher by steeper European yield curves, with the Stoxx Europe 600 Index fluctuating, while emerging-market equities climbed toward a two-week high. Gold extended its longest losing streak since May, and crude fell from its highest level since June.

As Bloomberg notes, positive economic reports this week have hinted that “tomorrow’s payrolls data has some scope to surprise to the upside” said Manuel Oliveri, a currency strategist at Credit Agricole SA in London. “If you have indications that the labor market continues to improve, it’s something that may actually put the Fed closer to tighten monetary policy in December. That’s the main reason why the dollar is very much in demand for now.”

The Stoxx 600 fell 0.3 percent in London, after Wednesday halting its longest streak without losses in a year on concern that the ECB is turning less accommodative. Banks posted the best performance of the equity benchmark’s 19 industry groups.Among the notable movers was EasyJet Plc which slid 6% after posting its first decline in annual profit since 2009 as terror attacks clipped demand and the weaker pound inflated foreign-currency costs. Dialog Semiconductor Plc (DLGNF) added 4.2 percent after the Apple Inc. (AAPL) supplier reported higher preliminary sales than forecast.

As Bloomberg summarizes, M&A activity was also in focus Thursday, spurring moves in the following stocks:

  • UniCredit SpA rose 1.2 percent after a report that Amundi SA is ready to offer a more-than-expected 4 billion euros ($4.5 billion) for its Pioneer Global Asset Management SpA unit.
  • Osram Licht AG surged 11 percent after a report that a Chinese company is planning to bid for the German maker of light bulbs and LEDs by mid-October.
  • Sompo Holdings Inc. jumped by the most since February in Tokyo after the insurer said it agreed to buy New York-listed Endurance Specialty Holdings Ltd. for about $6.3 billion.
  • Fujitsu Ltd. climbed 5.7 percent after the company was reported to be in talks to sell a majority stake in its personal-computer business to Lenovo Group Ltd., which advanced 1.5 percent in Hong Kong.
  • Twitter Inc. (TWTR) tumbled 11 percent in premarket New York trading following a report that Alphabet Inc.’s Google isn’t interested in buying the social-networking service.

S&P 500 Index futures slipped 0.2% after U.S. equities gained 0.4% in the last session. The MSCI Asia Pacific Index added 0.3 percent with a measure of energy stocks surging 1.9 percent, for the best performance among 10 industry groups. The MSCI Emerging Markets Index rose 0.2 percent, heading for the highest close since Sept. 23. Shares in Hong Kong led gains, with the Hang Seng China Enterprises Index climbing 1.4 percent. The gauge has rallied 3.8 percent this week, while mainland markets remained shut for holidays.

Crude oil was unchanged after Algerian Energy Minister Noureddine Boutarfa said in an interview on Ennahar television that OPEC may cut 1% more output than agreed, adding that OPEC’s initial target is to raise prices to $50-$55 in 2017, adding that it is easier now for OPEC to discuss deeper cut as group is united, “speaking in one voice” after Algiers meeting. The rebound followed some earlier weakness after advancing 2.3 percent to a three-month high on Wednesday. U.S. stockpiles fell below 500 million barrels last week for the first time since January, official data show. The oil rally will stall at $55 a barrel, according to Goldman Sachs Group Inc.“ There is a bit of a cap for oil at about $50 because above that level, once we head up toward $55 a barrel, there’s concerns that U.S. shale producers will jump back into action,” said Michael McCarthy, chief market strategist in Sydney at CMC Markets.

In rates, the yield premium of 2Y Treasuries over German debt widened to the most since July 2006, indicating traders see U.S. rates rising sooner and faster than in Europe.While reports this week speculating on a paring of ECB stimulus weighed on the region’s bonds, the spread signaled that the policy-divergence view regarding the Fed and the ECB is still intact. U.S. 10-year Treasuries were little changed, with the yield near a two-week high. A Bloomberg index of developed-market sovereign debt ended Wednesday at the lowest level since July.

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Market Snapshot

  • S&P 500 futures down 0.2% to 2152
  • Stoxx 600 down 0.3% to 343
  • FTSE 100 down 0.3% to 7010
  • DAX down less than 0.1% to 10579
  • German 10Yr yield down 4bps to -0.04%
  • Italian 10Yr yield down 3bps to 1.33%
  • Spanish 10Yr yield down 3bps to 1.01%
  • S&P GSCI Index down 0.2% to 371
  • MSCI Asia Pacific up 0.4% to 141
  • Nikkei 225 up 0.5% to 16899
  • Hang Seng up 0.7% to 23953
  • Shanghai Composite #N/A N/A
  • S&P/ASX 200 up 0.6% to 5483
  • US 10-yr yield down less than 1bp to 1.7%
  • Dollar Index up 0.16% to 96.28
  • WTI Crude futures down 0.1% to $49.77
  • Brent Futuresunchanged at 51.86
  • Gold spot down 0.2% to $1,264
  • Silver spot down 0.2% to $17.70
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Chee Hin Teh 4 years ago Member's comment

Thanks Tyler again.