A further slowing in growth
The S&P 500 hit a new high overnight, largely because of a spike in oil prices as Vladimir Putin steps in and says he expects OPEC to reach a deal next week, and agreeing to limit production in Russia.
The rally in US equities continued overnight with the S&P500 hitting a new record high of 2196, and ending 0.6% higher on the day. The move in equities was dominated by energy stocks (up 2.0%) with the oil price up by around 4.5%. It was not only US equities that were buoyed by the higher oil price, but so too were European equities. The DAX was up 0.2% and Eurostox was up 0.4%. Otherwise it was a fairly quiet night in markets, with little data flow.
The higher oil price followed comments by a number of OPEC officials indicating a formal agreement on an oil production cap was likely at the upcoming November 30 meeting (there is tentative agreement to a cap output at between 32.5-33 mb/d with production currently at 33.8mb/d). Iran also revealed that through a production cap, OPEC is hoping the oil would move into US$55-60 a barrel range. Russia also chimed in with President Putin stating “We will do everything that our partners from OPEC are expecting. To freeze crude production is not an issue for us”. Of course OPEC has been on the verge of an agreement many times (inspiration for today’s title on “The Edge of Glory” by Lady Gaga ) and the current agreement provides exemptions for Iran, Libya and Nigeria with Iraq also making soundings to some sort of exemption.
In FX space, it was a story of slight US dollar weakness with the US dollar index down 0.2% across the board. Amongst the currencies, the British Pound was the outperformer, surging 1% following comments by Prime Minister May that implied she was looking for a soft Brexit. PM May said there were issues that “need to be looked at” and that she did not want “a cliff edge” Brexit; indications of infrastructure spending in the upcoming UK budget may also have helped. Oil-linked currencies also outperformed with the CAD and NOK up 0.5% and 0.3%. The Aussie moved pretty much in line with US dollar weakness, up 0.2%.
Bond yields were slightly lower, with US Treasury yields down 2.3 bps to 2.33%. Bund yields were broadly unchanged at 0.27%. Australian CGS also fell yesterday, down 3.2 bps to 2.69%. Comments by the US Fed’s Vice-Chair Fischer had minimal impact on markets and largely reinforced comments from Dudley and Yellen last week. For your scribe there were two key takeaway points: Fischer downplayed the recent move in yields stating “forty basis points is a lot, but it’s not unusual”; and provided tacit support to expected fiscal spending stating “certain fiscal policies, particularly those that increase productivity, can increase the potential of the economy and help confront some of our longer-term economic challenges”, BUT importantly implicitly supported market assertions that policies could be inflationary, noting the US was “very close to full employment”.
ECB President Draghi also hit wires, though again there was little market reaction. Draghi said the ECB had not yet seen consistent strength in underlying price dynamics and that he was committed to substantial monetary accommodation. His colleague Couere was also on the wires stating “we will scale back monetary stimulus, but not yet”.
In commodities, iron ore has come of its shine down 3.4% to US$70.3, while coal prices were unchanged with Coking at US$299.5 and thermal at US$105.1.
Finally, an update to the French Presidential Elections that will be held in April-May 2017. The parties at the moment are choosing their candidates with the Republican centre right holding its first primary with Sarkozy knocked out. That leaves Juppe and Fillon in a run-off next Sunday. Most polls put a Republican candidate as likely to win the French Presidency against the Eurosceptic National Front’s Le Pen, though markets will be paying close attention given they have been wrong-footed by Brexit and the US Election (recent polls put Le Pen’s support consistently in the 25-30% range).
A potentially interesting day for Australia with two RBA speeches scheduled. The first from Chris Aylmer speaking at an Australian Securitisation Forum in Sydney. The second and perhaps more interesting will be Dr Chris Kent speaking at 6.45 AEDT on “Australia’s Economic Transition – State by State” at the Australian Business Economists Conference Dinner. Datawise there is only the second tier Weekly Consumer Confidence Index Tuesday morning – where confidence bounced last week indicating little impact (or even a positive reaction) to Trump’s victory in the US.
As for the international calendar, it is a very quiet day ahead and indeed for the week. In the US today we get Existing Home Sales and the Richmond Fed Manufacturing Report, while Canada has Retail Sales. Europe has its Consumer Confidence measure, but is also unlikely to garner much interest.
On global stock markets, the S&P 500 was +0.62%. Bond markets saw US 10-years -1.96bp to 2.34%. In commodities, Brent crude oil +4.23% to $48.84, gold+0.2% to $1,211, iron ore -3.4% to $70.34. AUD is at 0.7353 and the range since yesterday 5pm Sydney time is 0.7322 to 0.7381.
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