“A global flight-to-safety continues to dominate the landscape as lower oil prices drives the bid for core fixed income markets”
– ED&F Man
Anyone who was hoping the market would rebound on last-minute news that the US government has gotten funding for another 9 months, will be disappointed this morning, when futures are finally starting to notice the relentless decline in crude, and with Brent down another 1% as of this writing following yet another cut in the forecast of Global oil demand by the IEA (the 4th in the last 5 months) and with Chinese industrial production also missing estimates (recall that the Chinese slow-motion hard landing has been said by many to be the primary catalyst for the crude collapse) which however pushed Chinese stocks higher on hopes of even more stimulus, the S&P is trading lower by some 13 points, the 10 Year is in the red zone at 2.12%, and the USDJPY is close to session lows. In short: Kevin Henry's “ETF” desk at the NY Fed will have its work cut out to generate one of the now traditional pre-weekend feel good, boost confidencestock market ramps.
Some more details
European equities trade lower (Eurostoxx50 -1.4%) following the late sell-off in the S&P 500 as oil broke USD 60 to print its lowest level since July 2009 which pushed the VIX (+8.4%) to its biggest 4 day gain since 2011. In Europe the Eurostoxx50 Volatility Index is up 10%, following its US counterpart, with the FTSE (-1.7%) underperforming due to lower commodity prices with energy the worst performing sector in Europe. The DAX (-1.3% also trades heavy as index heavyweights BASF (-2.75%) was downgraded at Morgan Stanley and Commerzbank (-1.55%) is looking to settle USD 1bln fine with US regulators.
As fixed income traders focus on the weekly LTRO update (not released at time of writing) weak equities have helped push Bunds (+45 ticks) to contract highs and German 10 year yields to record lows at 0.64%.
Overnight the US House of Representatives narrowly passed a USD 1.1trl spending package that will fund nearly all of the US government through September 2015. The Senate now has until midnight Saturday to take up the bill, thanks to a short-term resolution passed by the House to give it time. Senator Harry Reid said the chamber could take up the bill as early as Friday. (BBG)
Nikkei 225 (+0.7%) retraced recent losses amid expectations for PM Abe's party to win an overwhelming majority in the lower house, with results due this weekend. Shanghai (+0.4%) and Hang Seng (-0.3%) traded mixed following Chinese IP Y/Y 7.2% vs. Exp. 7.5% (Prev. 7.7%) and Retail Sales Y/Y 11.7% vs. Exp. 11.5% (Prev. 11.5%). Downside was capped amid heightened expectations of further easing after China's 2015 GDP growth targets were lowered at the Central Economic Work conference. JGBs traded higher up 7 ticks at 147.32 amid notable curve steepening after the BoJ offered to buy JPY 1.3trl of JGBs, all in the 1yr–10yr maturity range.
10Y Treasury futures traded 220k contracts overnight as European equities sell off; bund yield making record lows at 0.639%, “which in turn is underpinning Treasuries,” Tom di Galoma, head of credit and rates trading at ED&F Man writes in note. “A global flight-to-safety continues to dominate the landscape as lower oil prices drives the bid for core fixed income markets”: ED&F
The US economic calendar is a little lighter this afternoon featuring just the PPI and the preliminary UofM Consumer Sentiment for December. It will be interesting to see if lower energy prices will have an impact on the latter, we add sarcastically.
Market Wrap
European shares fall, though are off intraday lows, with the basic resources and oil & gas sectors underperforming and real estate, travel & leisure outperforming. European bond yields fall to all-time lows. IEA lowers forecast for global oil demand, WTI crude falls below $60 a barrel. Ruble falls to record, Norway's krone falls to 11-year low. China November industrial production growth below estimates y/y. The U.K. and French markets are the worst-performing larger bourses, the Swedish the best. The euro is stronger against the dollar. German 10yr bond yields fall; French yields decline. Commodities decline, with WTI crude, Brent crude underperforming and natural gas outperforming. U.S. Michigan confidence, PPI due later.
