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European, Asian Stocks Jump As Iron Ore Joins Oil Below $40 For First Time Since May 2009
With Draghi's Friday comments, which as we noted previously were meant solely to push markets higher, taking place after both Europe and Asia closed for the week, today has been a session of catch up for both Asian and Europe, with Japan and China up 1% and 0.3% respectively, and Europe surging 1.4%, pushing government bond yields lower as the dollar resumes its climb on expectations that Draghi will jawbone the European currency lower once more, which in turn forced Goldman to announce two hours ago that it is "scaling back our expectation for Euro downside."
And perhaps as if on demand, the euro fell for a second day touching session lows just around the time Goldman's note hit.

On Friday evening ECB President Mario Draghi defended his measures, saying Thursday's package wasn't "meant to address market expectations." He also stressed the ECB is ready to do more if needed. A stronger dollar has been one of the reasons the Fed has been reluctant to raise interest rates, as it makes American companies less competitive internationally and damps prices on imports. Last week a Bloomberg gauge of the dollar against 10 of its leading global peers had its biggest weekly drop in two months, making it a little easier for the Fed to raise interest rates next week.
While global stocks have been catching up to the massive US closing surge on Friday, the US itself has been quiet as oil falls for second day after OPEC’s decision to raise its production quota on Friday, sinking even further below 40.

Silver rises, while gold, metals, food commodities fall. This is how global markets look right now:
- S&P 500 futures up 0.1% to 2094
- Stoxx 600 up 1.4% to 376
- MSCI Asia Pacific up less than 0.1% to 132
- US 10-yr yield up less than 1bp to 2.28%
- Dollar Index up 0.45% to 98.8
- WTI Crude futures down 1.2% to $39.50
- Brent Futures down 0.6% to $42.76
- Gold spot down 0.4% to $1,083
- Silver spot up 0.3% to $14.59
Other top news stories include China's foreign reserve drop which declined more than expected to just $3.44 trillion, below the $3.49 trillion expected and down from $3.53 trillion at end of October; Icahn’s Pep Boys stake, Jes Staley’s reported planned cuts, Chipotle warning on E. Coli scare, GE backing out of Electrolux sale, French & Venezuelan votes.
The biggest weekend development in the political arena was the stunning surge in the French National Front, which soared to first place in the French regional elections with 28.1% of the vote.
Joining oil below $40 this morning is iron ore which tumbled to the lowest price since May 2009. As Bloomberg reports, iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China, with investors assessing the impact of the first shipments from Gina Rinehart’s Roy Hill mine within the coming days. Ore with 62 percent content delivered to Qingdao lost 2.4 percent to $39.06 a dry ton, a record low in daily prices compiled by Metal Bulletin Ltd. dating back to May 2009. The raw material is headed for a third annual decline and has lost 80 percent since peaking in 2011 at $191.70.
Here is how the two key commodities looked like as they now are set to race each other who can hit $30, then $20 first.

Looking closer at regional markets, Asian stocks kicked off the week on the front foot following the strong lead from Wall Street. This came after the better than expected NFP report and upward revisions, which hinted at further strength in the US economy. As such, the Nikkei 225 (+1.0%) has pared over half of Friday's losses, while the ASX 200 (+0.1 %) was initially lifted higher by material names amid the gains seen in the precious metals complex. However, did pull off best levels with pressure from energy stocks after oil prices continued to find no reprieve with investors disappointed by OPECs decision to keep producing at record levels. Elsewhere, Shanghai Comp. (+0.3%) fluctuated between gains and loss with strength in healthcare names.
Top Asian News:
- China End-Nov. Forex Reserves $3.44t; Est. $3.49t
- CMA CGM Said Near $2.4 Billion Cash Offer for Neptune Orient: Buying Temasek’s stake would trigger mandatory takeover offer
- Citic Securities Says Executives Missing Amid China Stocks Probe: They may have been drawn into market probe, according to media reports
- China’s Sichuan Shengda Defaults on Onshore Bond as Growth Slows: Co. says default is due to cash shortage
- Japan Megabanks Face Tricky Task Unwinding $15 Billion of Stocks: Banks are expected to meet targets to sell cross- shareholdings
- Rajan Seen Buying $10 Billion of Rupee Bonds as Cash Runs Short: First open-market purchase of bonds in two years due Monday
In Europe, the slew of critical macroeconomic events last week, which included the ECB and the NFP, meant that the typical December Santa Claus rally can finally kick off. Nevertheless, the upside in stocks (Euro Stoxx: +1.8%) was led by the more defensive sectors such as health care, underpinning the fragile nature of the recovery, especially since market participants remain particularly wary of risks surrounding the upcoming FOMC decision. Despite the apparent risk on sentiment, Bunds remained better bid, as somewhat dovish comments by Draghi late Friday, together with the release of biggest fall in Chinese FX reserves since August (USD 3438.3bIn vs. Exp 3492.5bIn), supported the flow into safe-haven securities. Also of note, analysts at IFR suggest that model driven buying has added to the real money buying behind the bid tone seen so far today.
Top European News:
- German Industrial Output Rises Less Than Forecast on Energy: Industrial production rose less than economists predicted in October amid a slump in energy output
- Electrolux Plunges After GE Pulls $3.3B Appliance Deal: Swedish co. needed GE deal to gain scale in U.mkt; had decided to fight in court the U.S. DoJ’s claim that combined co. will dominate U.S. cooking-appliance mkt.
- Le Pen Scores Historic Victory in France’s Regional Elections: National Front led in 6 out of 12 regions in mainland France, increasing share of national vote to 28% vs 11% in last regional vote in 2010: Interior Ministry.
- Syngenta May Reconsider Sale of Assets: Shareholder Group: Co. may reconsider planned sale of its flower-, vegetable- seed units, according to group of shareholders that said it met with chairman Michel Demare.
- BOE Approves Prudential, Aviva Capital Models Under Solvency II: BOE’s Prudential Regulation Authority approved 19 full or partial internal models submitted by insurers, regulator said in a statement on Sat.
In FX, in line with the aforementioned Chinese data and as concerns over China and the likely re-emergence of outflows, further upside was seen in USD/CNH. While also of note, USD strength was seen across the board during the European morning (USD-index: +0.5%) to see the greenback gain against all major pairs, with USD/JPY residing around the 123.50 level and GBP/USD below 1.5100, while analysts at Informa note that leverage accounts are said to have been sellers of GBP/USD in early European trade. Separately, Goldman Sachs have raised their EUR/USD forecast for 3 months to 1.07 (Prey. 1.02), 6 month to 1.05 (prey. 1.00) and 12 month to 1.00 (Prey. 0.95). Finally, commodity currencies have also softened, continuing the declines seen in the wake of the OPEC decision.
In commodities, after the OPEC meeting saw the cartel leave supply output unchanged, WTI futures continued to trade lower overnight with Jan'16 futures trading around USD 39.50/bbl, with OPEC also declining to set a target or the output production for the next meeting which will be held in June 2016. Separately gold has traded sideways this morning, although still close to 3 week highs after last week's gains (2%) following the US NFP announcement. Copper prices also rebounded slightly last week from fresh lows, but since have been trading sideways during this morning's session.
There is little on today's US economic calendar, with the Fed's Labor Mkt Conditions Index due in the morning, followed by the latest Consumer Credit report at 3pm.
Top Global News
- Jes Staley Said to Mull Deeper Cuts at Barclays Investment Bank: Under plan, bank is looking to eliminate Asain jobs, also in global cash equities business.
- GE Investors Said to Fight Forced $5b Securities Exchange: Holders of preferred shares in GE’s finance unit are revolting against co.’s decision to exchange $5b of securities for notes that investors say are less valuable: people familiar
- Icahn Buys Into Pep Boys, Seeks Retail Sale to His Auto Plus: Billionaire investor says PBY’s auto parts & maintenance chain’s retail business should be acquired by Auto Plus, a competitor he controls.
- Chipotle Rescinds Forecast After E. Coli Scare Crushes Sales: Sales plunged as much as 20% in days after illnesses were reported; same-store sales expected to be down 8%-11% in 4Q
- Caesars Among Firms Said to Push to Curb Lender Protection Rules: Caesars has said it will probably have to join its bankrupt subsidiary in Chapter 11 if it loses the suits, which are over actions co. took to shuffle debt before unit filed for court protection.
- VMware Said to Mull Buyback, Virtustream Changes for Dell- EMC: Co. considering multibillion-dollar buyback, also changes to plan to consolidate financial results of money- losing Virtustream: people familiar.
- Obama Wants Silicon Valley’s Help to Fight Terror Online: Obama asked tech firms to work with U.S. law enforcement authorities to prevent terrorists from using social media, encryption technologies.
Bulletin Headline Summary from RanSquawk and Bloomberg
- European and Asian stocks follow the trend set by US on Friday to kick off the week firmly higher
- USD strength dictates play in FX markets, stronger against all major pairs heading into the North American open
- Looking ahead, economic releases are fairly light today, with focus instead falling on scheduled comments from BoE's Carney and Fed's Bullard
- Treasuries lower led by 2Y, curve flattens as markets turn attention to next week’s FOMC meeting after Friday’s better than forecast payrolls report.
- Oil extended losses below $40/bbl amid speculation a record global glut will be prolonged as OPEC effectively abandoned its long-time strategy of limiting production to control prices
- Iron ore sank below $40 a metric ton on rising low-cost supply from the world’s top miners and weakening demand in China, with investors assessing the impact of the first shipments from Gina Rinehart’s Roy Hill mine within the coming days
- A Chinese pig iron producer said it missed a bond payment, becoming at least the seventh firm to renege on obligations in the local note market this year
- German industrial production rose 0.2% in October, less than economists predicted, amid a slump in energy output
- Citic Securities said it has been unable to contact two executives, adding to deepening turmoil at a brokerage that is being investigated amid a government probe into China’s stock- market rout
- Obama warned that the mass shooting in California last week showed the terrorist menace has evolved into a “new phase” and assured the public that organizations like Islamic State would be destroyed
- Obama’s 13-minute Oval Office address came after criticism even from some liberal allies that his statements following attacks in Paris and California didn’t demonstrate sufficient urgency
- Turkey backtracked on a plan to send more troops into Iraq to support its allies there, after the government in Baghdad said it would appeal to the United Nations to force their withdrawal
- Venezuela’s opposition alliance won a majority in Congress for the first time in 16 years in elections on Sunday as an unprecedented recession and a collapse in the bolivar turned voters against the populist policies of Maduro
- $34.45b IG priced last week, $3.6b HY. BofAML Corporate Master Index OAS holds at +162, YTD range 180/129. High Yield Master II OAS widens 5bp to +637, YTD range 683/438
- Sovereign 10Y bond yields mostly lower. Asian stocks mixed, European stocks and U.S. equity-index futures gain. Crude oil and copper higher, gold unchanged
US Event Calendar
- 10:00am: Labor Mkt Conditions Index, Nov., est. 1.2 (prior 1.6)
- 3:00pm: Consumer Credit, Oct., est. $18.250b (prior $28.918b)
Central Banks
- 9:00am: Bank of England’s Carney speaks in Brussels
- 10:00am: BoE’s Carney testifies at European Parliament
- 12:30pm: Fed’s Bullard speaks in Muncie, Indiana
DB's Jim Reid completes the overnight wrap
As we move on from what was an eventful five days for markets last week, the focus now turns squarely to the FOMC decision in nine days time, the last main event before markets surely take a bit of a breather for the holiday period. Capping off the end of a busy week, Friday’s payrolls helped cement a Fed hike, while headlines out of the OPEC meeting helped keep markets on their toes right up until the closing bell.
As is usually the case after payrolls the week ahead is a little quiet in the US but there’s plenty of data in China for us to keep an eye on throughout the week with the main monthly data due out at various stages. The usual full run down of the week ahead is at the end of the report.
We're still waiting for the latest Chinese reserve numbers this morning which should be out as we publish. Clearly in light on the running down of reserves seen in late summer these are a crucial monthly release going forward. Ahead of this markets in Asia are a bit of a mixed bag. The Nikkei is leading the way, up +1.08%, while the Hang Seng (+0.25%) and ASX (+0.08%) have more modest gains. Bourses in China are back to flat after a positive start while the Kospi (-0.54%) is the notable underperformer. It’s been a decent start for credit markets with indices in Australia and Asia 2bps and 1bp tighter respectively.
Much of the focus over the weekend has been on yesterday’s regional elections in France where, as largely expected, the National Front has stolen the limelight. As per Bloomberg, exit polls have the NF holding anywhere between 27% to 30% of the overall votes with the centre-right Republicans party (led by former President Sarkozy) in second place at around 27%, while current President Hollande’s Socialist party is third with around 23% of votes. Importantly also, the NF are said to be in front in at least six of the 13 regions in France. Our Economists on Saturday noted prior to yesterday’s elections that the NF were up to around 30% in the latest opinion polls and on course to come ahead in six regions, so the early signs from the exit polls appear to be reflecting those expectations. While it’s a strong showing from the NF, our Economists still expect them to struggle to convert more voters from the first-round in the second round due on the 13th of December. They highlight that in polls published on Friday, the percentage of voters who consider the National Front being in charge of their region as not a desirable outcome remained stable at 60%. The other possibility is some sort of cooperation between the mainstream parties emerging after this round. Nonetheless, Sunday’s second round will be important to keep an eye on in the run up to the national elections in 2017.
Also attracting a few headlines over the weekend was the latest (cautionary) Bank of International Settlements quarterly report. The report highlighted that financial markets are showing an ‘uneasy calm’ at the moment ahead of a move by the Fed and that ‘there is a clear tension between the markets’ behaviour and underlying economic conditions’. The report cited risks for emerging markets in particular, highlighting that they would be able to ‘ride out’ the prospect of US monetary tightening in the short run but ‘less favourable financial market conditions, combined with a weaker macro outlook and increased sensitivity to US interest rates, heighten the risk of negative spillovers’.
Back to Friday’s highlights. November US payrolls were up 211k during the month, in-line with the 12-month average and a tad ahead the 200k expected by the market. Helping support the number was also a cumulative 35k of upward revisions to the prior two months too. The other components of the employment report generally offered few surprises. The unemployment rate held steady at 5%. Average hourly earnings rose +0.2% mom as expected, while the YoY rate was dragged down two-tenths to +2.3%. Hours worked fell slightly to 34.5hrs from 34.6hrs, while the labour force participation rate came in a little ahead of expectations at 62.5% (vs. 62.4% expected). Released at the same time, the October trade deficit edged slightly wider during the month, from $42.5bn to $43.9bn after expectations for a narrowing to $40.5bn. The recent slug of data has seen the Atlanta Fed edge up their Q4 GDP forecast now to 1.5% from 1.4% on December 1st. Meanwhile St Louis Fed President Bullard reiterated his stance of being an advocate for commencing policy normalization soon.
The price action was interesting with 2y Treasury yields initially spiking as high at 0.989% following the data, although the move was only brief with yields then trending lower and eventually closing back below where they were pre-payrolls at 0.941% (-1.2bps on the day). It was a similar story for 10y yields which finished the day -4.4bps lower at 2.270%, although that’s in the context of the previous day’s huge move higher post the ECB. It was a better day for the US Dollar, finishing up over half a percent versus the Euro. Some of the more notable moves were in US equity markets where the S&P 500, Dow and Nasdaq all finished up over +2% – also reflecting something of a rebound from Thursday’s losses.
This was despite a weak session for energy names after Oil turned on a dime as OPEC headlines hit the wires. WTI traded as high as $42 on Friday, before then plummeting over $2 in a matter of minutes as the news emerged from the OPEC meeting in Vienna that there were to be no cuts to production. WTI traded as low as $39.60 after that news, marking a 5.7% swing from the high print, before finishing the day at $39.97, a -2.70% decline on the day (and is down another 1% this morning). The meeting was described as contentious, lasting nearly seven hours having only been scheduled for four. According to the WSJ, the cartel was said to have considered a cut in production but as a group decided that a cut of even 5% was unlikely to have much impact on pushing prices higher. Much of the focus was also on the lack of any mention of the 30m barrels a day ceiling for production in the post meeting statement, instead the OPEC Secretary emphasizing that the cartel would pump at the ‘current production level’ – a sign production will likely exceed this ceiling for now.
While there was a decent rebound for risk assets in the US on Friday, the same couldn’t be said for European markets where the post-ECB negative tone continued into Friday’s session and which saw equity markets post modest losses as a result. Indeed the Stoxx 600 finished -0.41%, meaning it was down nearly 3.5% on the week and the most over 5-days since August. With little in the way of data in the region other than a slightly better than expected German factory orders print for October (+1.8% mom vs. +1.2% expected) the focus was instead on more comments from the ECB President Draghi.
Responding to the disappointing market reaction on Thursday afternoon, Draghi said that the measures announced by the ECB ‘was not a package meant to address market expectations’ and instead ‘it was meant to address the reaching of our objectives’. Draghi called the measures a ‘recalibration’ and ‘not a novel monetary policy change’. In comments which came across as far more dovish relative to Thursday and perhaps a sign of trying to repair a bit of the damage, the ECB President also made the point that ‘there cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate’.
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Oh good....the people with 29.5 hr/wk jobs might someday be able to buy a full tank of gas.
Really sorry for you guys holding those $100 barrel derivative contracts.......OK, you got me.....no I'm not.
It's all Bullshit!!!
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"the ECB President also made the point that ‘there cannot be any limit to how far we are willing to deploy our instruments, within our mandate, and to achieve our mandate’."
Bullish for negative rates. Therefore bullish for stawks. Buy with both hands and feet.
yeah like fed rate hikes, they're bullish for stocks...
and sub $40 oil, bullish for stocks, particularly oil coys. And collapsing retail sales, thats bullish for stocks. And DXY hovering near 100, thats bullish for stocks. And high yield crashing, thats bullish for stocks. Buy.
Overnight magic reversal. Same as it's been last serveral times.
CBs have to turn the situation around.
They'll keep doing it until they get the desired results.
#WINNING
Bu still not in a recession. Acording to the MSM and the Fed.
Iron Ore break-even cost http://campus.hesge.ch/commodity_trading/wp-content/uploads/2014/11/Screen-Shot-2014-11-27-at-18.45.22.png
Source: http://davidstockmanscontracorner.com/why-commodity-prices-are-cliff-diving-the-iron-ore-collapse-reflects-the-end-of-the-monetary-super-cycle/
Under 39.
I'm sure CNBC will have a parade of "buy,buy,buy" guests on today............. their own sell orders already placed.
Once more the media is publishing articles suggesting that Red China is just another normal country that is involved in science and finance and cares about air pollution and fixing the terrorist problem in the World but the heinous Chinese Communist Party's only concern is the total control of its people by the use of torture, slavery, organ harvesting and murder. Since 1949, the blood-thirsty CCP has murdered eighty million of its own people and is now attempting the genocide of the millions of innocent Falun Gong practitioners who live there. None of the millions of atrocities that have been and are still being committed are ever mentioned by the media because of corporate greed so the people of the World look at China as a budding financial power when in fact it is a dark, scary, brutal regime. Human greed, insatiable.