Dollar Falls On Fading Trump Euphoria; Sterling Slide Spikes UK Stocks; US Futures Flat

Tyler Durden's picture

Global stocks were fractionally lower in early European trading, closed Asia mixed, while S&P futures were unchanged, as the dollar fell for a second day on concerns ahead of Trump's press conference on Wednesday. Oil rebounded after its Monday plunge, while commodity metals like iron ore rose limit up in Chinese trading. Top overnight stories include Valeant announcing the sale of $2.1 billion in assets to pay down debt; VW managers warned to stay in Germany as U.S. charges near; Yahoo! plans to shrink board, get rid of Marissa Meyer and change its name after Verizon deal.

On Monday, declines in energy and financial stocks weighed on the S&P 500 and helped stall the Dow's pursuit of the 20,000 milestone ahead of earnings season and expected U.S. policy changes under Trump. Weakness spread to the the dollar, which has dipped against the euro and yen as euphoria over Trump policies is now fading, and was 0.15% lower against a basket of six major peers, at 101.62 slipping further from last week's high of 103.82, its highest level since 2002. 

The Bloomberg Dollar Spot Index weakened for the fourth time in five days ahead of the U.S. president-elect’s first news conference since July on Wednesday, and has now lost all YTD gains.

 

"The market has high expectations for Trump's economic policy; perhaps they are booking profits just in case he throws in a curve-ball at tomorrow's much anticipated press conference," said City Index research director Kathleen Brooks.

Speaking of Trump's upcoming statement, "the market is increasingly nervous about Donald Trump's press conference on Wednesday. For FX markets, what will be particularly important will be what his plans are for the trade policy, for the relationship with China," said Commerzbank currency strategist Esther Reichelt, in Frankfurt.

The pound touched its lowest level since Oct. 25 after U.K. Prime Minister Theresa May said over the weekend that negotiations on Brexit will be about “getting the right relationship, not about keeping bits of membership.”  A so-called hard Brexit may push the Bank of England to keep rates lower for longer, while weakening the pound and supporting foreign-focused companies in the main stock index. The currency was down 0.2 percent at 1.2153 per dollar Tuesday. As a result of the ongoing plunge in sterling, the FTSE not only hit a new record high, but continued its unbroken pattern of gains, rising for the 11th consecutive session, the longgest winning streak in 33 years.

Oil prices were a touch firmer at $55.11 LCOc1, a day after suffering their biggest one-day loss in six weeks. They fell nearly 4 percent on Monday on fears that record Iraqi crude exports in December, increased supplies from Iran and rising U.S. output would undermine an agreement by exporters to curb production.

Looking at Asian markets, MSCI's broadest index of Asia-Pacific shares outside Japan .MIAPJ0000PUS advanced just 0.5 percent, while Chinese stocks .CSI300 were little changed, largely shrugging off further signs of improvement in the industrial sector. Data showed producer inflation surged to a more-than-five-year high in December as raw materials prices soared.

This morning in Asian economics, the focus has turned over to the latest inflation report in China. The data has made for slightly mixed reading with CPI printing at +2.1% yoy in December which is down from +2.3% in November and also slightly lower than expected (+2.2% expected) following a slowdown in food price inflation. However, PPI has surged to +5.5% yoy (vs. +4.6% expected) from +3.3% and in doing so has reached the highest level since September 2011.

"Reflation continues in the factory sector," said Julia Wang, an economist at HSBC Holdings Plc in Hong Kong. "The stable CPI suggests that the reflation is confined mostly in the industrial sector and hasn’t filtered into the real economy. So the PBOC would possibly not respond to it until inflation expands to the real economy."

"Factory reflation is a positive for China’s economy – real borrowing costs are now negative," Bloomberg Intelligence Chief Asia Economist Tom Orlik wrote in a note. "Rate hikes are part of the policy debate again, especially given the need to support a weak yuan."

"The risk is to the upside for inflation and removes the possibility for near-term policy easing," said Li Wei, the China and Asia economist for Commonwealth Bank of Australia in Sydney.Only four

months out of a multi-year factory deflation, the world’s second-largest economy is poised to export inflation around the globe through its supply chains as manufacturers squeezed by higher input costs raise asking prices. Whether that rebound will be sustained hinges on how the global economy fares under a Donald Trump presidency and whether trade tensions flare between the U.S. and China.

In Europe, the Stoxx Europe 600 Index was little changed in London.  Miners led European gains after China’s producer price index rose at the fastest pace in more than five years in December. Wm Morrison Supermarkets Plc climbed 4.2 percent in the U.K. after reporting better-than-forecast holiday sales.

In the US, S&P 500 futures were likewise little changed after closing Friday at an all-time high.

In rates, Yields on Treasury notes were little changed at 2.37 percent.  Mozambique’s dollar bonds due January 2023 plunged to 54.83 cents on the dollar, an all-time low, on bets the nation won’t settle a coupon payment next week. Bonds in core European countries are little changed, while Italy, Spain and Portugal extended gains.

* * *

Market Snapshot

  • S&P 500 futures down less than 0.1% to 2264
  • Stoxx 600 down 0.2% to 363
  • FTSE 100 up less than 0.1% to 7245
  • DAX down less than 0.1% to 11559
  • German 10Yr yield up less than 1bp to 0.28%
  • Italian 10Yr yield down 1bp to 1.88%
  • Spanish 10Yr yield down 2bps to 1.45%
  • S&P GSCI Index up 0.6% to 392.7
  • MSCI Asia Pacific up 0.1% to 139
  • Nikkei 225 down 0.8% to 19301
  • Hang Seng up 0.8% to 22745
  • Shanghai Composite down 0.3% to 3162
  • S&P/ASX 200 down 0.8% to 5761
  • US 10-yr yield up less than 1bp to 2.37%
  • Dollar Index down 0.15% to 101.78
  • WTI Crude futures up 0.5% to $52.23
  • Brent Futures up 0.4% to $55.18
  • Gold spot up 0.3% to $1,184
  • Silver spot up 0.3% to $16.61

Global Headline News

  • Valeant to Sell $2.1 Billion in Assets to Pay Down Debt: L’Oreal to pay $1.3b for skincare three brands; China’s Sanpower to buy Dendreon cancer unit for $820m
  • Alibaba Takes Big Step Offline With $2.6 Billion Intime Deal: Alibaba prices Intime at HK$10/share in take-private deal; deal expands e-commerce giant’s growing physical footprint
  • VW Managers Warned to Stay in Germany as U.S. Charges Near: filing against arrested VW executive points toward superiors
  • Alphabet Said in Talks to Sell Skybox Satellite Business: Planet Labs may buy Skybox and gain new employees from deal
  • Google May Pay EU280m to Settle Tax Probe in Italy: Repubblica
  • Yahoo Plans to Shrink Board, Change Name After Verizon Deal: Marissa Mayer is among six directors who plan to leave board of investment co. that will be left after closing of proposed sale of Yahoo’s main internet properties to Verizon
  • Snapchat Owner Makes U.K. Tax Hub in International Expansion: messaging app maker is adding staff and office space in London
  • Trump’s Son-in-Law Kushner to Take Unpaid White House Role
  • President Obama delivers “farewell address to nation”

Asian equity markets traded mostly lower following a similar lead from Wall St. where the S&P 500 and DJIA were dragged lower by the energy sector, with the NASDAQ 100 outperforming on Apple's 1% gains. Japanese participants returned from public holiday with a firmer JPY dampening sentiment and leading Nikkei 225 (-0.8%) lower, while losses of over 3.5% in Fast Retailing shares further added to the slump. ASX 200 (-0.8%) snapped its 5-day winning streak and was pulled down by the energy sector after Brent crude futures declined below the 56.00 and 57.00 handles yesterday, however losses have been capped by mining names amid the near 1% rise seen is gold on Monday. In China, markets were mixed as reports that China regulators are looking to loosen restrictions on index futures trading boosted Hang Seng (+0.4%), while Shanghai Comp (-0.3%) took a hit after mostly worse-than-expected Chinese data. 10yr JGBs traded higher on return from Coming of Age holiday amid the risk averse tone in the region, with the yield curve steepening slightly amid outperformance in the super-short end.

Top Asian News

  • China Factory Prices Rising Fastest in 5 Years: From being a drag on global inflation, China is potential force pushing prices higher
  • India Auto Sales Plunge Most in 16 Years on Modi’s Note Ban:

European equities are somewhat softer this morning albeit modestly so, with the exception of the FTSE 100 which continues to print fresh record highs amid the persistent fall in GBP. On a sector specific basis, UK grocery names are tracking higher with Morrison's outperforming after reporting their best Christmas sales performance in 7-years, alongside the latest Kantar market share update. Elsewhere, WTI and Brent crude futures are a touch firmer today as oil nations begin to implement their production cuts, with Iraq cutting 160k bbls of the agreed 210k bbls.
In fixed income markets, this has been a quieter affair with yields largely unchanged while bunds hold above the
163.00 level. Elsewhere, the German-Spanish 10yr spread has noticeably tightened with the spread now sitting at 117bps.

Top European News

  • Metro Holiday Sales a ‘Cold Shower’ for Retailer Chasing Growth: co. cites ‘challenging’ market in December quarter; sales at Media-Saturn electronics stores were flat on year
  • Morrison Holiday Sales Beat Ests., Sees FY Pretax Above Ests.: holiday LFL sales ex-fuel up 2.9%, est. up 1.1%
  • Retailers Gain After Better-Than-Expected Morrison Results
  • Europe Left in Cold as Frost Triggers Global LNG Hunt: temperatures in southeast Europe may fall to -12C Tuesday; France, Greece are seeking extra gas supplies to meet demand
  • German Utilities Face Tough Year as Power Rally Set to Stall: companies may be forced to restructure, sell or close units

In currencies, the Bloomberg Dollar Spot Index dropped 0.1% as of 10:44 a.m. London time, leaving the gauge down 1% since touching a 14-year high on Jan. 3. The pound touched its lowest level since Oct. 25 after U.K. Prime Minister Theresa May said over the weekend that negotiations on Brexit will be about “getting the right relationship, not about keeping bits of membership.”  A so-called hard Brexit may push the Bank of England to keep rates lower for longer, while weakening the pound and supporting foreign-focused companies in the main stock index. The currency was down 0.2 percent at 1.2142 per dollar Tuesday. The euro rose 0.1 percent.

In commodities, West Texas Intermediate crude added 0.3 percent to $52.28 a barrel after sinking 3.8 percent last session as an increase in U.S. drilling offset signs that OPEC members are sticking to planned output cuts. Iron ore futures for May delivery rose 5.5 percent to 580 yuan/ton on Dalian Commodity Exchange, the highest since Dec. 16, following a gain in factory prices in China. Gold advanced 0.3 percent to $1,184.00 an ounce, with demand forecast to rise ahead of Chinese New Year. Zinc rose 2.2 percent to a three-week high of $2725.50 a metric ton on signs that demand for the metal used to produce galvanize steel would increase in China.

Looking at the day ahead, this morning in Europe the only data due out comes from France where we’ll receive the November industrial and manufacturing production report. Over in the US the early data due out is the NFIB small business optimism survey which surged to 105.8 in December from 98.4. The final November wholesale trade sales and inventories revisions follow that before we then get the November JOLTS job openings report. Away from the data, President Obama is due to deliver a televised farewell speech from Chicago ahead of Trump’s general news conference tomorrow.

* * *

US Event Calendar:

  • 6am: NFIB Small Business Optimism, Dec. 105.8, est. 99.5 (prior 98.4)
  • 8:55am: Redbook weekly sales
  • 10am: Wholesale Inventories MoM, Nov. F, est. 0.9% (prior 0.9%)
  • 10am: JOLTS Job Openings, Nov., est. 5,500k (prior 5,534k)
  • 4:30pm: API weekly oil inventories

US Government:

  • 9:30am: Senate Judiciary Cmte hearing on nomination of Sen. Jeff Sessions, R-Ala., for attorney general
  • 1pm: Senate Intelligence Cmte hearing on Russian intelligence activities
  • 3:30pm: Senate Homeland Security Cmte hearing on nomination of retired Gen. John Kelly for Homeland Security secretary
  • 9pm: President Obama delivers “farewell address to nation”

* * *

DB's Jim Reid concludes the overnight wrap

Although quiet, markets reversed much of Friday’s moves yesterday. The S&P 500 closed -0.35% and 10y Treasury yields ended 5.5bps lower at 2.365%. The Dow also finished the day -0.38% with that elusive 20,000 level for the index still proving to be a tough hurdle to clear. Credit markets also softened a touch (CDX IG +1bp wider) although primary markets continue to surge on with another $10bn pricing in US IG yesterday following the bumper issuance week last week. For the most part you can put the slightly softer tone for risk yesterday down to the -3.76% decline for WTI Oil. Natural Gas also tumbled -5.11%  and is down over -16% in 2017 already. Some record export data out of Iraq last month was cited as a trigger for the Oil decline while there was plenty of focus still on the US rig count data with the latest reading revealing that the number of rigs has risen for ten weeks in a row now and to the most since December 2015.

Meanwhile closer to home the Brexit debate has come back to the forefront. Sterling (-1.01%) tumbled to $1.2163 yesterday and in doing so closed at the lowest level since October 11th.Much of that move  occurred early on following PM Theresa May’s interview with Sky News over the weekend in which she highlighted that the UK will not look for piecemeal access to the EU. Chancellor Hammond also spoke yesterday and confirmed that no decision has yet been made on the UK’s trading relationship with the EU and that negotiations may need to include a discussion about what the interim period should look like. On a related topic there’s now the possibility for a snap election in Northern Ireland following the resignation of the deputy first minister yesterday over the handling of a public spending scandal which may well complicate Northern Ireland’s approach to the UK leaving the EU.

This morning in Asia the focus has turned over to the latest inflation report in China. The data has made for slightly mixed reading with CPI printing at +2.1% yoy in December which is down from +2.3% in November and also slightly lower than expected (+2.2% expected) following a slowdown in food price inflation. However, PPI has surged to +5.5% yoy (vs. +4.6% expected) from +3.3% and in doing so has reached the highest level since September 2011. That continues what has been a remarkable swing in momentum for prices at the factory gate, driven primarily by the mining sector, which turned positive last September following 54 consecutive months of deflation. Markets have been fairly directionless in Asia though this morning. Bourses in China are little changed while the Nikkei (-0.59%), Kospi (-0.16%) and ASX (-0.89%) are lower, however the Hang Seng (+0.20%) has edged slightly higher. Oil is little changed while in FX the offshore RMB (-0.12%) has been a lot more orderly this morning following the volatility over the last week or so.

In terms of other markets yesterday, it was a similar story in Europe too where the Stoxx 600 finished -0.49% (where weakness for financials also weighed in conjunction with the decline for energy stocks) and the DAX -0.30%. The FTSE 100 (+0.38%) stood out however, boosted by that weakness for Sterling. In rates we also saw 10y Bund yields edge down 2.2bps to 0.272% while yields in the periphery were 7bps to 8bps lower. Meanwhile Gold (+0.72%) extended its strong start to the year along with other precious metals.

Meanwhile, one interesting story yesterday was the news that Italy’s anti-establishment Five Star Movement had their membership request rebuffed by the pro-business Liberals in the European Parliament. This came after Five Star had voted to break their alliance with the UKIP party in favour of the Alliance of Liberals and Democrats for Europe. The leader of the Alliance of Liberals – former Belgium PM Guy  Verhofstadt – said that there was insufficient common ground to proceed with a tie up which appears unsurprising given the Alliance’s staunch support of the EU and shared currency. While Five Star leader  Beppe Grillo had put down his decision to try to align with the Liberals to practical reasons, there is also some suggestion that Grillo may have been trying to tone down Five Star’s reputation for Euroscepticism according to the FT.

Moving on. With regards to the economic data, there wasn’t a huge amount to report of. In the US the sole release was the November consumer credit print which came in much higher than expected ($24.5bn vs. $18.4bn expected) from $16.1bn in the month prior. Revolving credit was reported as jumping by the second most since February 2001. Over in Europe there was good news with the latest Sentix investor confidence reading for the Euro area, with confidence rising 8.2pts in January to 18.2 (vs. 12.8 expected) and to the highest level since August 2015. In Germany industrial production rose +0.4% mom in  November which was a little bit below consensus (vs. +0.6% expected) but came following an upwardly revised +0.5% mom in October. In addition, the latest trade data in Germany revealed that exports surged +3.9% mom in November and well ahead of expectations (vs. +0.5% expected). Our economists in Europe noted that the hard data right now in Germany would point to slight upside risks to their Q4  GDP forecast of +0.5% qoq although it’s possible that the December production data will reveal a slowdown as a result of weakness in the auto sector.

Meanwhile over at the ECB the latest CSPP holdings data was released yesterday. Unsurprisingly the data is heavily impacted by the holiday period however. As of January 6th, total holdings amounted to  €51.84bn which implies net purchases settled of just €0.77bn in the week. That is less than half the usual weekly pace but as a reminder only includes trades that settled in the first week of January, with the previous week being the holiday season. Elsewhere, there was a bit more Fedspeak to digest yesterday. The Boston Fed’s Rosengren (who in the past has been considered as a more dovish leaner) opined that  “we’re already running the economy a bit hot” and that “we’re at full employment”. As a result he said “a still gradual but somewhat more regular increase in the federal funds rate will be warranted”. Meanwhile the Atlanta Fed’s Lockhart, who is retiring at the end of next month, said that he was more inclined to favour two rate hikes this year, rather than three.

Before we wrap up, a quick mention that yesterday our House View team published their 2017 outlook. The team notes that the outlook has improved for developed economies as growth momentum has picked up in recent months and risk assets across the board have continued the rally sparked by Trump’s unexpected victory. But far more importantly, they believe that the election of Trump will fundamentally re-order the economic, financial and security arrangements of the post-WW2 era, and believe that these changes will have a significant impact on the economic performance of nations, industries and corporates across the globe.

Looking at the day ahead, this morning in Europe the only data due out comes from France where we’ll receive the November industrial and manufacturing production report. Over in the US the early data due out is the NFIB small business optimism survey which is expected to show a small increase in optimism in December. The final November wholesale trade sales and inventories revisions follow that before we then get the November JOLTS job openings report. Away from the data, President Obama is due to deliver a televised farewell speech from Chicago ahead of Trump’s general news conference tomorrow.

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BritBob's picture

Not everyone likes Donald Trump

 

In an interview with Rock & Pop , Malcorra, the Argentinean Foreign Minister said that although " it is difficult to say" about the controversial candidate, his rise "is revealing of how American society is standing in these elections." " It is revealing a lack of understanding of the world. It is worrisome, is a move to a model quite unpredictable , " said the chancellor. (Argentinean Foreign Minister Malcorra, Rock & Pop reported in infoBAE America, May 27 2016).

When Donald takes over in the White House, will he tell Argentina what they can do with their mythical Malvinas claim? Falklands – 1833 Usurpation & UN Resolutions: https://www.academia.edu/21721198/Falklands_1833_Usurpation_and_UN_Resolutions

 

 

sinbad2's picture

Fuck the Falklands, you're obsessed.

 

Arnold's picture

Naw Gibraltar is no hobby either.

I posit he fears Hong Kong ing them in future world.

wmbz's picture

President Obama delivers “farewell address to nation”

It would be nice if it read..."Farewell address to leave the nation" or "to head to prison"

Obozo, the one man? wrecking crew. Has done and is still doing everything he can to destory the country he hates!

F.U. Obozo!

King Tut's picture
King Tut (not verified) Jan 10, 2017 7:16 AM

Even if the Dow finally breaks 20k at least fucking Alabama got beat.

Dien Bien Poo's picture

Trump has already peaked and he isnt even in the job. This orange baboon will wreck the countrys finances and cause geopolitical chaos. He will increase his own wealth and all the elite ministers he will appoint of course and all you white trash assholes who voted for him, thinking he would help you, will be left holding your tiny dicks as he ass fucks you. enjoy the throning ceremony, you useless cunts.

King Tut's picture
King Tut (not verified) Dien Bien Poo Jan 10, 2017 7:21 AM

Trump is a narcissistic sociopath- at least my kids are too young for him to send off to some war with Iran at Israel's behest.

Red Wire's picture

Hi all, 

I started to make video analysis of what I expect for the S&P500 for the next couple of days/weeks and to me it seems it will top out in the next cycle time window of JAN 15-25, after which a larger correction will unfold. No crash yet...

 

Check it out here: https://www.youtube.com/watch?v=RCFoxfGw8tw

Cassandra.Hermes's picture

Shekel is up! Is he Israeli president?
"Three Republican senators have introduced a bill to recognise Jerusalem as Israel’s capital and move the US embassy there, challenging US president-elect Donald Trump to fulfil his pledge to do so as soon as he gets into office."

Uranium Mountain's picture

China has a lot of US Treasury bonds to sell yet and the Feds have a lot yet to buy!

Seasmoke's picture

USD already blew thru 102. For a worthless piece of paper. Sure are a lot of assholes who still want it.

therover's picture

The 'market' is nervous because it does not know what the fuck Trump is going to say, and when he will contradict what he said.

The only question is, it 5 minutes after he says it, 5 hours or 5 days. 

Iconoclast421's picture

Stocks are one day off their all time high and its a frickin "fading euphoria". lol

Arnold's picture

"...while commodity metals like iron ore rose limit up in Chinese trading."

 

This happened last year.

http://www.zerohedge.com/news/2016-03-07/shorts-pulverized-iron-ore-soar...

hartinvest's picture

Want a clear technical and cyclical analysis of the financial markets?

Go to: http://tripstrading.com/sp500-charts-strategy-new/  (FREE)

 

Happy trading!