While the US takes the day off after another near-record low volume surge to a new all time high in the S&P500, a level which is now just 125 points away from Goldman's year end target for 2016, the rest of the world will be patiently awaiting to see if oil's next move, as a result of today's OPEC meeting will be to $60 or to $100. For now at least the answer is the former (see more here from the WSJ [36]), with Brent recently touching a fresh 4 year low in the mid-$75s, as WTI doesn't fare much better and was down 2% at last check to $72.20 after touching a low of $71.89. It appears the prepared remarks by the OPEC president to the 166th conference have not eased fears that despite all the rhetoric OPEC will be unable to get all sides on the same story, even though the speech notes "ample supply, moderate demand and warns that "if falling price trend continues, “long-term sustainability of capacity expansion plans and investment projects may be put at risk."
But while crude is crashing, Eurozone bonds continue to reach for fresh record high, with all peripheral bond yields down to new all time lows and the Germany 10 Year sliding as low as 0.711%, in its quest to catch up with the 10 Year JGB which at last check was trading just a fraction over 0.40%.
One outlier is Greece: what has been increasingly questioned by credit investors of late is the disbursement of Greece’s bailout programme. Following a marathon 24hour discussion in Paris, Greece and its EU/IMF lenders apparently failed to reconcile their differences over next year’s fiscal gap which is holding up the final review of the programme. Per the WSJ, international creditors are looking at extending Greece’s bailout program by up to 6 months but to get the extension the Greek government would have to formally request it by the end of next week. The discussions will move from Paris to Brussels ahead of the Eurogroup meeting on December 8th. There is also an emergency meeting this morning between Samaras and Vice President/Foreign Minister Venizelos. Greek as well as Spanish and Italian bonds were the clear underperformer yesterday amid the further strength in core government bond markets. As a result, this morning the 10yr Greek bond yield has jumped substantially and stood just shy of 8.50% at last check.
And with central banks now firmly in control of all assets, as bonds rise so do stocks, and European equities trade in the green across the board after steadily ebbing higher throughout the session with the DAX ascending towards the 10,000 handle; a level which hasn’t been reached since the 7th July.
As RanSquawk summarizes, macro newsflow has remained relatively light throughout the session, although this morning’s Eurozone data releases have continued to highlight a dreary picture of the area’s inflation prospects with both Spanish and German state CPI's highlighting the deflationary pressures in Europe. More specifically, the prospect of falling inflation in the Euro-zone will likely re-ignite the premise of potential QE from the ECB in order to stimulate prices and safe guard the Euro-zone. As such bund futures have continued to edge higher touching fresh contract highs at 152.75, albeit in relatively light volume owning to the Thanksgiving holiday.
To summarize:
European shares rise with the real estate and chemicals sectors outperforming and oil & gas, retail underperforming. The German and Italian markets are the best- performing larger bourses. German jobless rate reaches record low, Brent crude drops to 4-year low, Spanish consumer prices drop more than forecast. China’s central bank refrained from selling repo agreements for first time since July, loosening monetary policy further. U.S. Thanksgiving holiday today.
Euronext says indexes not calculating due to technical problem.
The euro is weaker against the dollar. French 10yr bond yields fall; German yields decline. Brent and WTI crude fall as OPEC ministers start meeting in Vienna.
Market Wrap
- S&P 500 futures little changed at 2071.4
- Stoxx 600 up 0.3% to 347.4
- German 10Yr yield down 2bps to 0.71%
- MSCI Asia Pacific down 0.2% to 141.1
- Gold spot down 0.2% to $1196/oz
FX
In FX markets, EUR has remained under pressure ever since European participants came into the market following the aforementioned data releases. More specifically, EUR/USD consolidated its break below 1.2500 and EUR/GBP tested 0.7900 after EUR/USD broke out of its overnight range. Elsewhere, antipodean currencies have pulled away from their best levels seen overnight with NZD higher overnight following RBNZ data which showed the central bank did not intervene in Oct, while AUD was seen higher during Asia-Pacific trade following strong CapEx data.
COMMODITIES
WTI and Brent Crude futures continue to see selling pressure and currently reside at session lows with OPEC firmly looking set to maintain their production target with the formal announcement due later today. This comes after comments yesterday from Saudi Oil Minister Al-Naimi who said Persian Gulf countries have reached a consensus on output and will take a “unified position”, with the likely course of action being maintaining the current ceiling as reported by the WSJ on Tuesday. In metals markets, Overnight in the precious metals, notable weakness was observed across the complex with spot gold falling below yesterday's lows (down as much as 2%), platinum declining by 1.1% and silver tumbling 2%, after breaking back below the 50% fib retracement level of the October sell-off seen at USD 16.435. Nonetheless, a bulk of these losses were pared heading into the European open amid no fundamental news and light volumes with the US closed for Thanksgiving.
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DB's Jim Reid concludes the summary of overnight events
Happy Thanksgiving to our US readers. It’s likely to be a quiet day but we do have an important OPEC meeting to look forward to. As we mentioned in yesterdays EMR, DB’s Michael Lewis believes that oil fundamentals are currently suggesting that a coordinated cut in OPEC supply is inevitable based on supply and demand dynamics, although uncertainty centres on the timing and whether this turns out to be coordinated or not. Oil came under further pressure yesterday with WTI (-0.54%) and Brent (-0.74%) closing at $73.69 and $77.75 respectively at the end of NY trading before sliding further this morning. A Gulf OPEC delegate apparently told Reuters that the GCC had reached a consensus not to cut oil output. Three OPEC delegates also apparently told Reuters they believed OPEC was unlikely to take any action today. Indeed there seems to be different views amongst top oil producers. Venezuela and Iraq are calling for production cuts. Rosneft has said that it will not reduce output even if oil falls to US$60. Iran’s oil minister said his position on oil is close to that of Saudi Arabia’s. Saudi’s oil minister was quoted as having said that ‘the market will stabilise itself eventually’ signaling little willingness to reduce production. The impact of lower oil is also starting to feed through the banking system with FT overnight reported that Wells Fargo and Barclays now face potential losses on a US$850m bridge loan to help fund the merger of two US based oil companies. Anyways the OPEC meeting will start at 9.30CET and a live webcast streaming is available on the OPEC website for those interested in the proceedings.
Away from Oil one of the key data prints today will be inflation stats from Germany ahead of the euroland CPI tomorrow. Our European economics team sees the risks of this week’s November CPI prints skewed to the upside, especially in Germany. They expect Germany’s yoy inflation to remain broadly unchanged from October. Whilst energy prices are expected to be a drag on headline inflation, our colleagues think the food inflation outlook is more uncertain in that unprocessed food inflation has started to normalise and services inflation has been trending broadly sideways. Overall this could lead to a temporary bounce but overall the risks to the medium term inflation outlook are still on the downside and given the fall in oil they see the risk of European inflation reaching a new low of 0.2% yoy in December. Inflation data aside, Draghi’s speech at a seminar organised by the Bank of Finland at 11.30am UKT is probably another key event to watch. Draghi is expected to talk about the European economy at the University of Helsinki after which there will be a Q&A session with the audience.
Staying on European affairs, we’ll briefly highlight more on European Commission President Juncker’s Investment plan for Europe. The long awaited plan to boost investment in the EU was presented to European Parliament yesterday and the focus was on the creation of a new institution called the European Fund for Strategic Investments (EFSI). The EFSI is to be funded using existing resources – EUR 5bn from the EIB and EUR 16bn of EU budget guarantees. Through leverage and co-financing this aims at mobilising a total of EUR315bn of investment into long-term projects and SME and mid-cap investment over 2015-17. The key differences to existing activities (EIB and EIF) are that the EFSI will increase leverage of the EU budget funds, will invest in riskier projects (providing subordinated debt and equity) and will come with technical assistance to facilitate private investment. Our European economists see the plan as a step in the right direction but they remain doubtful that this will represent a successful paradigm shift. Particularly they think credibility of the plan will be questioned but more importantly no new commitment of resources has also been announced so much still hinges on private sector financing.
What has been increasingly questioned by credit investors of late is the disbursement of Greece’s bailout programme. Following a marathon 24hour discussion in Paris, Greece and its EU/IMF lenders apparently failed to reconcile their differences over next year’s fiscal gap which is holding up the final review of the programme. Per the WSJ, international creditors are looking at extending Greece’s bailout program by up to 6 months but to get the extension the Greek government would have to formally request it by the end of next week. The discussions will move from Paris to Brussels ahead of the Eurogroup meeting on December 8th. There is also an emergency meeting this morning between Samaras and Vice President/Foreign Minister Venizelos. Greek as well as Spanish and Italian bonds were the clear underperformer yesterday amid the further strength in core government bond markets.
Indeed the 10yr Greek bond yield rose by 29bps to 8.059% whereas yields in Italy and Spain also rose 2bp and 5bp respectively. 10yr bunds, OATs and Gilts were down 1.3bp, 1.6bp and 3bp respectively. Staying in the region we had some notable ECB-speak yesterday. ECB’s vice-president Constancio suggested that the ECB will only be able to gauge in Q1 of next year the effect of current stimulus measures. Specially, he added that ‘we will have to consider buying other assets, including sovereign bonds in the secondary market, the bulkier and more liquid market of securities available’. As DB’s Saravelos highlighted it is worth noting that his comments also directly echoes the Draghi speech on the justification for QE namely that: even if the effects are smaller than the US doesn’t mean we shouldn’t be doing it and it is not the job of the ECB to deal with moral hazard. Constancio is also the vice president of the ECB, which confirms the ‘semi official’ position of the central bank. For the first time also was the modalities of the QE mentioned and it was explicit that it will be capital key weighted that there are no legal issues around it. These are all in line with our European colleagues who see Q1 2015 being the most likely time for the ECB to move to public QE. In other European markets yesterday, the Stoxx 600 closed flat although we did have the DAX (+0.6%) rally for its tenth consecutive day. The DAX is now around 16% above its mid-October lows but still a relative underperformer against US equities for the year.
Indeed the S&P 500 (+0.28%) posted a new record high yesterday despite a relatively soft round of data from the US. Durable goods came ahead of expectations (+0.4% mom vs. -0.6% mom expected) but the picture was more subdued once we strip out the defence and aircraft elements (1.3% mom reading vs +1.0% consensus), marking a second consecutive monthly decline. The initial jobless claims (+313k vs. +288k expected), personal spending (+0.2% vs. +0.3% expected), and pending home sales (-1.1% mom vs. +0.5% mom) were all softer across the board although new home sales saw an upward revision to last month’s reading. On the activity side, the Chicago PMI fell 5.4pts to 60.8 (consensus 63.0) but still remains at solidly strong levels. Finally the University of Michigan confidence reading came in below consensus at 88.8 but still at a 7-year high.
Quickly refreshing our screens this morning markets are a little mixed in Asia. The Nikkei (-0.7%) and TOPIX (-0.8%) are suffering from their second consecutive day of declines whereas Chinese equities are adding on to their recent gains. The Shanghai and Shenzhen Composites are up around three tenths of a percent this morning with the risk tone still benefiting from the PBOC easing theme. There were also signs of further liquidity support overnight with the PBOC refraining from selling repurchase agreements for the first time since July. The 7day repo rate in China fell as much as 10bps overnight in Shanghai. Asian credit is trading on a firmer footing overnight as recent supply is gradually being digested.
With US markets closed trading activity could well be on the low side today. Focus will be on the OPEC meeting today as well as European data releases this morning. Besides the aforementioned German CPI print and Draghi’s speech, we have the November unemployment print for Germany, GDP/CPI for Spain, sentiment reading for Italy, and ECB money supply stats to name a few.