The biggest, and most market-moving, event overnight continues to be yesterday's shocking OPEC announcement, which is still reverberating across the energy space as markets largely ignore European and Japanese inflation data which is once again sliding back dangerously fast, or Italian unemployment which rose more than expected, and joined France in hitting a new record high. As a result European shares remain lower, close to intraday lows, with the oil & gas and industrials sectors underperforming and telco and travel outperforming as oil continues its decline. EU inflation slowed in Nov. to 0.3%. Italian and Swedish markets are the worst-performing larger bourses, Spanish the best. The euro is weaker against the dollar. And while US equity futures are largely unchanged even as, or perhaps because, the world is screaming economic slowdown, bonds are finally getting the message with U.S. 10yr bond yields falling to only 2.20% as Japanese yields also decline.
Some more detail from RanSquawk:
European equities enter the North American crossover in negative territory albeit off their worst levels. The sole catalyst for price action thus far has been the fallout of yesterday’s decision by OPEC to refrain from altering their output ceiling. More specifically, the energy sector has naturally been substantially weighed on by the ramifications of yesterday, with the top 10 laggards in the Stoxx 600 all being from the sector, with the FTSE 100 feeling the squeeze with BP and shell notably lower, with the two Co.’s accounting for just over 12% of the index. Nonetheless, airliners have provided stocks with some modest reprieve as the lower energy prices will benefit the sector, although the implications for airliners are less substantial than those of oil producers. Elsewhere, in fixed income markets, Bunds opened at fresh contract highs, although now reside in relatively modest territory after failing to make a break above the 153.00 level. One thing to be aware of looking ahead, is that the lower energy prices are likely to filter through to global inflation prospects and thus could have further considerations on central bank policies, notably the ECB, with this also coming in the backdrop of the heightened expectations of a sovereign QE programme.
Market Wrap
- S&P 500 futures down 0.3% to 2067.1
- Stoxx 600 down 0.5% to 345.7
- US 10Yr yield down 5bps to 2.2%
- German 10Yr yield up 0bps to 0.7%
- MSCI Asia Pacific up 0.1% to 140.9
- Gold spot down 0.8% to $1181.5/oz
Bulletin Headline Summary from RanSquawk and Bloomberg
- The OPEC oil-slide continues to cause further turmoil for oil producers and commodity currencies, while lower energy prices provide airline names with some reprieve.
- Looking ahead, today’s calendar is exceedingly thin with ECB’s Weidmann due on the speaker slate, although volumes are expected to be surprised by yesterday’s US Thanksgiving Holiday
- Treasuries head for weekly gain amid well-received 2Y and 5Y auctions and as oil prices slide after OPEC refrained from reducing output at meeting yesterday.
- OPEC’s decision to cede no ground to rival producers underscored the price war in the crude market and the challenge to U.S. shale drillers
- Euro-area inflation slowed in November to match a five-year low, prodding the ECB toward expanding its unprecedented stimulus program
- Draghi yesterday said the ECB is open to buying a wide variety of assets for further stimulus as German and Spanish inflation data highlighted the struggle to revive the euro-area economy
- David Cameron raised the prospect of Britain leaving the EU unless fellow leaders agree to let him restrict access to welfare payments for migrants
- Rating companies say defaults in China will spread as the central bank’s interest rate cut will do little to stop a wave of maturities from worsening record debt downgrades
- China asked state-owned companies to investigate risks associated with commodity trading, said people familiar with the matter, as the government seeks to avoid losses amid a price slump for raw materials
- Brazil’s economy expanded 0.1% in 3Q, less than forecast, as the world’s second biggest emerging market recovers from recession
- Brazil’s Finance Minister-designate Joaquim Levy pledged to adopt more rigorous fiscal discipline without providing details on how he will reduce the country’s debt levels
- Sovereign yields mostly lower. Asian stocks gain; European stocks, U.S. equity-index futures fall. Brent crude falls; WTI reached $67.75 yday, lowest since May 2010; gold and copper lower
FX
In FX markets, the notable focus has been on commodity currencies with the NOK reaching a 5 year low against the EUR, while CAD has continued its OPEC-inspired losses, with USD/CAD steadily approaching the 1.1400 level; should we trade above 1.1400 in the pair then the 6th of November 2014 high comes in at 1.1443 to the upside. Furthermore, the RUB has also felt the squeeze of lower energy prices and earlier printed a fresh record low against the greenback, with the USD broadly stronger after breaking above the 88.00 level during Asia-Pacific trade, which subsequently saw USD/JPY break above 118.00 overnight. EUR was provided a modest uptick as Y/Y CPI came in-line with expectations at 0.3%, although was not as low as some participants had feared. Furthermore, today is the last trading day before the results of the Swiss national gold referendum with results due on Sunday.
COMMODITIES
In the energy complex, as to be expected, yesterday’s OPEC decision has continued to take centre-stage with energy prices continuing to plummet lower and seemingly unable to find a floor, with analysts at Barclay’s suggesting that Crude prices to drop another USD 10/bbl before new floor is discovered. Elsewhere in metals markets, a strong USD capped any potential pullback in prices and also weighed on metals with COMEX copper, spot gold and spot silver all slipping to their 1-week lows. Elsewhere, Spot iron ore prices rose to around USD 70/ton overnight, boosted by Dalian iron ore futures rising for their 3rd consecutive day as investors covered short positions
