There are two key events driving overnight risk prices: first, there is the Bloomberg story that "China Offers Russia Help With Currency Swap Suggestion [13]", which was previously covered extensively here a week ago [14], but now that the algos have official confirmation that China will back Russia, they have sent the Ruble shorts into a panic short squeeze, with the USDRUB tumbling another 6% as of latest.
The other key development pushing oil prices modestly higher again, and Brent touching $63 overnight (if sliding fast since), is yesterday's speech by Saudi oil minister Ali al-Naimi who "expressed confidence prices will pick up", however not due to a drop in supply - because he made it very clear OPEC will never cut output [15] and instead will wait for the high cost producers to exit the game - but amid improved economic growth. Which of course means the plunge in oil had little to do with supply and everything to do with demand, which in turn means the entire narrative has to be uprooted once again, and spun that rising oil prices are now bullisher for the economy than plunging oil prices. Frankly, it's difficult to keep track of all the constantly changing, relentless spin. And good luck with a surge in demand considering China's slowdown and its secondary impacts on Brazil and Australia (for a clear breakdown just see CAT's latest retail sales [16]).
Finally, there is China, although not its economy but its stock market, which just like the west keeps rising ever higher the worse the economic prospects are. As a result, the SHCOMP rose to a fresh multi-year high of 3,189 before closing at 3,127, up 0.6%. Things have gotten so out of control for the politburo which now has to do with two main bubble: a housing one that is popping, and a soaring stock market bubble to replace it, that as the WSJ reports in the aftermath of the surge in Chinese stocks, "China Investigates Possible Stock-Price Manipulation [17]" in hopes of slowing down if not bursthing this latest Chinese bubble.
In any event, with Brent higher the RUB stable, China soaring and the USDJPY in its traditionall blastoff mode the second Europe opened for trading in illiquid, low-volume pre-Christmas tape, we are virtually assured a new all time high in the S&P as the FX rigging algos do their best to push USDJPY solidly over 120 and with it, the S&P into record territory.
Heading into the Christmas period, volumes have been considerably light as expected with European equities trading in positive territory following the trend from Fridays Wall Street rally. Furthermore, the upside seen in oil prices from Friday has also continued, with the energy sector outperforming in Europe supporting European equities as the USD-index (-0.10%) is slightly weaker this morning. On the Eurozone political front, the GR/GE 10yr bond yield spread continues to remain tighter this morning as bribery claims are brushed aside as latest polls indicated that Syriza's lead in latest polling has narrowed; this comes ahead of the next Presidential vote on Tuesday. The Bund future has remained flat despite equities in the green as volumes are exceedingly light with less than 50,000 contracts traded, moreover, light volumes are expected throughout the holiday period.
Market Wrap
European shares remain higher with the oil & gas and chemicals sectors outperforming and basic resources, travel & leisure underperforming. China offers Russia ruble support with currency swap suggestion. Ruble strengthens. The Dutch and French markets are the best-performing larger bourses, Spanish the worst. The euro is stronger against the dollar. Japanese 10yr bond yields fall; Greek yields decline. Commodities gain, with natural gas, soybeans underperforming and wheat outperforming. U.S. Chicago Fed index, existing home sales due later.
- S&P 500 futures up 0.3% to 2073.2
- Stoxx 600 up 0.7% to 342.6
- US 10Yr yield up 1bps to 2.17%
- German 10Yr yield up 1bps to 0.6%
- MSCI Asia Pacific up 0.8% to 138
- Gold spot little changed at $1196.4/oz
Bulletin Headline Summary
- While the market remains relatively muted, the energy sector is granted some reprieve and in turn, lifting European equities.
- The GE/GR spread trades 16bps tighter with the Syriza poll showing their lead against the incumbent has narrowed.
- Looking ahead, on today’s light data slate we have Chicago Fed Nat. Outlook, US Existing Home Sales and a 2yr note auction.
FX
In FX markets, EUR/USD is among the outperformers in the pairs with support stemming from RANsquawk sources noting real money buying in EUR/GBP. NZD has pared back some of its overnight losses brought upon by weaker than previous NZ Westpac Consumer Confidence; (Q4) Q/Q 114.8 vs. Prev. 116.7. The USD-index has retraced some of Friday’s losses and has been edging marginally higher as lack of macro news flow has given the greenback much direction.
Friday’s CFTC report showed USD long positions narrowed for a fourth consecutive week, while net short EUR positions narrowed to their smallest since July and the narrowing in bearish AUD sentiment is the largest in 8 months. (ScotiaBank)
COMMODITIES
In the commodity complex, the USD has dictated much of the movements with WTI and Brent crude futures experiencing some earlier respite. However, both WTI and Brent crude futures have since come off best levels with the USD-index gradually edging higher from intra-day lows of 89.37. There were earlier reports that Libya said they are concerned about events around Mellitah oil port, adding Bahr Essalam offshore gas field output declined and are unable to fulfil contracts to international gas clients. In precious metals, Gold has dipped back below 1,200/oz as the USD continues to gain some momentum heading into the US crossover.
