US Futures Hit New All Time High Following Asian Shares Higher; European Stocks, Dollar Mixed

U.S. equity index futures pointed to early gains and fresh record highs, following Asian markets higher, as European shares were mixed and oil was little changed, although it is unclear if anyone noticed with bitcoin stealing the spotlight, after futures of the cryptocurrency began trading on Cboe Global Markets.

In early trading, European stocks struggled for traction, failing to capitalize on gains for their Asian counterparts after another record close in the U.S. on Friday. On Friday, the S&P 500 index gained 0.6% to a new record after the U.S. added more jobs than forecast in November and the unemployment rate held at an almost 17-year low. In Asia, the Nikkei 225 reclaimed a 26-year high as stocks in Tokyo closed higher although amid tepid volumes. Equities also gained in Hong Kong and China. Most European bonds rose and the euro climbed. Sterling slipped as some of the promises made to clinch a breakthrough Brexit deal last week started to fray.

“Strong jobs U.S. data is giving investors reason to buy equities,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. “The better-than-expected jobs number supports the outlook that there is a synchronized global economic upturn led by the U.S."

The dollar drifted and Treasuries steadied as investor focus turned from US jobs to this week’s central bank meetings. Europe's Stoxx 600 Index pared early gains as losses for telecom and utilities shares offset gains for miners and banks. Tech stocks were again pressured, with Dialog Semiconductor -4.1%, AMS -1.9%, and Temenos -1.7% all sliding. Volume on the Stoxx 600 was about 17% lower than 30-day average at this time of day, with trading especially thin in Germany and France.

The dollar dipped 0.1 percent to 93.801 against a basket of major currencies, pulling away from a two-week high hit on Friday.

“I think this is being driven by the softer earnings data we saw in the payrolls report on Friday which reinforces the Fed’s current policy dilemma, where yes we have solid growth but so far a lack of inflation pressure,” said MUFG currency strategist Lee Hardman. “It was a continuation of the ‘Goldilocks’ conditions, with stronger global growth but little inflation pressure, no strong pressure on central banks to speed up the pace of tightening.”

Meanwhile, the yen fell to a one-month low against the dollar on expectations solid U.S. data will justify the Federal Reserve to raise interest rates this week. The euro inched up 0.1% against a stronger dollar to $1.1791, holding above its nearly three-week low of $1.1730 plumbed on Friday, ahead of a European Central Bank policy meeting this week at which rates are expected to be kept on hold.

Despite the strong US data, JPM calculated that the Fed has roughly 6 more 25bps hikes before its tightening finally hits capital markets, suggesting that the bullish sentiment may continue for some time.

Asian equities rose after better-than-expected U.S. jobs data bolstered investor optimism for global economic growth prospects. Two stocks rose for each that declined on the MSCI Asia Pacific Index, which rose 0.7% at 170.28.  Japan’s shares climbed, sending the Nikkei 225 Stock Average to its highest since 1992. The Nikkei 225 Stock Average climbed to a 26-year high as the yen slid to a one-month low. Hong Kong’s Hang Seng Index and South Korea’s Kospi advanced. 

Consumer stocks led Chinese equities higher, while small caps got a boost from reports that new asset management rules would be delayed and that President Xi has called for a national big data strategy and for innovation in the technology, pushing big data-linked firms higher. Beijing Orient National Communication Science & Technology Co. surges by 10% daily limit, while Hand Enterprise Solutions Co. +5.4%. Small caps were also boosted by news that China may extend a deadline for financial institutions to comply with new rules on asset management products.

“The reported delay for financial institutions to comply with new asset management products rules pushed up the market, especially small caps that are more subject to liquidity risks as they would be dumped first by such products amid any policy tightening,” said Wang Chen, Shanghai- based partner with XuFunds Investment Management Co. “A possible delay, even if just for one year or so, will alleviate the selling pressure on small cap stocks”

Shares in Hong Kong were also stronger. The CSI 300 Index advanced 1.7% at the close, with the gauge gaining 2.5% over the past two sessions, the most since the end of August. The Shanghai Composite Index added 1% after the PBoC resumed liquidity operations, although a miss on inflation data over the weekend somewhat capped the advances; the small-cap ChiNext measure jumped 1.4%. In Hong Kong, Hang Seng China Enterprises Index added 1.5% with the broader Hang Seng Index climbing 1.2%; both are coming off two straight weeks of losses.  Strength in commodity-related stocks in Australia kept the ASX index afloat, while focus was on AWE shares which rallied over 15% after Co. was subject to a take-over offer. Meanwhile, Vietnam’s benchmark index plunged 2.4 percent, the most in two years, after Public Security Ministry said in a Dec. 8 statement that the police arrested Dinh La Thang, a senior Communist Party official and former Politburo member, for alleged wrongdoing

The Bloomberg dollar index looked to snap a five-day rally as Treasuries edged up before the two-day FOMC meeting kicks off. The pound reversed Asia-session gains after London stepped in as fragile Brexit sentiment prevailed. The appointment of a new RBNZ chief, seen as less of a dove, boosted the kiwi, while the Norwegian krone led losses on the back of an inflation miss. Bonds and European equities edged higher.

In overnight geopolitical developments, South Korea, Japan and US began joint missile tracking exercises today. North Korea stated that UN envoy expressed a willingness to reduce tensions. However, over the weekene Yonhap also reported that North Korea warned the US on Sunday over the possible use of a naval blockade, which it said would be considered as a "declaration of war.".

Meanwhile in Europe, UK PM May will insist that “nothing is agreed until everything is agreed” on the terms of Brexit after the Irish government claimed that last week's preliminary deal is binding. This has led the Irish Government to hit back at a British government suggestion that a deal reached on the post-Brexit Border was a “statement of intent” rather than “a legally enforceable
thing”, which in turn spooked cable and Gilts. UK Brexit Secretary Davis suggested he wants a bespoke deal with the EU and is seeking an overarching agreement with no tariffs. Further to this, The Times report that Britain could be forced to accept swathes of Brussels red tape if it is to secure the extensive trade deal that David Davis is championing, according to senior European sources.

Over in the US, Senator Collins reiterated she is unsure if she will support the final version of the tax bill and wants to see it first.

As noted above, market focus returns to central banks this week with the Fed expected to raise rates at its meeting on Wednesday and the European Central Bank to reveal details of plans to taper asset purchases on Thursday. The Bank of England and Swiss National Bank also meet. With the world economy heading into its strongest period since 2011, Wall Street economists are telling investors to brace for the biggest tightening of monetary policy in more than a decade.

Meanwhile, as discussed overnight, the big highlight was the brand new Bitcoin future, the XBT, which surged as much as 20%, rising just shy of $19,000.


The first bitcoin futures began trading on Sunday at 6 p.m. (6.00 p.m. ET) on CBOE Global Markets Inc’s CBOE Futures Exchange. The futures are cash-settled contracts based on the auction price of bitcoin in U.S. dollars on the Gemini Exchange, which is owned and operated by virtual currency entrepreneurs Cameron and Tyler Winklevoss. The most-traded futures contract opened at $15,460 before leaping to a high of $18,700 - a gain of 21 percent. They last stood at $17,770.

“Regardless of what side of the debate you’re on, what’s undeniable is that the current euphoria and the extreme levels of price volatility offer the brave of heart some excellent speculative opportunities,” Stephen Innes, head of Asian trading at currency broker Oanda said in a note to clients.

Elsewhere, oil declined to around $57 a barrel as U.S. drillers expanded the crude rig count to a three-month high. Bitcoin futures began trading in Chicago and at one point jumped as much as 25 percent.

Yields across the world dipped, with the rate on 10Y TSYs down less than one basis point to 2.37%; German 10Y Bunds fell one basis point to 0.30%, while Britain’s 10Y gilts decreased 4 bps to 1.237% on renewed Brexit concerns; meanwhile Japan’s 10-year yield declined less than one basis point to 0.05%.

Economic data include job openings and labor turnover, New York Fed consumer expectations survey. KMG Chemicals and Quanex Building are among companies reporting earnings.

Bulletin Headline Summary

  • European equities trade modestly higher with the FTSE 100 outperforming its peers alongside the softer GBP
  • The USD index is back down through 94.000 and unwinding some of its recent recovery gains, aided by last Friday’s US jobs data
  • Looking ahead, highlights include US 3yr and 10yr auctions

Market Snapshot

  • S&P 500 futures up 0.1% to 2,656.75
  • STOXX Europe 600 unchanged at 389.26
  • Brent futures little changed at $63.44/bbl
  • MSCI Asia up 0.7% to 170.28
  • MSCI Asia ex Japan up 0.7% to 553.19
  • Nikkei up 0.6% to 22,938.73
  • Topix up 0.5% to 1,813.34
  • Hang Seng Index up 1.1% to 28,965.29
  • Shanghai Composite up 1% to 3,322.20
  • Sensex up 0.6% to 33,433.04
  • Australia S&P/ASX 200 up 0.07% to 5,998.28
  • Kospi up 0.3% to 2,471.49
  • Gold spot up 0.2% to $1,250.51
  • U.S. Dollar Index down 0.1% to 93.78
  • German 10Y yield fell 0.9 bps to 0.298%
  • Euro up 0.2% to $1.1793
  • Italian 10Y yield fell 2.6 bps to 1.388%
  • Spanish 10Y yield rose 0.8 bps to 1.409%

Top Overnight News

  • Donald Trump will deliver a closing argument for the proposed Republican tax overhaul in a speech on Wednesday, said a person familiar with the matter
  • With the world economy heading into its strongest period since 2011, Citigroup Inc. and JPMorgan Chase & Co. predict average interest rates across advanced economies will climb to at least 1 percent next year in what would be the largest increase since 2006
  • Japanese companies that raise wages could see as much as a 20% reduction in their corporate tax burden, Nikkei reports, citing government tax proposal
  • The fragile truce Theresa May struck with her warring cabinet and the European Union last week was already being tested on Monday, as some of the promises made to clinch a breakthrough Brexit deal started to fray
  • U.K. Environment Secretary Michael Gove and Foreign Secretary Boris Johnson will demand that Prime Minister Theresa May presses for a hard Brexit when the U.K. starts trade negotiations with Brussels, as payback for support for her deal last week, Sunday Times says, citing unidentified people
  • Britain wants a trade deal with the EU that includes the best parts of the bloc’s agreements with Japan, Canada and South Korea, along with financial services, Brexit Secretary David Davis said
  • OPEC and its global allies including Russia may end their production cuts before 2019 if the crude market re-balances by June, Kuwait’s oil minister said
  • President Emmanuel Macron said he doesn’t intend to immediately revive past French Middle East peace initiatives, as Donald Trump’s administration stood behind his decision to recognize Jerusalem as Israel’s capital and move the U.S. embassy there
  • Bitcoin futures surged as much as 26 percent during their debut session on Cboe Global Markets Inc.’s exchange, triggering two temporary trading halts meant to cool volatility

Asia equity markets began the week mostly positive after last Friday’s gains on Wall St and better than expected US NFP jobs data, although the upside in Asia-Pac bourses were contained ahead of this week’s central bank-heavy roster. ASX 200 (+0.1%) and Nikkei 225 (+0.6%) were higher with strength in commodity-related stocks in Australia just about keeping the index afloat, while focus was on AWE shares which rallied over 15% after Co. was subject to a take-over offer. Hang Seng (+0.6%) and Shanghai Comp. (+1.1%) were also in the green after the PBoC resumed liquidity operations, although a miss on inflation data over the weekend somewhat capped the advances. Finally, 10yr JGBs were lower amid the positive risk tone in the region and absence of the BoJ in the market under its massive bond buying program. Chinese CPI (Nov) Y/Y 1.7% vs. Exp. 1.8% (Prev. 1.9%). Chinese PPI (Nov) Y/Y 5.8% vs. Exp. 5.9% (Prev. 6.9%) PBoC injected CNY 40bln via 7-day reverse repos and CNY 40bln via 28-day reverse repos. PBoC set CNY mid-point at 6.6152 (Prev. 6.6218)

Top Asian News

  • China Said to Weigh Delay in Asset-Management Product Rules
  • Chinese Regulator Cracks Down on Booming Hedge-Fund Industry
  • HSBC Is Said to Step Up Scrutiny of China’s Indebted HNA Group
  • China Appliance King Said to Eye IPO of $12 Billion Property Arm
  • Malaysia Central Bank Has More Policy Options, Governor Says

European equities (Eurostoxx 50 +0.1%) have kicked the week off on the front-foot in a continuation of the sentiment late last week on Wall Street and overnight during Asia-Pac trade. European specific newsflow remains on the light side with the latest Brexit-related headlines questioning PM May’s commitment to Friday’s deal on the Irish border unable to derail sentiment. In fact, the FTSE 100 (+0.7%) is currently out-performing its peers largely on a currency basis amid recent GBP softness with GBP/USD below 1.3400. The FSTE has also been bolstered by Hong Kong-exposed banks with index-heavyweight HSBC (+1.9%) and Standard Chartered (+1.8%) both near the top of the leaderboard in-fitting with some of the price action seen overnight; financial names subsequently outperform. Gilts have extended early gains to 55 ticks at a marginal new 124.70 high, and Brexit-related impulses appear to be encouraging buyers rather than anything more fundamental (like Rightmove’s weak house price report overnight). Doubts about the actual deal that has been struck to move forward to phase 2 of negotiations with the EU continue to underpin the 10 year UK benchmark and undermine PM May who continues to face opposition and challenges to her position (both internally and externally). Of course, thin December/year end trading conditions are impacting and exacerbating price action, while Bunds are deriving some indirect support to trade up to 163.61 (+13 ticks vs -11 ticks at one stage) and US Treasuries are inching up too. However, German debt looks reluctant to get too carried away ahead of Thursday’s ECB policy meeting that should underscore more upbeat assessments via the presser and Staff forecasts ahead of January’s QE downsizing, and the impending bond-buying suspension for the 2017-2018 turn. On the US front, 3 and 10 year supply to consider and make room for if not a concession, and then the FOMC (hike anticipated), SEP and dot plots. Back to Liffe, some short end flow via a 10k lot sale of Mar19 Short Sterling futures at 99.100, but the 3 month contract remains bid at the price.

Top European News

  • As Brexit Moves On, Poland Risks Becoming EU’s Real Rogue State
  • HSBC Says the DOJ to Seek End of Deferred Prosecution Agreement

In FX, GBP is the main laggard in the G10 space with Cable unable to maintain 1.3400 or above ground on latest Brexit-related uncertainty (Ireland apparently at odds with the UK Government over the legalities of the border agreement), and EURGBP crossing 0.8800 to the upside again. The USD index is back down through 94.000 and unwinding some of its recent recovery gains, aided by last Friday’s US jobs data, with ongoing uncertainty on tax reforms and a vote on the reconciled proposals now not expected until December 22. NZD remains the standout G10 gainer, with a 1%+ rise vs the Greenback on the appointment of ex-RBNZ Deputy Governor and now CEO of the NZ Superannuation Fund, Orr as new RBNZ chief with effect from March 27th, 2018.

In commodities, WTI and Brent crude futures trade marginally softer with the Kuwait oil minister suggesting that OPEC and non-OPEC nations could consider an exit strategy before the next scheduled meeting in June. As a reminder, Friday’s Baker Hughes data showed an increase in the oil rig count from 749 to 751; an increase for the third consecutive week. In metals markets, gold is slightly firmer despite the largely upbeat sentiment with prices likely swayed by the broadly softer USD. Elsewhere, Asia-Pac trade saw a recovery in Chinese steel futures alongside the nation’s output curbing efforts whilst copper was relatively choppy overnight. Kuwait Oil Minister stated that oil output reductions could stop in June if the market rebalances.

US Event Calendar

  • 10am: JOLTS Job Openings, est. 6,100, prior 6,093
  • 11am: New York Fed to Release Survey of Consumer Expectations

DB's Jim Reid concludes the overnight wrap

With Christmas Day now only being a fortnight away, there’s likely to be one last hoorah this week with regards to activity given a busy week of data, central bank meetings and the post-Brexit divorce agreement European Council meeting at the end of the week. The highlight is undoubtedly the almost completely nailed on FOMC rate hike on Wednesday and the last Yellen press conference. With regards to the ECB meeting on Thursday, the focus will be on the latest staff macroeconomic forecasts with the first outlook for 2020 due to be revealed. It’s also worth keeping an  eye on Draghi’s press conference and particularly if he addresses some of the internal divisions which have been hinted at on forward guidance. The BoE meeting should be the least exciting of the three (Thursday) with any discussion on what the Brexit breakthrough on Friday might mean for policy being the most interesting feature. As an aside it was fascinating to read the FT this morning to see that any incoming Labour Government might look to relocate most of the BoE to Birmingham. An interesting proposal to say the least!!

Returning to Brexit, the EC meeting scheduled for Thursday and Friday will shed some light on how quickly we can get a transitional agreement for the UK and how contingent it is on talks over the future relationship. It is generally perceived that the UK needs this ASAP and before March at the very latest to ease the worries of businesses. So this week’s meeting is important for the mood music. One of the interesting things about Brexit is that of the few polls that have been done in recent months, it’s not clear you would get a materially different result today if there was a fresh referendum. Views are pretty entrenched. Also with Martin Schulz last week encouraging the continent to aim for a “United States of Europe” by 2025, and with Macron on a similar page, if Europe is going to go in this direction (a big if I appreciate) then the U.K. would collectively never agree to be part of this. So as painful as Brexit might be in the short-term if negotiations go badly, it’s possible that the two areas would eventually deviate economically anyway. So maybe we’re just accelerating that move. Just food for thought.

With regards to the data this week, the most significant release is the November CPI report in the US on Wednesday. The consensus is for a +0.4% mom jump in the headline and +0.2% mom rise in the core. Base effects are expected to hold the annual core rate at +1.8% yoy however. Staying with inflation we have the final November CPI revisions for the UK (Tuesday), Germany (Wednesday) and France (Thursday), as well as US PPI (Tuesday) and retail sales (Thursday). In China we’re also due to receive the November retail sales, fixed asset investment and industrial production data on Thursday. Also due this week are the flash December PMIs in Europe and the US on Thursday. Expectations are for the manufacturing PMI for the Eurozone to hold at the lofty levels of around 60. So given all the above be careful to keep some brain cells active after all those Xmas parties and lunches.

Over in the US, President Trump is expected to give a closing argument for the tax reforms this Wednesday. He sounded relatively upbeat on Sunday when he tweeted “getting closer and closer on the tax cut bill… House and Senate working very hard and smart”. Elsewhere, the reconciliation of the House and Senate tax bill continues with the timing broadly unchanged, which is to have the finalised bill ready for Trump’s signature before year end.

Over the weekend, China’s November PPI was in line at 5.8% yoy but moderated from last month’s 6.9%, while CPI was a tad softer at 1.7% yoy (vs. 1.8% expected), mainly due to faster price declines in the food sector. This morning in Asia, key bourses are all trending higher. China’s CSI 300 (+0.94%), the Hang Seng (+0.57%), Nikkei (+0.36%) and Kospi (+0.29%) are all up as we type.

Now briefly recapping markets performance from last Friday. US bourses  strengthened 0.4%-0.6% following a nonfarm payrolls beat and Congress voting to avert a partial government shutdown. The S&P rose 0.55% to a fresh high, with gains broad based and led by the health care and telco sectors. European markets were also all higher, with gains led by the FTSE (+1.0%) following the Brexit break through, while the Stoxx 600 (+0.73%) and DAX (+0.83%) also advanced. The VIX fell for the fourth consecutive day and is now below 10 again (-5.71% to 9.58).

Government bonds softened with core 10y bond yields up 1-3bp (UST & Bunds +1.3bp; Gilts +2.6bp) while peripheral bond yields outperformed. Turning to currencies, the US dollar index gained for the fifth consecutive day (+0.11%, +1.1% for the week), while the Euro was flat and Sterling fell 0.62%. In commodities, WTI oil rose 1.18% and precious metals strengthened (Gold +0.1%; Silver +0.87%). Other base metals were little changed (Copper flat; Zinc +0.59%; Aluminium +0.28%).

Away from markets, our Chinese economists see five key structural challenges for China over the next five years, including: i) global interest rates will likely rise, ii) the labour force in China is shrinking, iii) property and infrastructure investments face constraints as growth drivers, iv) financial risks have reached alarming levels and v) environmental constraints are also clear. The team takes a closer look at these factors and expects GDP growth will likely slow to 6.3% in 2018 and 2019, with risks balanced. Elsewhere, another round of regulatory tightening has started to contain financial leverage and property speculation. On the other side, the main risks to growth outlook come from inflation and interest rates. The team thinks the market underestimates the risk of inflation in 2018 and 2019.

Over in Germany, SPD’s leader Mr Schulz noted his party won’t “shy away from its responsibilities” and "we’re going into open ended talks to figure out how to bring this country out of this difficult situation”. His official meeting with Ms Merkel will start this Wednesday.

Finally back onto Bitcoin. The New Zealand central bank’s acting governor Spencer noted that Bitcoin “looks remarkably like a bubble forming to me…with a bubble, you never know how far it’s going to go before it comes down”. That said, he also noted that “digital currencies…are a real and serious proposition for the future…but not the sort that we see in bitcoin”. Elsewhere, futures on Bitcoin have started trading today at CBOE and have already seen a 25% rally and two trading halts. Futures trading is likely to add even more speculative interest to this story.

We wrap up with other data releases from Friday. In the US, the November change in nonfarm payrolls was above market at 228k (vs. 195k expected). While there was a 17k downward revision to the prior month, the strength of payrolls was still evident given a 6- month average gain of 178k - the fastest pace of growth seen since February. The unemployment rate was in line at 4.1% and remained at a 17 year low. However, the average hourly earnings growth was a tad softer at 0.2% mom (vs. 0.3% expected) and 2.5% yoy (vs. 2.7% expected), and note that the prior reading was revised down by 0.1ppt. Elsewhere, the December University of Michigan consumer sentiment index was below market at 96.8 (vs. 99 expected),  but in line with the average for the year and the one year-ahead expected inflation rose 0.3pts to 2.8% (a level not seen since April last year). Finally, the final reading of October wholesale inventories was -0.5% mom (vs. -0.4% expected). Factoring in above, the Atlanta Fed’s GDPNow model now estimates 4Q GDP growth at 2.9% saar (vs. 3.2% previous).

In Europe, France’s October IP was substantially above market at 1.9% mom (vs. -0.1% expected) and 5.5% yoy (vs. 2.9% expected), partly due to stronger manufacturing at 2.7% mom. In the UK, October IP was in line and flat for the month, but prior revisions led annual growth to be higher at 3.6% yoy (vs. 3.5% expected). Elsewhere, manufacturing production was slightly above at 0.1%  mom (vs. 0% expected) and 3.9% yoy (vs. 3.8% expected). Finally, the October trade deficit narrowed to -£1.4bn (vs. -£3bln), with exports up 9.5% yoy and imports up 9.6% yoy.