Global Stocks Rally To New Record Highs As Dollar Tumbles

U.S. equity futures point to a higher open in the second to last trading day of 2017 as the dollar slid against most major currencies, headed for its worst year in more than a decade as oil, gold and most industrial metals rise. 

MSCI’s world equity index has risen 22% this year and looks set for a record 14th straight month of gains. S&P 500 Index futures rose 0.1% to 2,688, the highest in more than a week.

European stocks are little changed on thin trading volume amid a holiday-shortened week. The Stoxx Europe 600 Index is flat, with carmakers dropping and miners tracking metal prices higher. The benchmark is poised for an annual gain of 8%, the best advance in four years. In Italy, Prime Minister Paolo Gentiloni is expected to hold a press conference marking the end of his administration, kickstarting the process for elections early next year

In addition to Europe, this year’s equity rally has been led by the bumper performance in Asia, which is on track for its best year since 2009, with the MSCI Asia Pacific Index rising 0.4% to the highest on record, in thin trading ahead of New Year holidays and emerging market equities rose, with the MSCI Emerging Market Index rising 0.8% to the highest in almost five weeks.

Japan’s Nikkei 225 Stock Average decreased 0.6 percent to the lowest in almost two weeks while Hong Kong stocks advanced, with Sunny Optical Technology Group Co. and AAC Technologies Holdings Inc. among the best performers after a two-day selloff. Country Garden Holdings Co. climbed to a record. The Hang Seng Index rose 0.9% to close at highest since Nov. 24, rising 2.2% over the last four sessions. The  Hang Seng China Enterprises Index climbs 0.6% while China's mainland Shanghai Composite Index rose +0.6%, and the big-cap CSI 300 Index +0.7%.

China's largest liquor maker Kweichow Moutai soared over 8% in Shanghai after the company said it expects revenue and profits to jump 50% and 58% this year and announced that it would raise prices by 18% starting next year. A notable move took place in Chinese short-term funding rates, where the Treasury bond repo rate surged for the 3rd day in a row, closing at 17.7% after it hit a high of 24%, as a result of a year-end cash squeeze after the PBOC refrained from conducting open market reverse repos for the 5th day in a row.

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In overnight macro, in an otherwise quiet session, the dollar was the notable mover dropping against most major currencies  as an earlier slide in Treasury yields and year-end rebalancing flows weighed on the currency that’s heading for its worst year in more than a decade.

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The greenback declined against all G-10 peers after benchmark U.S. Treasury yields tumbled by the most since September on Wednesday. The USD also faced a setback as the recent strong demand for dollar funding over year-end eased. As Bloomberg highlights, the dollar was on track for an almost 12 percent decline this year versus the euro, its worst performance since 2003. Volatility in foreign-exchange markets was exacerbated amid thin trading volumes.

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"The dollar bears are getting their last licks in for 2017, perhaps foreshadowing of things to come in 2018," said Stephen Innes, head of Asia-Pacific trading at OANDA.

"Month-end flows in illiquid market conditions are the primary driver” of the dollar’s weakness, says Jason Wong, a currency strategist at Bank of New Zealand. “Risks are skewed for dollar losses against the pound and euro in 2018."

"Lower yields are generally not good for the dollar so that’s an important reason,” said Georgette Boele, a currency strategist at ABN Amro Bank NV, adding that “this time of the year currency markets are mainly technical driven and order driven."

The euro climbed 0.4 percent to $1.1932 as of 9:39 a.m. in London, after touching $1.1947, its highest since Nov. 27. The Bloomberg Dollar Spot Index fell 0.3 percent, extending its decline this year to 8.2 percent, its biggest slide since data starting at the end of 2004. Ten-year Treasury yields rose two basis points to 2.43 percent on Thursday, after tumbling seven basis points the previous day, the steepest drop since Sept. 7.

German bunds lead declines in Europe, erasing Wednesday’s gain, and pulling Treasury yields higher after yesterday’s. 10Y German bund yield climbed three basis points to 0.41%. Elsewhere in rates, the yield on 10-year Treasuries rose two basis points to 2.43%. Britain’s 10-year yield gained two basis points to 1.192%. Japan’s 10-year yield increased less than one basis point to 0.058 percent, the highest in a week.

U.S. 10-year yields retreated after briefly last week breaking above the key 2.50% level, falling as much as seven basis points on Wednesday. Meanwhile 2Y yields too are off nine-year highs after U.S. consumer confidence dropped from 17-year highs.

The Bloomberg Commodity Index extended its longest rising streak in more than 12 years as oil, gold and copper gained. WTI gained 0.2% to $59.73 a barrel. Gold gained 0.4% to $1,292.35 an ounce, the highest in a month, while copper rose 0.6% to $3.30 a pound.

“Commodities are driving trade in the final days of 2017,” analysts at London Capital Group said in a note. "Copper has rallied 25 percent since the beginning of June, and with this in mind Dr Copper is telling us we could be in for a strong 2018,” they added, referring to the perception of copper as a key barometer of economic growth.

As reported overnight, bitcoin tumbled on Thursday, extending a sell-off that began last week, as South Korean regulators stepped up scrutiny of their citizens’ dealings with cryptocurrencies, threatening to shutdown local crypto exchanges to curb speculation.

Today's economic data include wholesale inventories, initial jobless claims.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,688.00
  • STOXX Europe 600 up 0.01% to 390.58
  • MSCI Asia Pacific up 0.5% to 173.53
  • MSCI Asia Pacific ex Japan up 0.9% to 568.28
  • Nikkei down 0.6% to 22,783.98
  • Topix down 0.6% to 1,819.03
  • Hang Seng Index up 0.9% to 29,863.71
  • Shanghai Composite up 0.6% to 3,296.39
  • Sensex unchanged at 33,913.22
  • Australia S&P/ASX 200 up 0.3% to 6,088.14
  • Kospi up 1.3% to 2,467.49
  • German 10Y yield rose 2.9 bps to 0.414%
  • Euro up 0.4% to $1.1933
  • Brent Futures up 0.4% to $66.67/bbl
  • Italian 10Y yield rose 0.8 bps to 1.653%
  • Spanish 10Y yield fell 0.3 bps to 1.467%
  • Brent Futures up 0.4% to $66.67/bbl
  • Gold spot up 0.4% to $1,292.67
  • U.S. Dollar Index down 0.3% to 92.72

Top Overnight News from Bloomberg

  • Analysts forecasting the U.S. economy in 2017 pulled off a rare feat: missing to the upside on their forecasts for both inflation and the jobless rate; that may offer a lesson for pundits predicting the outlook for next year
  • Rex Tillerson defended U.S. foreign policy during his first year as secretary of state, touting gains in pressuring North Korea, battling Islamic State and supporting Ukraine in the face of Russian aggression
  • Oil traded above $59 a barrel as crude production in Libya fell below one million barrels a day after a pipeline explosion Tuesday
  • President Trump’s legal team intends to portray ex-national security adviser Michael Flynn as a dishonest person looking to protect himself should he accuse Trump or his aides of wrongdoing, Washington Post reports, citing three unidentified people familiar with the strategy
  • A coalition of 11 mostly Republican-led states urged a federal appeals court to enforce U.S. President Donald Trump’s executive order punishing so- called sanctuary cities, which largely forbid local law enforcement from cooperating with federal immigration authorities
  • Justice Department attorneys argue that when Seattle judge ruled Dec. 23 that refugees from nations covered by the ban who have ties to the U.S. must still be admitted, he should have excluded “formal assurance by a refugee resettlement agency” as a qualifying condition for entry
  • Nomura CEO Targets U.S. in Push That Could Include Acquisitions
  • Flattening U.S. Yield Curve Nears Decade Lows in Final 2017 Push
  • Bond Titans With Over $7 Trillion Lay Out Top Trades for 2018
  • China Approves Becton Dickinson, C. R. Bard Deal With Conditions
  • Turkey’s Corendon Air Purchases One B-737 MAX8 With May Delivery
  • J&J Treatment Granted Orphan Drug Status by FDA
  • Putin Orders Agents to ‘Liquidate Bandits’ After Terror Attack
  • Apple CEO Cook Gets 74% Bonus Boost After Earnings Rebound
  • Copper’s Rally Is Longest in a Generation as Bulls Stand Ground

Asian stocks rose 0.4% to the highest on record, in thin trading ahead of New Year holidays and emerging market equities rose, with the MSCI Emerging Market Index rising 0.8% to the highest in almost five weeks. Japan’s Nikkei 225 Stock Average decreased 0.6 percent to the lowest in almost two weeks while Hong Kong stocks advanced, with Sunny Optical Technology Group Co. and AAC Technologies Holdings Inc. among the best performers after a two-day selloff. Country Garden Holdings Co. climbed to a record. The Hang Seng Index rose 0.9% to close at highest since Nov. 24, rising 2.2% over the last four sessions. The  Hang Seng China Enterprises Index climbs 0.6% while China's mainland Shanghai Composite Index rose +0.6%, and the big-cap CSI 300 Index +0.7%.

Top Asian News

  • Japan Industrial Production, Retail Sales Rise in November
  • Indonesia’s 2017 GDP Growth Seen Expanding 5.05%: C. Bank
  • Bank Indonesia to Issue Rule on Market Operator: Warjiyo
  • Bank of Japan Maintains Pace of Bond Purchases in January Plan
  • India Is Said to Renew Demand for Additional Dividend From RBI

European stocks are little changed with the Stoxx Europe 600 Index flat, as carmakers drop and miners track metal prices higher. The benchmark is poised for an annual gain of 8%, the best advance in four years. In Italy, Prime Minister Paolo Gentiloni is expected to hold a press conference marking the end of his administration, kickstarting the process for elections early next year

Top European News

  • Set Brexit Risks Aside, 2017 Was No Annus Horribilis for GBP
  • ECB Says Euro-Area Economic Expansion Is Solid and Broad-Based
  • Crude Storage in ARA Little Changed, Genscape Weekly Data Show
  • Austria Dec. Manufacturing PMI 64.3 vs 61.9 in Nov.

In commodities, the Bloomberg Commodity Index extended its longest rising streak in more than 12 years as oil, gold and copper gained. WTI gained 0.2% to $59.73 a barrel. Gold gained 0.4% to $1,292.35 an ounce, the highest in a month, while copper rose 0.6% to $3.30 a pound. “Commodities are driving trade in the final days of 2017,” analysts at London Capital Group said in a note. "Copper has rallied 25 percent since the beginning of June, and with this in mind Dr Copper is telling us we could be in for a strong 2018,” they added, referring to the perception of copper as a key barometer of economic growth.

In currencies, the greenback declined against all G-10 peers after benchmark U.S. Treasury yields tumbled by the most since September on Wednesday. The USD also faced a setback as the recent strong demand for dollar funding over year-end eased. The dollar was on track for an almost 12 percent decline this year versus the euro, its worst performance since 2003. Volatility in foreign-exchange markets was exacerbated amid thin trading volumes.

US Event Calendar

  • 8:30am: U.S. Initial Jobless Claims, Dec. 23, est. 240k, prior 245k; Continuing Claims, Dec. 16, est. 1.9m, prior 1.93m
  • 8:30am: U.S. Wholesale Inventories MoM, Nov. P, est. 0.3%, prior -0.5%
  • 9:45am: U.S. Chicago Purchasing Manager, Dec., est. 62, prior 63.9