With just a few hours left until the close of the last US trading session of 2017, and most of Asia already in the books, S&P futures are trading just shy of a new all time high as the dollar continued its decline ahead of the New Year holidays.
Indeed, markets were set to end 2017 in a party mood on Friday after a year in which a concerted pick-up in global growth boosted corporate profits and commodity prices, while benign inflation kept central banks from snatching away the monetary punch bowl. As a result, the MSCI world equity index rose another 0.15% as six straight weeks and now 13 straight months of gains left it at yet another all time high.
In total, world stocks haven't had a down month in 2017, with the index rising 22% in the year adding almost $9 trillion in market cap for the year.
Putting the year in context, emerging markets led the charge with gains of 34%. Hong Kong surged 36%, South Korea was up 22% and India and Poland both rose 27% in local currency terms. Japan's Nikkei and the S&P 500 are both ahead by almost 20%, while the Dow has risen by a quarter. In Europe, the German DAX gained nearly 14% though the UK FTSE lagged a little with a rise of 7 percent.
Craig James, chief economist at fund manager CommSec, told Reuters that of the 73 bourses it tracks globally, all but nine have recorded gains in local currency terms this year.
“For the outlook, the key issue is whether the low growth rates of prices and wages will continue, thus prompting central banks to remain on the monetary policy sidelines,” said James. “Globalization and technological change have been influential in keeping inflation low. In short, consumers can buy goods whenever they want and wherever they are.”
Still, the good times may not last: an State Street index that gauges investor risk appetite by what they actually buy and sell, suffered its six straight monthly fall in December, Reuters reported.
"While the broader economic outlook appears increasingly rosy, as captured by measures of consumer and business confidence, the more cautious nature of investors hints at a concern that markets may have already discounted much of the good news,” said Michael Metcalfe, State Street’s head of global macro strategy.
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Now summarizing the overnight action, Europe's Stoxx 600 Index was little changed on the last trading day of 2017, while U.S. index futures edged higher, with the E-mini trading higher by 0.3% and just 5 points away from 2,700. European stocks hold steady, set for their best year since 2013, while the MSCI Asia Pacific Index closed the year with an annual gain of almost 29%, its biggest advance since 2009.
Bonds in Europe ticked lower as Treasuries steadied. The Bloomberg Dollar Index fell for a third day, heading for its worst annual performance in more than a decade. The Bloomberg Commodity Index gained for 12th day, set for the longest streak on record, as WTI crude advanced above $60 a barrel.
European stocks held steady on the last trading day of 2017, headed for the biggest annual gain in four years. The Stoxx Europe 600 Index was effectively unchanged, on volume that was about half the 30-day average, with miners leading gains. Europe's benchmark index has risen 7.8% this year. Stock markets including the U.K., Ireland and Germany close early today. 9 out of 19 Stoxx 600 sectors rise; technology sector has the biggest volume at 63% of its 30-day average; 249 Stoxx 600 members gain, 299 decline. Top Stoxx 600 outperformers include: AstraZeneca +1.5%, TGS NOPEC Geophysical +1.1%, Just Eat +1.1%, Old Mutual +1.0%, AP Moller - Maersk +0.9%.
Developing-nation stocks and currencies headed for a third week of gains, extending their biggest annual rallies since 2009 as trading wound down for the year. The Czech koruna posted the strongest advance among peers for 2017 after the central bank lifted its cap on the currency’s gains earlier in the year. MSCI’s currencies gauge rallies for 6th day, adding 0.4% and poised for best week since July; its 2% gain in month is biggest since Jan. Equity benchmark climbs 0.5%, rising 3rd day, set for third weekly advance, best monthly increase since July.
In Asia, the MSCI Asia Pacific Index rose 0.2%, heading for a record close. The MSCI Emerging Markets Index headed for a third straight weekly gain and its highest close since 2011. Japan’s Topix Index fell 0.1 percent as of the close in Tokyo, still near its highest level since 1991. Hong Kong stocks rose in the last week of 2017, the third straight week of gains, as some of this year’s best performers added to their rallies. China’s benchmark gauge capped a relatively muted annual advance. Hang Seng Index adds 0.2% on Friday; the measure jumped 36% this year, while the Hang Seng China Enterprises Index climbed 0.2%, taking YTD gain to 25%. China's Shanghai Composite climbed 0.33% to 3307 on the last trading day of 2017, making it 6.56% higher for the whole year, while China's Nasdaq-equivalent, Chinext, was down 10% compared to one year earlier.
In macro, the dollar continued its slide against all G-10 peers, in line with its year-to-date performance. Losses extended as London came into the market, with the greenback reaching multi-week lows against most peers, with the thin liquidity in year-end markets exacerbating the size of the moves. The dollar drop was catalyzed by a fresh decade-low spread between the 2 and 10Y Treasuries, with the relentless flattening fueling concern the U.S. economy will weaken.
China’s onshore yuan rallied 0.4% and Malaysia’s ringgit climbs 0.5%, advancing for third day and leading the rally as the dollar edged lower in subdued trading before the new-year holiday. Taiwan’s currency climbed to the strongest in four years before erasing its advance as its central bank asked banks to purchase dollars. South Korea’s won was the best-performing Asian currency this year, rising 13 percent.
And as the Bloomberg Dollar Spot Index was headed for its worst annual decline since data began in 2005, the euro was set for its best year against the greenback since 2003, while the yen and Aussie are headed for their biggest annual advance since 2010, and the Kiwi since 2012.
The euro touched a fresh three-month high against the dollar amid a broad-based selloff in the U.S. currency as year-end portfolio rebalancing extended the greenback’s 2017 decline. "The market is probably getting too complacent about a shortage of dollar liquidity right now," said Andreas Steno Larsen, a global currency strategist at Nordea Markets. While the story of a year-end liquidity squeeze in the dollar was "blown out of proportion," the dynamic is likely to extend into 2018, he said.
Similarly, the yen was poised for its biggest annual gain versus the dollar in six years as a flatter U.S. yield curve weighed on the greenback. “With no policy surprises from Japan and the U.S., dollar-yen was weighed down by the dollar’s general weakness, which was the main theme for 2017,” said Daisuke Karakama, chief market economist at Mizuho Bank in Tokyo. “The flatness of the U.S. yield curve poses a challenge for next year as an inversion of short- and long-term yields comes into sight. That makes it difficult to forecast long-term yields rising, and this will weigh on dollar-yen.” A rally in commodity prices bolstered the currencies of countries that rely on raw material exports, such as Australia and New Zealand. The Aussie headed for its best year since 2010, while the kiwi was set for its biggest annual advance since 2012.
As the chart below shows, in a year in which the dollar was supposed to be the world's best performer, with many talking about parity with the euro in January, the USD ended up being the worst performer, losing a whopping 13.6% against the Euro. Meanwhile, the Bloomberg Dollar Spot Index is on track for its first annual decline since 2012, sliding 8.5% in 2017.
Meanwhile, boosted by the ongoing dollar weakness, oil prices rose, with WTI crude climbing above $60 per barrel to hit a new two and a half year high. Oil prices rose, with WTI crude climbing above $60 per barrel to hit a 2-1/2 year high. Treasury yields edged lower, while gold climbed. 10Y TSY yields fell 1bp to 2.42%; German 10Y Bunds gained less than 1 bp to 0.43%, while Britain’s 10Y gilt climbed 1 basis point to 1.199%.
The dollar’s loss has been a boon for commodities priced in the currency, which have also benefited from a synchronized pick up in global trade and surprisingly strong demand from China. Everything from coal to iron ore has reaped gains, with copper a stand-out performer in part due to expectations of rising demand for the mass production of electric vehicles. The metal was near a four-year peak on Friday at $7,284 a tonne. It is up more than 30 percent this year and on course for its largest annual rise since 2009.
Gold struggled somewhat this year against a background of subdued global inflation, but at $1,295.18 an ounce was still on track to end 2017 with gains of more than 12 percent.
Oil prices were near their highest in 2-1/2 years after data showed strong demand for crude imports in China and a surprise fall in U.S. production. Brent crude futures added 45 cents to reach $66.61 a barrel, up more than 16 percent on the year so far, while U.S. crude futures climbed 46 cents to $60.30 a barrel.
- S&P 500 futures up 0.34% to 2,694.5
- STOXX Europe 600 down 0.03% to 389.43
- MSCI Asia Pacific up 0.3% to 174.00
- MSCI Asia Pacific ex Japan up 0.5% to 570.34
- Nikkei down 0.08% to 22,764.94
- Topix down 0.08% to 1,817.56
- Hang Seng Index up 0.2% to 29,919.15
- Shanghai Composite up 0.3% to 3,307.17
- Sensex up 0.6% to 34,056.87
- Australia S&P/ASX 200 down 0.4% to 6,065.13
- Kospi up 1.3% to 2,467.49
- German 10Y yield rose 0.4 bps to 0.428%
- Euro up 0.3% to $1.1982
- Italian 10Y yield rose 3.5 bps to 1.688%
- Spanish 10Y yield rose 1.6 bps to 1.536%
- Brent Futures up 0.4% to $66.39/bbl
- Gold spot up 0.1% to $1,296.69
- U.S. Dollar Index down 0.3% to 92.34
Top overnight news from BBG
- Donald Trump believes Robert Mueller, special counsel in the Russia probe, will treat him fairly, the U.S. president said in an interview with the New York Times
- Speculation is rising that American drillers will put more rigs to work as oil strengthens, with shale growth driving forecasts of record U.S. supply in 2018; that could act counter to plans by producers including Saudi Arabia, who have pledged to extend production curbs through 2018 to wipe out a global glut
- Euro-area banks were net sellers of EU9.8b public securities in November
- Consumer-price inflation accelerated on the month in December in the German states Saxony, Hesse and Bavaria; inflation slowed y/y
- Spain flash harmonized CPI rose 1.3% y/y in December, vs estimate +1.5%
- Trump’s Tax Overhaul May ‘Punish’ Foreign Banks With U.S. Units
- Florida’s Real Estate Reckoning Could Be Closer Than You Think
- Icahn Wins Tussle With SandRidge as Bonanza Deal Is Scrapped
- Apple Apologizes for IPhone Speed Cuts to Prevent Crashing
- As MiFID Nears, This Risk Officer Is Looking Forward to February
In Asian markets,, the MSCI Asia Pacific Index rose 0.2%, heading for a record close. The MSCI Emerging Markets Index headed for a third straight weekly gain and its highest close since 2011. Japan’s Topix Index fell 0.1 percent as of the close in Tokyo, still near its highest level since 1991. Hong Kong stocks rose in the last week of 2017, the third straight week of gains, as some of this year’s best performers added to their rallies. China’s benchmark gauge capped a relatively muted annual advance. Hang Seng Index adds 0.2% on Friday; the measure jumped 36% this year, while the Hang Seng China Enterprises Index climbed 0.2%, taking YTD gain to 25%. China's Shanghai Composite climbed 0.33% to 3307 on the last trading day of 2017, making it 6.56% higher for the whole year, while China's Nasdaq-equivalent, Chinext, was down 10% compared to one year earlier.
Top Asian News
- China Shadow Banks Pay Record Premium for Cash as Squeeze Bites
- Japanese Stocks Have Best Year Since 2013 on Corporate Profits
- India Planning to Cut Oil Import Bill With Methanol Blending
- Taiwan Central Bank Is Said to Ask Banks to Buy U.S. Dollars
- China Says It Created a France-Sized Pile of New Jobs Since 2012
In European bourses, stocks held steady on the last trading day of 2017, headed for the biggest annual gain in four years. The Stoxx Europe 600 Index was effectively unchanged, on volume that was about half the 30-day average, with miners leading gains. Europe's benchmark index has risen 7.8% this year. Stock markets including the U.K., Ireland and Germany close early today. 9 out of 19 Stoxx 600 sectors rise; technology sector has the biggest volume at 63% of its 30-day average; 249 Stoxx 600 members gain, 299 decline. Top Stoxx 600 outperformers include: AstraZeneca +1.5%, TGS NOPEC Geophysical +1.1%, Just Eat +1.1%, Old Mutual +1.0%, AP Moller - Maersk +0.9%.
Top European News
- Vectura Gains on Final Trading Day of 2017, Up ~30% in December
- Bitcoin is Like Trading in Pearls, ECB’s Rimsevics Tells Tvnet
In commodities, WTI crude increased 0.4% to $60.09 a barrel, the highest in more than two years. Gold advanced 0.2 percent to $1,296.95 an ounce, hitting the highest in 11 weeks with its eighth consecutive advance. Copper dipped 0.4 percent to $3.29 a pound, the first retreat in more than three weeks. The Bloomberg Commodity Index gained less than 0.05 percent to 87.73, hitting the highest in more than seven weeks with its 12th straight advance.
In FX, EUR/USD up as much as 0.4% to $1.1988, highest since Sept. 22. The euro is up ~14% YTD versus the U.S. currency, set for its biggest annual gain since 2003. GBP/USD rises 0.5% to $1.3507, with the pound on track for an annual gain of ~9.5% versus the dollar. Sterling has been supported by better-than-forecast U.K. data in the wake of Brexit and progress in talks with the EU. USD/JPY falls 0.2% to 112.60; yen heads for its biggest annual gain versus the greenback in six years. The yen is set to weaken in 2018 on widening of real yields between Japan and the U.S., according to Eddie Cheung, Asia FX strategist at Standard Chartered Bank in Hong Kong. NZD/USD advances 0.4% to 0.7115, benefiting from a rally in commodity prices as well as quarter- and year-end rebalancing, according to a Credit Agricole note. AUD/USD rises 0.2% to 0.7810, gaining as commodities strength boosts the economic outlook and makes higher interest rates next year more likely.
US Event Calendar: Nothing major scheduled