One day after the biggest drop in US stocks in over two months, taking the Dow ever further from the "promised" Dow 20000, global stocks struggled as they tried to close out 2016 on a positive note. The dollar dropped the most in two weeks, sliding alongside bond yields, while oil retreated from its highest close in 17 months as investors prepared to close out a volatile year for financial markets. European stocks slid from a 2016 peak, and extended losses for 2016 after briefly going green for the year.
"Yesterday's U.S. pending home sales number disappointed. Falling U.S. yields pushed the dollar generally lower," said Marshall Gittler, head of investment research at FXPrimus.
The yield on 10-year U.S. Treasury notes slipped to a two-week low, pulling the dollar to a two-week low against the yen. "The dollar fall was mostly due to renewed doubts about the U.S. recovery after pending home sales dropped in November. This is where the risk-off reversal started," said Ipek Ozkardeskaya, senior market analyst at London Capital Group. "This pushed the exhausted U.S. bulls to the sidelines and triggered a sell-off in both the dollar and U.S. stocks. We're seeing a bit of follow through in Europe today," she said.
As a result of the dollar drop, which saw the Bloomberg dollar spot index slide for the first time in 4 days, the Japanese Yen strengthened to as much as 116.25, the lowest print in the pair since Dec. 14, sending Japan’s Topix to its biggest drop in more than a month, sliding 1.2%. The benchmark is heading toward a loss of 1.9% for the year, its first annual decline in five years. The Nikkei 225 Stock Average pared its gain for 2016 to 0.6%. “Flow-driven move pushed USD/JPY lower after U.S. markets underwent a rebalancing on recent stock rally and bond sell- off before the year-end,” says Wako Ogawa, director of foreign-exchange sales at Deutsche Securities in Tokyo
Crude futures slipped for the first time in nine days, threatening to halt the longest winning streak since 2010. Gold extended gains. Oil was mixed after data showed a surprise build in U.S. crude inventories. U.S. crude fell 0.2 percent to $53.95 a barrel, while Brent was last up 0.2 percent at $56.32.
Despite the recent pick up in volatility, ostensibly the resut of a last minute pension fund reallocation, trading continues to be thin across the globe during the last week of the year, with volumes in crude oil, equities and currencies all below average. Investors sold U.S. equities at the fastest rate since before Donald Trump’s surprise election, trimming a post-election rally that took major indexes to all-time highs. The dollar is retreating after rising to the highest level in more than a decade on speculation the incoming president will boost inflation, paradoxically sending consumer confidence (measured by the University of Michigan) to decade highs, on expectations of record low inflation.
European stocks have so far failed to rebound from yesterday's US rout, with the Stoxx Europe 600 Index losing 0.3%, after closing at the highest level in a year on Wednesday. The gauge is down 1.4% for 2016. Trading volume in Europe less than half the 30-day average. Cyclical shares including banks, carmakers and miners were among the best performers in the final quarter of the year amid bets for stronger economic growth fell the most.
While there was some strength in the MSCI Asia Pacific ex-Japan Index, which added 0.2% after breaking a string of six consecutive losses on Wednesday, Japan’s Topix dropped 1.2%, its biggest drop in a month, heading toward a loss of 1.9% for the year, its first annual decline in five years. The Nikkei 225 Stock Average pared its gain for 2016 to 0.6%.
Elsewhere in Asia, the Jakarta Composite Index jumped 1.8 percent, bringing its three-day rally to 5.5 percent and erasing a two-week selloff. Australia’s S&P/ASX 200 advanced 0.3 percent to the highest level in more than a year.
Futures on the S&P 500 were little changed. The benchmark index fell 0.8 percent on Wednesday. It’s up 10 percent in 2016 after adding 2.3 percent so far this month.
There was a global dip in longer-term interest rates, as U.K. gilts led European bonds higher. Yields fell 6 basis points to 1.23 percent. Euro zone yields were also falling on concerns about the strength of a rescue plan for Italian banks and normal year-end caution. The yield on German 10-year bunds fell two basis points to 0.17 percent, while those on Treasuries dropped four basis points to 2.46 percent, extending Wednesday’s decline of five basis points. Australia’s 10-year yield slid seven basis points to 2.78 percent.
Markets Snapshot
- S&P 500 futures up less than 0.1% to 2246.5
- Stoxx 600 down 0.3% to 361
- FTSE 100 down less than 0.1% to 7101
- DAX down 0.3% to 11438
- German 10Yr yield down 2bps to 0.18%
- Italian 10Yr yield up less than 1bp to 1.81%
- Spanish 10Yr yield down less than 1bp to 1.33%
- S&P GSCI Index up 0.1% to 399.7
- MSCI Asia Pacific up 0.2% to 135
- Nikkei 225 down 1.3% to 19145
- Hang Seng up 0.2% to 21791
- Shanghai Composite down 0.2% to 3096
- S&P/ASX 200 up 0.2% to 5699
- US 10-yr yield down 4bps to 2.47%
- Dollar Index down 0.56% to 102.72
- WTI Crude futures down 0.2% to $53.95
- Brent Futures up 0.3% to $56.41
- Gold spot up 0.6% to $1,148
- Silver spot up 0.9% to $16.18
Top Global News
- Petrobras Sells Petrochemical, Biofuel Assets for $587m: Alpec agrees to buy Suape petrochemical plant in Pernambuco
- BMO’s Downe Has No Plans to Step Down Amid Executive Shuffle: Management moves part of bank’s succession plan to build depth
- Alere Sues U.S. Saying Medicare Removal May Kill Arriva: Company wants billing revocation halted while it appeals
- China Reduces Dollar Weighting in Currency Basket, Adds 11 More: Dollar will fall to 22.4% in trade-weighted basket
- Oil Trades Near 18-Month High Before U.S. Inventory Data: Nationwide crude inventories rise by 4.2 million barrels: API
- Dollar Drops to Two-Week Low Versus Yen as Treasury Yields Fall: USD declines against all of its G-10 peers, led by yen
- Top Trader Citigroup Sees Risk of ‘More Rapid’ Dollar Gains: Fed tightening on fiscal thrust to support dollar: Elmer
- San Francisco Software Startup AppDynamics Files for U.S. IPO: AppDynamics had $158.4m in rev. in 9 months ended Oct. 31
- Political Upheavals May Herald Trouble for Megadeals in 2017: Cross-border M&A drove majority of deals announced this year
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European stocks declined for first day in four sessions, with trading volumes remaining thin. 15 out of 19 Stoxx 600 sectors fall with autos, banks underperforming and real estate, food & beverage outperforming. 54% of Stoxx 600 members decline, 43% gain. “Momentum has been deteriorating the last couple of sessions and the daily momentum indicators suggest a toppish situation,” UBS technical analyst Marc Muller writes in note. “If we were to see another pullback campaign starting in the defensive camp together with the beginning of a correction phase in the overstretched cyclical/financial themes, the headline indices in Europe would be tactically very vulnerable.”
European Econ Data
- Norway November Retail Sales Rise 0.2% M/M, In Line W/ Estimates
- U.K. Dec. House Prices Rise 0.8% on Month, Nationwide Says
- Sweden November Trade Deficit SEK1.1b; October Deficit SEK2b
- Eurozone Nov. M3 Money Supply Rises 4.8% vs Year Ago
- Austria Dec. Manufacturing PMI 56.3 vs 55.4 in Nov.
Top European News
- Italy’s Padoan Criticizes ECB for Paschi Recapitalization Demand: Germany urged ECB to ensure Italy complies with rules
- London House-Price Growth Lags Behind U.K. First Time Since 2008: Values rose annual 3.7% in capital and 4.5% nationally
- Political Risks Leave Euro-Pound Analysts Most Divided on Record: Widest range of estimates in a decade
Asian stocks gain, erasing previous losses, while Japanese shares posted the biggest slide in seven weeks. 10 out of 11 sectors rise in the MSCI Asia Pacific Index with consumer staples, health care outperforming and industrials, consumer discretionary underperforming. “A market riding on expectations toward a Trump presidency is coming to a close, and we’re starting to focus on reality,” said Mitsushige Akino, an executive officer at Ichiyoshi Investment Management Co. in Tokyo. “I expect investors to take a more nervous stance toward U.S. economic indicators from here on.”
Asian Econ Data
- Hong Kong Nov. Exports Rise 8.1% Y/y; Est. -1%
- S. Korea Cuts 2017 GDP Forecast to 2.6%, Sees Inflation at 1.6%
- S. Korea Nov. Industrial Output Rises 4.8% Y/y; Est. +1.5%
- South Korean January Manufacturers’ Confidence Falls to 71
- Macau Nov. Visitor Arrivals Unchanged Y/y; Macau Nov. Consumer Prices Rise 1.53% Y/y
- One BOJ Member Sees Long Way to Go to Meet Price Goal: Summary
Top Asian News
- Takata Gains on Report Up to $1 Billion U.S. Settlement Near: Settlement could include criminal guilty plea, WSJ reports
- Dentsu CEO Quits Over Employee Suicide Blamed on Overwork: Japanese advertising agency under labor ministry investigation
- Who’s Had the Worst Year? How Asian Leaders Fared in 2016: Asia felt like a relatively stable part of the world
- Toyota Hybrid Bet Pays Off as Dieselgate Spurs Europe Demand: Carmaker’s hybdrid sales in Europe likely to jump 40% in 2016
In currencies, the Bloomberg Dollar Spot Index slipped 0.5 percent at 9:54 a.m. in London after trading Wednesday at the highest level in more than a decade. The euro was up 0.5 percent, while the yen rose 0.8 percent, the most since Dec. 19. The Australian dollar climbed 0.5 percent and the New Zealand dollar strengthened 0.4 percent.
In commodities, crude futures in New York slid 0.4 percent to $53.86 a barrel as an industry report was said to show U.S. stockpiles climbed last week. Crude settled at $54.06 on Wednesday, the highest close since July 2015. Gold rose for a fourth session, adding 0.6 percent to $1,148.16. The metal has been rebounding from an 11-month low.
US Event Calendar:
- 8:30am: Advance Goods Trade Balance, Nov., est. -$61.6b (prior - $62.0b)
- 8:30am: Wholesale Inventories MoM, Nov. P, est. 0.2% (prior -0.4%)
- 8:30am: Initial Jobless Claims, Dec. 24, est. 265k (prior 275k)
- 9:45am: Bloomberg Consumer Comfort, Dec. 25 (prior 46.7)
- 10am: Freddie Mac mortgage rates
- 10:30am: EIA natural-gas storage change
- 11am: DOE Energy Inventories