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Global Stocks On Verge Of All Time High After Powell Give The All Green

Courtesy of ZeroHedge View original post here.

It was all systems go this morning, after Fed Chair Powell made it clear that Fed won’t be hiking rates for a long, long time, maybe ever, and could potentially expand QE to coupon Treasuries, sending bond yields and the dollar lower, and sparking a rally for global shares which took a fresh run at record highs on Thursday, as the Fed set traders up another news packed day of bank meetings and a Brexit-defining election in Britain, although the rally started to sputter around the time US traders walked in to their desks with US equity futures barely changed.

As expected, on Wednesday the Fed kept U.S. interest rates unchanged, but it was a message that it would take an unexpected and “persistent” rise in inflation to lift them again that inspired bulls and shoved the dollar to its lowest since August. It helped Asian shares rally almost 1%, despite reports Washington will press on with new China tariffs, and solid 0.2%-0.5% gains in Europe early on left MSCI’s broadest index of world shares just 0.1% shy of its January 2018 all-time high.

“The Fed’s accommodative stance does support equities, but the chance of a disruptive election outcome in Britain is very real,” said CMC strategist Michael McCarthy.

S&P 500 futures faded an early gain that pushed the index up briefly as high as 3,150 after the cash index rose for the first time this week in the wake of the Federal Reserve’s final policy gathering of the year. The yield on 10-year Treasuries fluctuated around 1.79% amid bets the bar will be high for any future U.S. rate hikes.

In Europe, the Stoxx Europe 600 Index pared an earlier gain, government bond yields in the region dipped and the euro was little changed before the European Central Bank delivers its decision at 745am in new ECB head Christine Lagarde’s inaugural meeting. The Swiss franc fluctuated after Switzerland’s central bank left rates unchanged and reiterated a threat to intervene in currency markets if needed.

Earlier in the session, Asian stocks gained after the Fed signaled it would stay on hold throughout 2020 amid a “solid economy.” Markets in the regions were mixed, with Taiwan and South Korea rallying. The Taiex ended 1.2% higher as it extended gains from its highest level since 1990, while South Korea’s Kopsi Index capped its best day since the end of August. India’s S&P BSE Sensex Index rose for a second day. Asia tech shares followed a global chip-stocks rally buoyed by positive comments from analysts at Bank of America and Citigroup

In FX, the Bloomberg Dollar Spot Index was little changed as currencies stayed in tight ranges, including the Swiss franc after the SNB kept interest rates at rock bottom.

Meanwhile, in the UK, sterling was hovering at its highest in more than two years versus the euro and close to an eight-month high versus the dollar as voting began in an election that will determine whether Britain exits the European Union next month. Expectations are that the ruling Conservatives, led by Boris Johnson, will score a majority that allows his Brexit deal to be passed by a new parliament, but the latest polls have shown the lead shrinking. Exit polls for Britain’s election will begin around 2200 GMT, after voting closes, with clarity over whether their will be a clear winner or another hung parliament likely between 0400 GMT and 0600 GMT.

As Reuters notes, following a 10% surge by the pound in the last few months, Traders and investors are now hedging their bets. Union Bancaire Privée’s Global Head of Forex Strategy Peter Kinsella said a Conservative majority remained his expectation, however: “We think a move to levels of around $1.35 or even $1.37 is entirely feasible,” if there is a decent Conservative majority, whereas with another hung parliament “you are definitely back down to $1.26-1.27.” It was last at $1.3107, just shy of its highest since March and close to a May 2017 peak against the euro at 84.32 pence.

The euro was also climbing against the weakened dollar. It rose as far as $1.1144, close to a five-week high before Christine Lagarde’s first meeting as President of the European Central Bank. She is almost certain to keep rate rates on hold, but her style and signals will be closely watched by economists, especially with the bank due to update its forecasts and make some changes to its policy framework next year.

Switzerland’s central bank had got up early and already held its rate meeting meanwhile. Negative interest rates remain central to its plans, the SNB’s Chairman Thomas Jordan said as it maintained its ultra-expansive monetary policy. The Swiss franc barely budged.

In summary:

  • The SNB maintained rates at -0.75%, as expected. SNB reiterated their language around the CHF and their willingness to intervene in FX markets. In terms of forecasts 2019 growth has been increased, while the 2020 and 2021 inflaton forecasts have been cut slightly. This was not enough to prompt a significant move in EUR/CHF, as focus for the CHF will be on external factors today namely the ECB and UK General Election; most notably, the SNB maintained their rate projection for the forecast period at -0.75%.
  • The CBRT cut by 200bp to 12.0% vs. Exp. 12.5% (Prev. 14.0%) Maintained their cautious stance and noted the disinflation process in on track, forecast show that inflation is likely to materialise closer to the lower bound of October’s projections. Following the decision the TRY saw some modest strength.
  • Brazil’s Central Bank cut the Selic rate by 50bps to 4.50% as expected via unanimous decision and stated the economic recovery is gaining steam but current stage of the cycle warrants caution in its next steps. BCB added it sees two-way risks to inflation and that stimulative policy is still required but noted that data shows the economy has gained traction from Q2 onwards and it assumes recovery will continue at a gradual pace.

It’s not just central banks, there were fresh U.S.-China developments to digest too: U.S. President Donald Trump is expected to meet top advisers on Thursday to discuss tariffs on nearly $160 billion of Chinese consumer goods that are scheduled to take effect on Dec. 15, three sources told Reuters. Trump is expected to go ahead with the tariffs, a separate source told Reuters, which could scuttle efforts to end a 17-month long trade dispute between the world’s two-largest economies.

“The fact is the big event risk remains in place, with the world watching to see if the 15% tariffs kick in,” Pepperstone’s Chris Weston wrote on Thursday. “What the Fed has delivered is about as much as we could have hoped for in this period.”

In rates, Treasury yields had fallen in reaction to the Fed’s comments, but they rebounded slightly in Asia and Europe. The yield on benchmark 10-year Treasury notes rose to 1.7966%.

In commodities, WTI edged up 0.15% to $58.85 a barrel, while Brent crude rose 0.39% to $63.97 per barrel. A report by OPEC released on Wednesday suggested that oil markets are tighter than previously thought. Traders are also focused on state oil company Saudi Aramco. Its value briefly rose above $2 trillion on Thursday as its shares surged again following its Riyadh stock market debut on Wednesday, however they closed at half their intraday gain, up around 4% and below $2 trillion.

To the day ahead now where datawise this morning we get final November CPI readings in Germany and France and October industrial production for the Euro Area. The ECB and SNB meetings follow, before we get November PPI in the US and the latest initial jobless claims data. Expect plenty of focus on the election in the UK too, especially with the exit polls this evening. Finally, EU leaders are due to gather in Brussels to discuss the EU budget and climate neutrality. Initial jobless claims are among Thursday’s economic data. Scheduled earnings include Oracle, Adobe, Costco and Broadcom.

Market Snapshot

  • S&P 500 futures up 0.2% to 3,148.75
  • STOXX Europe 600 up 0.2% to 407.17
  • MXAP up 0.6% to 166.68
  • MXAPJ up 1% to 534.06
  • Nikkei up 0.1% to 23,424.81
  • Topix down 0.1% to 1,712.83
  • Hang Seng Index up 1.3% to 26,994.14
  • Shanghai Composite down 0.3% to 2,915.70
  • Sensex up 0.6% to 40,649.98
  • Australia S&P/ASX 200 down 0.7% to 6,708.83
  • Kospi up 1.5% to 2,137.35
  • German 10Y yield fell 0.2 bps to -0.323%
  • Euro down 0.03% to $1.1127
  • Italian 10Y yield fell 3.9 bps to 0.858%
  • Spanish 10Y yield unchanged at 0.413%
  • Brent Futures up 0.7% to $64.16/bbl
  • Gold spot down 0.09% to $1,473.52
  • U.S. Dollar Index up 0.04% to 97.16

Top Overnight News from Bloomberg

  • The Federal Reserve left interest rates unchanged and signaled it would stay on hold through 2020, keeping it on the sidelines in an election year. Jerome Powell told reporters that the committee might consider widening reserves management-related Treasuries purchases to include short-term coupon-bearing securities, if necessary, to ease liquidity strains in money markets
  • Senate Republicans say there is an early consensus building within their ranks for a short impeachment trial that could see the GOP-led chamber vote on a likely acquittal of President Donald Trump without hearing from any witnesses
  • The pound earlier touched an eight-month high — the move understates uncertainty about whether U.K. Prime Minister Boris Johnson’s Conservative Party will win a majority in Thursday’s election. Sterling’s overnight implied volatility has soared to the highest since February 2017 as demand for downside protection jumped in Asian trade
  • The Swiss National Bank held interest rates at rock bottom and reiterated its intervention threat, steering a steady course even as its policy comes under increasing public criticism
  • Christine Lagarde finally has the chance to shake off the shadow of her predecessor on Thursday, at her debut press conference as ECB president. She faces a press conference in which she’ll be judged on how convincingly she communicates the institution’s plan to restore price stability
  • Saudi Aramco jumped for a second day, pushing the oil giant’s value beyond the $2 trillion mark that alienated global investors and potentially making further share sales abroad more difficult
  • A major Chinese commodities trader became the biggest dollar bond defaulter among the nation’s state-owned companies in two decades, in a moment of reckoning for Beijing as it struggles to contain credit risk in a weakening economy
  • Israel is headed to its third election in less than a year, an astonishing if foretold development that’s closely intertwined with Benjamin Netanyahu’s legal troubles and may not resolve the political crisis
  • The U.S. sees “deeply troubling indications” that North Korea may be poised to engage in a major provocation, United Nations Ambassador Kelly Craft warned
  • Uncertainty surrounding the U.K.’s general election and Brexit are paralyzing the housing market, according to the Royal Institution of Chartered Surveyors

Asian equity markets were varied for most of the day as ongoing trade uncertainty heading into this week’s tariff deadline and today’s looming risk events slightly dampened the momentum from Wall St where sentiment was mildly underpinned following the FOMC meeting. Nonetheless, ASX 200 (-0.7%) and Nikkei 225 (+0.2%) traded mixed as the former suffered from broad losses across its sectors including underperformance in tech and financials, while the Japanese benchmark was kept afloat by a predominantly weaker currency but with gains also limited by a surprise 4th consecutive contraction in Machinery Orders which represented the longest streak of declines in over a decade. Elsewhere, Hang Seng (+1.3%) outperformed and topped the 27k level with the index led by a surge in Chinese tech names, although sentiment in the mainland was less optimistic with Shanghai Comp. (-0.3%) subdued by the tariff-threat overhang and as participants await statements from China’s Central Economic Work Conference which is expected to finish today. Finally, 10yr JGBs tracked the post-FOMC gains in T-notes and with prices also underpinned following the abysmal Machine Orders data from Japan, despite slightly weaker demand at the enhanced liquidity auction for longer-dated JGBs.

Top Asian News

  • Hong Kong’s Dollar Jumps Into Strong Half of Its Trading Band
  • China to Unveil Plan to Make Macau Finance Hub, Reuters Says
  • Hong Kong Property Stocks Battered by Protests Look Cheap
  • Philippine Central Bank Holds Interest Rate as Growth Rebounds

European bourses trade choppy but tread water in modest positive territory [Eurostoxx 50 +0.3%) ahead of looming risk events (ECB, UK General Election) with FOMC now out of the way. UK’s FTSE 100 modestly outperforms (+0.5%) with banks, and homebuilders supported as election voting gets underway – with exit polls expected around 22:00GMT (Full preview available on the Newsquawk Research Suite). Sectors have shown somewhat of a recovery since the open and now trade mostly in the green vs. a mixed start – defensives retreat whilst cyclicals gain traction. In terms of individual movers, Tullow Oil (+11.8%) continues to pare back from its recent 70% slump with the aid of rising oil prices acting as tailwind. Elsewhere, Balfour Beatty (+4.2%) benefits from its latest trading update which sees FY profit from operations ahead of expectations. Similarly, a positive trading update sees Ocado (+2.5%) supported. Nestle (+0.5%) shares are underpinned by source reports that it is mulling the sale of its ice cream business, which could be valued at USD 4bln. On the flip side, Germany’s Metro (-1.7%) is subdued post-earnings, whilst AB InBev (-1.5%) hovers near the bottom of the Stoxx 600 after Australia competition watchdog ACCC expressed concern about Asahi Group’s proposed purchase of AB InBev’s Carlton & United Breweries unit.

Top European News

  • Nordea Hiring Freeze Includes Wealth Management Unit
  • Latvian Parliament Elects New Head for Scandal-Hit Central Bank
  • Chip Stocks Lead Tech Gains After Strength in Asian, U.S. Peers

In FX, the DXY is clinging to the 97.000 handle amidst broad-based Greenback depreciation in wake of the FOMC that contained enough dovish elements to keep the index depressed, including a muted view of inflation, flat 2020 dot plots and Fed Chair Powell raising the bar for any reversal of the mid-cycle insurance easing. On that note, US PPI data comes hot on the heels of the last 2019 policy meeting and yesterday’s mixed CPI metrics, while initial claims provide the first post-NFP snapshot of the labour market that may not be as tight as the Central Bank previously perceived.

  • CHF/EUR/TRY- All paring gains vs the Buck, with the Franc taking some heed of more NIRP and currency intervention backing from the SNB that is flagging no rate normalisation for the duration of the forecast horizon. Usd/Chf has nudged up to circa 0.9830 from 0.9810 and Eur/Chf is near the top of a 1.0924-48 range even though the Euro has drifted down against the Dollar within 1.1145-25 parameters ahead of the ECB. The single currency may be wary about key technical resistance just above 1.1150 in the form of the 200 DMA (1.1155) rather than any fundamental change in language or policy insight from new head Lagarde, while flow-wise decent option expiry interest between 1.1120-25 and 1.1090-1.1100 (1 bn and 2.2 bn respectively) could be exerting some downside pressure. Meanwhile, the TRY firmed in light of the latest CBTR decision which kept its cautious stance despite a deeper than forecast 200bps cut. Further, the Central Bank noted of signs that inflation is close to materialise close to lower bound of its October projects. USD/TRY breached 5.7800 to the downside to low of 5.7740 (vs. 5.7980 pre-announcement) before stabilising around 5.7800.
  • AUD/GBP/SEK/NOK – The Aussie continues to outperform across the board, as Aud/Usd squeezes higher and through a longer term downtrend to target 0.6900 and Aud/Nzd consolidates around 1.0450 given a more subdued Kiwi vs its US counterpart after losing altitude on the approach to 0.6500, while Sterling is meandering on GE day, with Cable pivoting 1.3200 and Eur/Gbp straddling 0.8430. Note, a hefty 1.1 bn option expiry at the 1.3200 strike may keep the Pound tethered awaiting the vote outcome. Elsewhere, another swing in sentiment for the Scandi Crowns after dismal Swedish jobs data vs a boost in Norwegian oil investment. Eur/Sek nudging 10.4500, Eur/Nok off near 10.1500 highs.

In commodities, a relatively slow session initially for commodities in the aftermath of the FOMC which saw crude future nurse some EIA-induced wounds. WTI and Brent futures saw a very modest pop higher shortly after the release of the IEA Monthly Oil Market report – which aligned itself more with the OPEC report as they both kept global demand growth forecasts unchanged for 2019 and 2020 whilst EIA saw a modest revision higher of 50k BPD to its 2020 forecast. The report also noted that global oil demand rose by 900k BPD in Q3 2019 – highest annual growth in year. WTI and Brent futures meander around session highs above 59/bbl and 64/bbl respectively as the complex eyes awaits its next catalyst(s) and have seen some upside on the recent geopolitical rhetoric out of China. Elsewhere, spot gold is flatlining around USD 1475/oz ahead of its FOMC high of USD 1478.90/oz and on stand-by for upcoming events. Copper meanwhile touched resistance just under USD 2.8/lb amid a strengthening USD and some consolidation following six sessions of consecutive gains. Finally, nickel prices hit their highest in almost two weeks – with touted FOMO the main driver.

US Event Calendar

  • 8:30am: 8:30am: PPI Final Demand YoY, est. 1.3%, prior 1.1%; Final Demand MoM, est. 0.2%, prior 0.4%;
  • 8:30am: PPI Ex Food and Energy YoY, est. 1.7%, prior 1.6%; Ex Food and Energy MoM, est. 0.2%, prior 0.3%;
  • 8:30am: Initial Jobless Claims, est. 214,000, prior 203,000; Continuing Claims, est. 1.68m, prior 1.69m
  • 9:45am: Bloomberg Consumer Comfort, prior 61.7
  • 12pm: Household Change in Net Worth, prior $1.83t

DB’s Jim Reid concludes the overnight wrap

Plenty of stuff to get through today. The General Election here in the UK, a wrap-up of the Fed last night and a preview of the ECB meeting.

As for the UK election today, I’ll be voting on the dot at 7am as soon as the polls open to ensure my side goes 1-nil up with only around 35 million more to come in as I try to defend my team’s lead. The first point of call will be the exit polls expected out at 10pm GMT. The results will then filter in over the next few hours after that so we should have a good idea of how things stand in the early hours of tomorrow morning. A reminder that Tuesday night saw the YouGov MRP forecast a much smaller 28 seat majority for the Conservatives versus 68 seats in the previous iteration. While much was made of this, to be fair that better reflects the BritainElects moving average of polls reducing to just below 10pts for a Tory lead versus closer to 12pts the first time the survey was run. The handful of polls over the last 24 hours have generally agreed with this although a SavantaComRes poll last night did show a 5% lead only – the narrowest of this election campaign. This morning Sterling is hovering around $1.322.

Turning to the Fed last night, the main headline was that the FOMC unanimously voted to leave rates unchanged, in line with the market’s expectations following a run of 3 successive 25bp cuts. Indeed, this was actually the first unanimous decision since May. Looking at the statement, the language on the economy was unchanged, with the Fed continuing to say that “the labor market remains strong and that economic activity has been rising at a moderate rate.” In a slightly hawkish lean however, they also removed their comment from the previous meeting’s statement that “uncertainties about this outlook remain.”

Examining the dot plot, the median dot for next year saw policy remaining unchanged, with just 4 members wanting a 25bp increase, while the median dot for 2021 saw a 25bp hike. That said, there was some variation around this, with 5 members seeing no change in policy, 4 with a 25bp increase, 5 with a 50bp increase, and 3 with a 75bp increase from present levels. But notably, not a single FOMC member opted for a cut, signalling that the Fed has finished its period of insurance cuts. In his press conference however, Chair Powell pushed back against any inferences that this meant the Fed now had a tightening bias, saying that “a significant move-up in inflation” was needed in order to support rate hikes.

Our US economists published their full summary of the meeting here. In their view, the most-important conclusion from it was Chair Powell’s strong signal of a low-for-longer outlook for the policy rate with rate hikes very unlikely for the foreseeable future. In contrast to the signal from a year ago when normalization was the driving force for the policy outlook, Powell stressed below-target inflation creates challenges, slack remained in the labor market despite a fifty-year low in unemployment, and a “persistent” and “significant” rise in inflation was needed to justify higher policy rates. These signals reinforce our team’s view the Committee is cognizant of the benefits of a hot labor market and is therefore likely to adopt an inflation makeup strategy as a result of the policy review. As Powell made clear, this change will require a credible commitment to be successful.

Markets were buoyed following the decision and press conference, with the S&P 500 advancing +0.29%, while the DOW and NASDAQ finished +0.11% and +0.44%. The trade-sensitive Philadelphia semiconductor index had its best session in over two weeks, closing up +2.23%. Sovereign debt also rallied a couple of bps following the decision, with 10y treasuries ending the session -5bps at 1.791%, with the 2s10s curve flattening -1.6bps. The dollar didn’t perform so well however, down -0.33% against the euro with the move lower largely post-FOMC. Elsewhere Gold performed strongly to end +0.72%,

This morning in Asia, with the exception of the Shanghai Comp which is down -0.12%, that post FOMC momentum has continued for the most part with the Kospi (+1.35%) and Hang Seng (+1.18%) leading the way followed by the Nikkei (+0.24%). Futures on the S&P 500 are also up slightly.

Moving on. With the Fed out of the way it’s the turn of the ECB today and while we’re not expecting any big announcements, given that its Lagarde’s first as the new ECB President, expect there to be plenty of focus. In their preview note our economists highlighted that staff forecasts for GDP growth, headline inflation and core inflation are likely to be stable for the first time since the exit from the APP was announced in mid-2018. The Council will likely remain cautious and view the balance of risks as still tilted to the downside. The accommodative policy stance will remain appropriate. However, Lagarde is likely to oversee one immediate change. That is, they expect the willingness to use “all instruments” to be conditioned on an assessment of the possible side effects of policy. All eyes on that this afternoon then. On a related topic our European economists put a piece out yesterday suggesting why the ECB pain trade cannot persist with regards to monetary policy and bank performance (link). Eventually they expect financial profitability will influence policy. Lagarde’s sensitivity to “side effects” is the signal and the coming ECB strategic review is the opportunity. Absent other changes (e.g. strong fee generation), the reversal of negative policy rates to counteract the side effects cannot be ruled out over time.

Back to yesterday, where the data highlight was the November CPI report in the US. The headline reading of +0.3% mom was a tenth ahead of expectations however the core reading of +0.2% mom (+0.23% unrounded) was in-line which left the year-over-year rate at +2.3% yoy. Later on the November monthly budget statement saw the deficit widen to $208.8bn (vs. $206.2bn expected).

There was no substantive data out in Europe yesterday, with newsflow also fairly light. The EU outlined its plan to become climate-neutral by 2050 while French President Macron finished his awaited clarification on pension reform proposals in which he signalled the dropping of aiming to pursue spending cuts in the short run. For completeness European stocks were a touch firmer yesterday with the STOXX 600 closing +0.22%. European bond markets were also slightly stronger with bunds -2.6bps

To the day ahead now where datawise this morning we get final November CPI readings in Germany and France and October industrial production for the Euro Area. The ECB and SNB meetings follow, before we get November PPI in the US and the latest initial jobless claims data. Expect plenty of focus on the election in the UK too, especially with the exit polls this evening. Finally, EU leaders are due to gather in Brussels to discuss the EU budget and climate neutrality.


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