Five things the markets are talking about
Volatility across regional indices and major currency pairs remains seasonably compressed despite the geopolitical nerves in Europe.
Sovereign debt saw a relatively strong bid over the last session on heightened geopolitical risk a Russian ambassador was shot and killed by an off-duty policeman in Turkey in defiance of Russia’s involvement in the Syria conflict. In Germany, a suspect terror attack, reminiscent of the Nice France truck attack (July, 2016), has left at least a dozen dead, while in Switzerland a lone gunman was shot and killed after an attack on a Mosque in Zurich.
The yen, one of the go-to currencies of choice during risk aversion, has fallen outright overnight (¥118.01) ahead of the U.S open after the BoJ, last of the Tier I central banks, held policy steady, shedding some gains made following the European attacks.
1. Global bourses edge higher despite political risks
A positive outlook on the economies of the U.S., Germany and Japan has helped global indices to look beyond Europe’s geopolitical risks.
With Fed Chair Yellen’s speech Monday rather bullish – the U.S to grow strongly – has led to a return of the risk-on trade in the market overnight despite the terror attacks over the past 24-hours.
In Japan, the Nikkei Stock Average closed up +0.5%. The Aussies ASX 200 closed out +0.5%, while Korea’s Kospi added +0.2%. The outlier was Hong Kong’s Hang Seng Index losing -0.6%.
In Europe, equity indices are trading higher, consolidating around last weeks rally highs ahead of the U.S open. Financial stocks are leading the gains, while energy, commodity and mining stocks are trading generally lower.
U.S futures are set to open in the black.
Indices: Stoxx50 +0.3% at 3,265, FTSE -0.1% at 7,009, DAX flat at 11,423, CAC-40 +0.3% at 4,836, IBEX-35 +0.4% at 9,373, FTSE MIB +0.7% at 19,093, SMI +0.3% at 8,261, S&P 500 Futures +0.1%
2. Crude prices under pressure on position paring
Oil prices have eased as investors and dealers unwind positions in the run-up to the holiday season.
Brent futures fell -0.2% to trade at +$54.81, while U.S. light crude (WTI) slid -0.4% to +$51.91 per barrel.
With no fundamentals available to drive large price swings, both investors and dealers should expect the remainder of this week to be rather tepid.
The future direction of oil prices depends on OPEC’s and non-member compliance to last month’s agreement to a cut in global production. Producers are expected to adhere to a cut of almost +1.8m bpd in oil output from January 1.
Safe haven gold, which rallied +0.4% yesterday, has pulled back -0.3% overnight to +$1,135.06 an ounce, as the prospect of further U.S. rate hikes outweigh political concerns.