OPEC’s Poker Game Trump Dollar Moves

Tuesday November 29: Five things the markets are talking about

Has the impact of President-elect Trump’s surprise victory on the dollar and commodities peaked or do investors just want to get this event risk week out of the way before again imposing the “reflation” trade again?

Capital Markets appear to be in the holding pattern going into the three major risk events this week, namely the OPEC meeting tomorrow, non-farm payrolls (NFP) on Friday, and the Italian referendum this Sunday.

Forex seems content to trade in a narrow range with some industrial metals off their highs on profit taking.

U.S treasuries have started off this week on strong footing, as investors take advantage of higher yields and dealers fill their end-of-month purchase orders – after selling off for three-consecutive weeks, rallying bond prices are flattening the curve.

The market will focus on today’s U.S. second estimate of GDP (8:30 EST), U.S consumer confidence index (10:00 EST), Fed’s Fischer, Dudley (9:15 EST) and Powell (12:40 EST) speeches.

1. Global indices mixed

Global equities have slipped as investors weigh Trump’s stimulus plans against threats to the market from Italian PM Renzi’s Sunday referendum.

In Asia, the MSCI Asia Pacific Index lost -0.1%. Elsewhere, Japan’s Topix Index, Australia’s ASX 200 and New Zealand’s NZX 50 Index were all little changed.

The biggest EM gainers were Jakarta’s Composite Index at +0.9% and India’s Sensex at +0.8%, while China’s Hang Seng index and Shanghai’s benchmark swung between gains and losses.

In Europe, bourses are trading generally higher despite the FTSE 100 underperforming. Energy, commodity and mining stocks are weighing the index down as Brent and WTI trade sharply lower in the session ahead of the OPEC meeting. Banking stocks are contributing to gains seen across Europe, despite Italian financials being under pressure.

U.S futures are set to open +0.2% higher.

Indices: Stoxx50 +0.7% at 3,037, FTSE -0.5% at 6,768, DAX +0.3% at 10,611, CAC-40 +0.8% at 4,548, IBEX-35 +0.6% at 8,670, FTSE MIB +0.9% at 16,378, SMI +0.1% at 7,827, S&P 500 Futures +0.2%

2. No Oil deal yet

The market is none the wiser on whether OPEC will agree to “lasting” output cuts.

Oil prices continue to track lower in the wake of late reports yesterday indicating that OPEC experts did not reach an output deal at their working meeting in Russia before tomorrow’s formal summit meet in Vienna.

Reports in Asia suggest the Saudi’s have offered Iran a freeze at +3.7MBD, below the +3.97MBD requested by Tehran as it recovers from western sanctions.

Ahead of the U.S open, Brent futures are trading down -32c at + $47.92, U.S light crude is off -29c at +$46.75 a barrel – dealers fear a major selloff through the psychological +$40 handle is warranted if OPEC fails to reach a deal after so many negotiations.

Speculating on future infrastructure projects in China and the U.S has been supporting industrial metals this month. Copper has eased -2% overnight, but is still on track for its largest monthly gain in a decade. Iron ore futures are trading near their two-years highs, while zinc trades atop its nine‑year peak.

Spot gold is trading down -0.2% following yesterday’s +0.9% on a weaker dollar.

3. Sovereign yield curves flatten

The drop in crude prices is hitting U.S. inflation expectations and pulling down Treasury yields.

U.S 10-year prices have rallied overnight for a second consecutive session, pushing yields down -1bps to +2.315% and off its 16-month high print of +2.417% touched last Thursday.

Elsewhere, yields on Aussie 10-year notes lost -1bps to +2.69%, while yields on similar maturity in Japan, New Zealand and Hong Kong were little changed.

Yesterday, German 10-year Bund yield fell to +0.2%, its lowest level since the U.S. election results on Nov. 9 sparked a bond market selloff, while two-year German yields hit a new record low at -0.76%. U.K. gilt yields slid -4bps overnight.

4. Japan’s domestic data improves, dollar range bound

Overnight, the economic data calendar focused on Japan, where the domestic component of the economic picture seems to have brightened.

• Japan’s Oct retail sales m/m +2.5% (two-year high) vs. +1.1% e; Retail trade y/y was -0.1% (smallest decline in eight-months) vs. -1.6% e.
• Japan’s Oct overall household spending was -0.4% vs. -1.0% e (eight consecutive decline and smallest decline in six-months).
• Japan’s Oct Jobless rate was +3.0% vs. +3.0% e; Job to applicant was 1.40 vs. 1.39 e a multi-year high.

The dollar index (DXY +101.30) is trading relatively flat after its recent strong gains. Ahead of the open stateside, the EUR/USD has dipped -0.1% to €1.0606, USD/JPY is up +0.5% at ¥112.42 and GBP/USD is down -0.1% at £1.2409.

Expect Europe’s single unit to remain the markets focus of attention this week as Sunday’s Italian constitutional referendum is seen keeping the EUR under pressure.

Expect this Friday’s NFP details and Sunday’s Italian referendum results will go along way in cementing market expectations of a December U.S. interest rate rise (FOMC Dec 14).

5. Korea’s Park move seen as a delaying tactic

South Korean President Park Geun-hye’s earlier departure from office was always going to be inevitable, amid prosecutor allegations that she helped a long time friend to extort money from corporations.

However, her move to ask the country’s legislature to vote on whether she leaves office is little more than a delaying tactic to pre-empt or stall an impeachment vote.

The market seems to have already priced in the fact that she will be required to step aside – the impact on the Korean Kospi and KWN is minimal.

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