While global shares pulled back in early trading from record highs on Wednesday, U.S. equity index futures are staging another comeback and point to a higher open on Wednesday following a volatile day of trading Tuesday which saw the S&P 500 have its worst reversal in two years. Whether yesterday sharp drop in the S&P was due to fears of a government shutdown, which now appears less likely as another short-term spending bill appears imminent, or due to fears over what Steve Bannon may tell Mueller, it is now largely forgotten, and the S&P was up by 9 points, rising 0.3% from the Tuesday close and retracing much of the day’s selloff, once again approaching 2,800 in the cash index.
Having retreated at the start of European trading, following declines in a number of Asian markets, Europe’s Stoxx 600 index erased its earlier drop and traded little changed, as U.S. futures pointed to stronger open – Dow Jones futures up 0.5% and the 26,000 is once again in sight, with European insurance and tech sectors leading the rebound, while media, banking and telecom sectors retreat. Also out of Europe, we got some final CPI prints:
Asian equities stepped back from a record high as the region’s resource shares were knocked by falling oil and commodity prices, however, Chinese shares bucked the trend, climbing to a fresh record in Hong Kong.Australia’s ASX 200 (-0.5%) and Japan’s Nikkei 225 (-0.3%) were negative as losses in miners continued to weigh on Australia, while risk appetite in Japan remained sapped by the recent JPY strength. Elsewhere, Hang Seng (-0.4%) pulled back from yesterday’s record close and the Shanghai Comp. (+0.6%) bucked the trend after another firm liquidity effort by the PBoC, although a slump in Shenzhen stocks provided some mainland jitters as the ChiNext board for small cap and tech firms fell to its lowest since July after blockchain-related stocks tumbled in the wake of the crypto-chaos.
Finally, 10yr JGBs were subdued as prices failed to benefit from a broad risk-averse tone, while today’s Rinban announcement was also uneventful in which the BoJ maintained its purchase amounts in the belly to short-end.
The dollar DXY index rebounded from close to a three-year low, bounding away from 90.00 level for third successive day while Treasury yields rose as investors braced for Congressional talks to avert a government shutdown Friday. The loonie weakened a second day before a BOC rate decision due later Wednesday, while EM currencies traded in the red.
The euro slipped from a fresh cycle high, yet held comfortably above $1.22 even as ECB officials urged caution over the common currency’s strength. Overnight, a chorus of ECB speakers warned on the euro’s growing strength, with Constancio and Nowotny added to Villeroy’s comments yesterday, totaling three ECB speakers warning on EUR moves. Specifically, Nowotny said Euro exchange rate must be observed, while Constancio said he is worried EUR moves don’t reflect fundamentals; says changes to ECB’s forward guidance won’t be immediate.
Overall dollar weakness and growing optimism about the outlook of the European economy in 2018 has lent fresh legs to the euro’s rally after it gained more than 10 percent last year.
But the speed of the rise in the opening days of 2018 — up more than 3 percent in the last two weeks — has invited some comments from ECB officials this week, highlighting some growing concerns, according to analysts.
“The ECB is playing the good cop and the bad cop in terms of their comments over the euro but there is no doubt the currency’s rally has sowed the seeds of uncertainty in the ids of ECB policymakers,” said Viraj Patel, an FX strategist at ING in London.
The Canadian dollar traded at C$1.2452 per dollar off its three-month high of C$1.2355 hit on Jan 5. The Bank of Canada is seen as likely to raise its benchmark interest rate by 25 basis points to 1.25 percent later in the day, with analysts expecting three hikes this year.
Bitcoin extended its sharp tumble of the past 24 hours, skidding more than seven percent on Wednesday as investors were spooked by fears regulators might clamp down on the digital currency. The price of the world’s biggest and best known cryptocurrency fell to as low as $10,567 on the Luxembourg-based Bitstamp exchange.
In US Treasuries, the belly and long end of UST curve resume flattening with UST futures close to overnight lows after a large Aussie bond syndication. The UST/Bund spread widened 2.5bps, while a large number of BTP futures blocks sees Italy underperform versus rest of Europe. Crude futures push lower after Brent fails to hold above $70/bbl again, metals steady and the Bitcoin selloff continues if so far supported by the key $10k level.
Earnings are expected from Bank of America, Goldman Sachs and Alcoa. Federal Reserve is set to release its Beige Book, and macro data includes industrial production and manufacturing production
