Market Overview

All Eyes On The G20: 5 Things The Global Markets Are Talking About Today

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Fed Chairman Jerome Powell managed to give equities back some of their bid after fine tuning his now-less hawkish take on the proximity of the Funds rate to neutrality to "just below" from "a long way from."

There were other dovish hints, reiterating that policy was "not on a pre-set course" and the Fed plans to "pay close attention to the data." Powell also downplayed risks in stock valuations, which he didn't see as excessive.

In Europe, chances of a no-deal Brexit are slim, but uncertainty looms for the pound as the parliament looks unlikely to approve Prime Minister Theresa May's deal — a vote is set for December 11. Expect the pound to remain vulnerable to any comments or developments that could emerge in the run-up.

On the commodity front, oil prices continue to remain on the soft side, pressured by a further build in U.S. inventories. Fearing a glut, OPEC is considering supply cuts when it next meets on December 6, although some members like Iran are expected to resist any voluntary reductions. Even the Saudis are caught between Trump and needing high oil prices. But, on a positive note, Russia is signaling that a production cut is likely, and a potential boost for crude prices.

The two-day G20 meeting began on Friday and will conclude on Saturday. The main sideshow will be Trumps tete-a-tete with Chinese President Xi Jinping. Many are expecting an easing of tensions, rather than any express agreement that involves major concessions from either side on trade.

With all this in mind, here are five things the global markets were talking about on Friday.

1. Foreign Equities Pare Gains

In Japan, the Nikkei edged up to a 3-week high overnight supported by defensive stocks and energy stocks, but gains were limited as investors brace themselves for the weekend meeting between Trump and Xi. The Nikkei share average rallied 0.4 percent, while the broader Topix added 0.5 percent.

In Australia, shares were down on weak banks and on market nerves before the G20. The S&P/ASX 200 index closed 1.6 percent lower after rising 0.6 percent on Thursday. The index posted its third consecutive monthly loss, losing 2.8 percent in November.

In South Korea, the Kospi stock index closed lower on Friday, down 0.82 percent, weighed by chipmakers and on weaker data out of China. The benchmark index rallied 1.9 percent on the week.

In China, stocks rallied in thin trading volume amid caution ahead of the Trump-Xi meeting on the sidelines of the G20 summit in Argentina. The Shanghai Composite index was up 0.8 percent. The blue-chip CSI300 index was up 1.1 percent, climbing 0.9 percent for the week.

In Hong Kong, shares ended higher overnight as energy stocks, driven by news that oil-producing nations are set to trim supplies, helped lift the market. At the close, the Hang Seng index closed 0.2 percent higher.

Note: Growth in China's manufacturing sector stalled for the first time in 24-months in November as new orders shrank. The official Purchasing Managers' Index (PMI), released overnight, fell to 50, missing market expectations and down from 50.2 in October.

2. Oil Steady As Expected OPEC Cuts Balance High Unventory

Oil prices are little changed on market expectations that OPEC and Russia would agree some form of production cut at next week OPEC meeting.

Brent was up 25c at $59.76 a barrel, while U.S light crude (WTI) was unchanged at $51.45. Both contracts are up about 1 percent this week, the first weekly gain in two months.

Surging oil production in the U.S., Russia and OPEC members has helped fill global inventories and create a glut in some markets.

Next week's OPEC meeting will be pivotal for global oil prices over the next 12 months. OPEC and Russia are discussing supply cuts and are due to meet on December 6-7 to agree production strategy.

3. Yields Move A Tad Lower

Major eurozone government borrowing costs have dipped to their lowest level in three-months this week, on Fed Chair Powell's comments that many investors saw as a sign the U.S. Fed's tightening cycle was drawing to a close.

Data showing slightly slowing inflation in Germany and a fall in U.S. Treasury yields this week has fuelled a rally in core eurozone sovereign bonds, as investors bet the ECB could be forced to keep rates at record lows for longer.

In Germany, the 10-year Bund yield ticked down 1 bps to 0.31 percent, the lowest yield in more than 14 weeks. In the U.K., the 10-year Gilt yield declined 2 bps to 1.345 percent, the lowest in more than three months, while the yield on 10-year Treasuries decreased 1 bps to 3.02 percent, the lowest in more than 10 weeks.

Elsewhere, the Bank of Korea raised its policy interest rate overnight (25 bps to 1.75 percent) for the first time in a year in a widely expected move aimed at containing a boom in the country's property market. The rate decision was not unanimous, with two board members voting to keep rates unchanged.

4. Dollar Confined To A Tight Range On Month-End

The forex market is maintaining tight ranges into the end of November, and is awaiting developments out of the weekends G20 meeting being held in Argentina. There appeares to be high hopes on the "dinner of the decade" between Trump and Xi.

Eurozone inflation figures risk undermining ECB President Mario Draghi's rhetoric about "vigorous upward core inflationary pressures." The EUR/USD is still finding it difficult to penetrate strong resistance above the psychological €1.14 level.

Sterling was little changed, but the upcoming vote in Parliament on the Brexit deal negotiated between the U.K. and the EU will mean trading in the pound will be choppy over coming days.

This week's FOMC minutes confirmed the Fed's data-dependency, but for now, the dollar is holding its own ground against G7currency pairs.

5. Eurozone Core Inflation Continues To Disappoint

The EUR edged a tad lower after eurozone-inflation data falls in November. The November consumer price index (CPI) fell to 2 percent year-over-year from 2.2 percent in October.

Market expectations were pointing towards 2 percent. Core-CPI also fell to 1 percent from 1.1 percent.

Eurozone inflation is key for ECB's monetary policy decisions. The market will be concerned that weak eurozone inflation will pressure the central bank to postpone the first interest-rate increase. For now, the ECB is guiding on a rate rise after the summer of 2019.

Related Links:

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November Markets: Stocks Plunge On Oil, China-U.S. Tensions, Then Rebound

The preceding article is from one of our external contributors. It does not represent the opinion of Benzinga and has not been edited.

Posted-In: contributor contributorsBonds Eurozone Commodities Forex Markets

 

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