Relief Rally In Full Swing: 5 Things The Global Markets Are Talking About Today

Volatility in equities notched aggressively higher this week, now that sovereign bond yields are beginning to price out cheap money.

Stronger than expected U.S economic data and weak European underlying inflation in key countries is being blamed as the specific trigger for this week's bearish bout.

However, Chinese trade data released early Friday morning showed better-than-expected growth in Chinese exports has, at least temporarily, helped ease investor concerns about the damage to China's economy from U.S. tariffs and other trade friction.

China's trade surplus with the U.S. widened to a record $34.1 billion in September as exports to the American market rose by 13 percent annually, despite a worsening tariff war.

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

1. Stock Sell-Off Ends In Asia

Chinese stocks, among the biggest losers in a global market selloff this week, rallied overnight, as investors reassessed the impact of the trade war on the country's economy.

In Japan, the Nikkei ended higher on Friday as investors took heart from gains in Chinese equities on upbeat export data, which generated buying in manufacturers exposed to China. The Nikkei share average gained 0.5 percent. On Thursday, the index slid 3.9 percent and for the week the index was down 4.6 percent, its biggest weekly drop since March. The broader Topix traded flat.

Australia's ASX 200 lagged most of Asia-Pacific overnight as the heavily weighted energy and financial sectors held the index back. The index closed 0.2 percent higher, but fell 4.7 percent for the week. In South Korea, equities rebounded from one of its biggest drops in seven-years. The Kospi rallied 1.5 percent, its first gain this month.

In China, the main stock indexes bounced higher overnight after suffering massive losses this week, as investors went bargain hunting on the back of stronger Chinese exports data. At the close, the Shanghai Composite index was 0.9 percent higher, after nearly reaching 4-year lows on Thursday. The index was down 7.6 percent for the week, its worst weekly performance in eight months.

2. Oil Rebounds, But Pares Gains On Adequate Supply

Oil has rallied overnight, rebounding after two days of heavy declines, though prices pared gains after an IEA report deemed supply adequate and the outlook for demand weakening.

Brent crude has rallied 76c to $81.02 a barrel, having dropped by 3.4 percent on Thursday. U.S crude (WTI) has added 71c to reach $71.68. Note: Brent is still on course for a 3.7 percent decline this week, the biggest weekly fall in about four months.

Oil found support from data showing that China's daily crude imports last month hit their highest in four months and from a rebound in equities.

Gains were pared after a monthly report by the IEA that said the oil market looks "adequately supplied for now" following a big rise in production and trimmed forecasts for world oil demand growth this year and next. "This is due to a weaker economic outlook, trade concerns, higher oil prices and a revision to Chinese data," said the IEA.

3. Yields Back Up On Relief

Eurozone government bond markets have shown signs of relief as equity markets rebound. The 10-year Bund yield is trading 2.3 bps higher at 0.54 percent, pulling the yields of other core and semi-core issuers higher.

Eurozone periphery government bond yields trade lower, indicating a lower level of concern, at least for the day. Italy's 10-year BTP yield is trading 4.5 bps lower at 3.53 percent.

Elsewhere, the yield on 10-year Treasuries has backed up 3 bps to 3.18 percent, the biggest advance in a week. In the U.K, the 10-year Gilt yield has gained 2 bps to 1.694 percent. In Japan's 10-year JGB yield ticked up less than 1 bps to 0.15 percent.

4. Dollar Stable, Emerging Market Pairs Rally

The U.S. dollar initially tested multi-week lows as a weak Wall Street soured its recent bullish sentiment. Nevertheless, the greenback is off its worst levels as the equity sell-off has eased.

After jumping to an 11-day high of €1.1611 overnight, the dollar stabilized and EUR/USD was trading slightly higher. However, expect Italian fiscal risks and the direction of U.S. yields to continue to drive the EUR/USD.

Emerging market currencies are having another good day after weathering the global equity sell-off this week. The South African rand was up 1.1 percent and the Mexican peso gained 1.5 percent. The Turkish lira was trading 2 percent higher — 5 percent on the week —at $5.9451.

The People's Bank of China set the yuan at its weakest level since March 2017, a day after U.S. Treasury staff advised Secretary Steven Mnuchin that China was not manipulating its the exchange rate. The midpoint for the dollar was ¥6.9120.

GBP/USD is trading within striking distance of its 3-week highs on hope for a Brexit agreement at the upcoming EU leader summit next week. There is speculation that Prime Minister Theresa May is close to an agreement, but obstacles remain, as she requires the DUP Party ally and rebel Tory members support.

5. Eurozone Factory Output Rebounds

Data Friday morning showed that industrial production in the eurozone rebounded strongly in August, as surges in Italy and the Netherlands offset weakness in Germany to suggest economic growth across the currency bloc continues at a modest pace.

The EU's statistics agency said industrial production was 1 percent higher in August than in July, and up 0.9 percent on year. The market was looking for a monthly gain of just 0.2 percent. It was the first rise in production since May, following two straight months of decline.

The rebound will likely reassure the ECB that the economy is on course to grow more slowly this year than last, but still at a rate that will lead to new jobs being created, thereby pushing wages and inflation higher.

Note: The IMF trimmed its eurozone growth forecast for this year to 2 percent from 2.2 percent, noticeably downgrading its growth projection for Germany to 1.9 percent from 2.2 percent.

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