Market Overview

Truce: 5 Things The Global Markets Are Talking About Today


Global equities rallied overnight alongside U.S. Treasury yields while the dollar trades under pressure after the U.S. and China declared a temporary trade war truce.

No progress was made on key differences regarding intellectual property and forced technology transfers. The U.S. was promised to see China buying more goods to narrow the trade gap, while China received reprieve on increased tariffs for the time being.

Crude oil has rallied on optimism OPEC+ will address a glut in global supply later this week. The euro has found some support on news that the Italian government may accept a lower deficit target.

This week there are three central bank meetings; the Reserve Bank of Australia (Decemeber 3), the Reserve Bank of India (December 5) and Bank of Canada (December 5) will hold policy meetings. Market consensus expects the respective policies to remain unchanged.

Elsewhere, there is also a slew of updated economic data including final manufacturing, services and composite PMI's for last month. Down-under, Australia will deliver Q3 GDP, while on Wednesday U.S. Fed Chairman Jermone Powell is expected to testify on before Congress's Joint Economic Committee.

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

1. Global Stock Markets Rally

The truce between the world's two largest economies at the G20 summit in Argentina on the weekend has gone some way in calming investor fears over the state of global growth.

In Japan, the Nikkei surged to a six-week high overnight after the U.S. and China suspended the imposition of new tariffs and agreed to try to reach a trade deal within three months. The index share average climbed 1.0 percent, the highest closing level since October 22. The broader Topix rallied 1.3 percent.

Australian stocks tracked global gains. The S&P/ASX 200 index pushed 1.8 percent higher, posting its best intraday gain in 15-months. The benchmark index had finished 1.6 percent lower on Friday. In South Korea, the Kospi closed 1.67 percent higher, supported by tech giant Samsung and other large caps.

In China, stocks, commodities and the yuan currency surged even as uncertainty remained about the deal. The benchmark Shanghai Composite index closed 2.6 percent higher and the blue-chip CSI300 index rallied 2.8 percent. Both posted their best daily gains since November 2.

2. Oil Surges Over 5%

Oil prices jumped by more than 5 percent after the trade truce was announced, and ahead of this week's OPEC+ meeting, where producers are expected to cut supply.

Brent crude rallied 5.3 percent to a high of $62.60, while U.S. light crude oil rose to $53.85, up 5.7 percent, before easing to around $53.00.

The trade war has weighed heavily on global trade and has generated concerns of an economic slowdown. Despite oil not been included in the list of products facing import tariffs, the market sees the positive sentiment of the truce.

Oil also received support from Canada, where Alberta indicated that it would force producers to cut output by 8.7 percent, or 325K bpd, to deal with a pipeline bottleneck that has led to crude building up in storage.

OPEC+ will meet  6on Demcember decide output policy. The group, along Russia, is expected to announce cuts aimed at reining in a production surplus.

Note: Qatar indicated this morning that they would leave OPEC in January — Qatar's oil production is only around 600K bpd, but it is the world's biggest exporter of liquefied natural gas.

3. Budget Compromise Hopes Push Italian Yields Lower

Italy's borrowing costs fell to their lowest level in two months earlier this morning after a number of reports that Italy is negotiating with the EU to reduce its 2019 target for the budget deficit to 2.0 percent of GDP.

Also, demand for riskier assets, like Italian BTP's, was supported by the weekend's trade news. That in turn dented safe-haven German debt, with 10-year yields pulling away from their three-month print last week.

Ten-year Italian bond yields fell 6 bps to a 2-month low at 3.15 percent. That narrowed the gap over benchmark German Bund yields to around 279 bps — its tightest in two months.

Elsewhere, Germany's 10-year Bund yield backed up 2 bps to 0.33 percent, the largest advance in a week. The yield on U.S.10-year notes rallied 5 bps to 3.04 percent, the biggest increase in a month. In The U.K, the 10-year Gilt yield climbed 2 bps to 1.381 perce t, the first advance in a week.

4. For Now, Dollar Under Pressure

The U.S dollar is under pressure following the breakthrough in trade talks between the world's two largest economies over the weekend as the market opts to take on more risk.

U.S dollar bears will remain wary of a sustained breakthrough in trade tensions that could encourage the Fed to deliver more monetary tightening next year.

Sterling briefly traded above £1.28 before fading down 0.37 percent to £1.2731. The balance of risks for the pound remains skewed to the downside in the near-term, as Brexit uncertainty is set to remain elevated.

Note: U.K Politicians have signed a letter arguing the government was in contempt of parliament for not publishing the AG Cox's legal advice pertaining to the Brexit agreement.

The euro traded over 0.2 percent higher as overall risk-on dominates for now, as well as Italian Budget deficit target compromise is helping to lift the pair. The Japanese yen nidged up 0.1 percent to ¥113.45, the strongest in more than a week.

5. U.K Man-PMI Leaves Brexit Driven Pound Under Pressure

The pound stayed atop of its intraday lows despite the U.K. manufacturing purchasing managers' survey for November rising to a 2-month high of 53.1 from October's 27-month low of 51.1.

Brexit worries continue to weigh on the currency and with that, economic data takes a backseat in terms of importance.

Presently, the fate of the pound now rests on the U.K. vote on Brexit next week rather than on fundamentals.

IHS Markit stated, "the performance of the sector remained comparatively lacklustre, with the latest PMI reading still among the weakest registered over the past two-and-a-half years."

Elsewhere, European PMI's were mixed, France, Spain, Germany among those which beat forecasts, while Italy misses, reaching an almost four-year low.

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

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