The U.S dollar remains better bid on pull backs, as investors pile into the currency amid worries over global trade, Brexit and big swings in U.S. stocks.
Data from the CFTC shows that the net bullish bets on the dollar in futures markets grew for the third consecutive week in the period to yesterday. Bullish bets totaled $32.6 billion, compared to $30.9 billiom in the previous week.
Sterling has edged a tad higher after Monday's 20-month low slump and gilt yields have backed up as Prime Minster Theresa May delays a critical vote on Brexit. Her plan is to reportedly gain a guarantee from the EU that there will be an end-date to the backstop on the Irish border.
With all this in mind, here are five things the global markets were talking about on Tuesday.
1. Stocks Show Mixed Results
In Japan, the Nikkei closed atop of its nine-month lows overnight as worries about global growth pressured financial and cyclical stocks, while uncertainty over a U.S.-Japan trade deal hit automakers. The Nikkei share average ended 0.3 percnet lower, while the broader Topix fell 0.9 percent, the lowest closing level since May Australian shares edged higher overnight as China confirmed it was moving ahead on trade talks with the U.S. The S&P/ASX 200 index rose 0.4 percent, after Beijing said a road map was discussed with U.S officials for the next stage of trade talks. The benchmark fell 2.3 percent on Monday. In South Korea, the Kospi index ended nearly flat as sharp gains in Samsung offset losses caused by external uncertainties.
In China, stocks ended higher overnight in thin trading as Beijing confirmed that it is still in trade talks with the U.S. and as investors looked to market support from government policies aimed at countering slowing growth. At the close, the Shanghai Composite Index was 0.4 percent higher, while the blue-chip CSI300 index rose 0.5 percent.
In Hong Kong, stocks clawed back early losses to end higher on trade talk confirmation, but anxiety over trade, Brexit and the arrest of a senior Huawei executive capped gains.
2. Oil prices Under Pressure Amid Global Market Unease
Oil prices are under pressure overnight amid worries over global equity markets and doubts that planned OPEC+ output cuts will be enough to combat oversupply.
But crude prices have received some support after Libya's National Oil Company (NOC) declared force majeure on exports from the El Sharara oilfield, the country's biggest, which was seized last weekend by a militia group.
Note: NOC said the shutdown would result in a production loss of 315K barrels bpd, and an additional loss of 73K bpd at the El Feel oilfield.
The OPEC-led group of oil producers last Friday announced a supply cut of 1.2M bpd in crude oil supply from January, measured against October 2018 output levels.
There are market doubts that all producers will follow through with their announced cuts.
Earlier today, Russia announced plans to cut its oil output by 50-60K bpd in January, much less than its target under a global production deal reached last week.
3. French Borrowing Costs Surge On New Wage Hikes, Tax Cuts
France's 10-year borrowing costs climbed to their highest level compared with Germany in 18-months earlier this morning, as French President Macron announced spending measures in a bid to restore calm after weeks of violent protests.
Macron announced wage rises for the poorest workers and tax cuts for pensioners late on Monday, measures that are expected to increase public spending by €8B to €10B.
France's 10-year bond yield has backed up 5 bps. The spread over equivalent German bonds has hit 47.5 bps, its widest level since May 2017.
4. Pound Under Pressure
The USD is a tad softer against G7 currency pairs as some risk appetite tried to find some standing room. There is continued dialogue between U.S and China on the trade front despite the recent arrest of a Chinese tech executive cited as a factor.
Sterling fell to a 20-month low on Monday after PM Theresa May delayed a parliamentary vote on her government's Brexit bill, throwing plans for the U.K.'s exit from the EU into disarray. May won't set a date for a new Parliament vote, saying only it would occur before January 21, the latest possible date.
EUR/USD remains within its recent ranges, but higher in today's session. Market focus remains on Thursday ECB meeting where a formal end of QE bond buying is expected to be announced.
5. German Economic Expectations Rose In December
According to the ZEW economic research institute, German economic expectations rose in December, but they remained below the long-term average historical average of 22.5 points.
The measure of economic expectations rose to -17.5 points from -24.1 points in November. The 6.6-point increase from the previous month beat economists' forecast for a minus -24.0 point reading.
The assessment of the economic situation has worsened dramatically for both Germany and the Eurozone and this is indicative of relatively weak economic growth in Q4.
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