Market Overview

Dollar Playing Second Fiddle To Brexit: 5 Things The Global Markets Are Talking About Today


Global equities extended Monday's gains as the broad risk-on attitude across markets continues.

Treasuries prices were under pressure and the dollar edged a tad lower, while sterling climbed ahead of this afternoon's crucial Brexit vote.

Markets are pricing in that the vote on Prime Minister Theresa May's Brexit withdrawal deal will either pass or fail by a small enough margin to keep the deal alive.

At a joint press conference Monday evening, May and EU Commission President Jean-Claude announced a revised Brexit deal.

Currently, the oddsmakers are placing the chances of the "new" deal passing a Parliament vote at 30 percent.

A slew of data from China this week (retail sales, investment, credit and industrial production) is expected to give the market a fresh insight on the impact of monetary stimulus.

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

1. Stocks Get The Green Light

Global stocks continue to climb following reassuring comments on the weekend from Federal Reserve Chairman Jerome Powell and signs that the U.S. and China are nearing a trade deal.

In Japan, the Nikkei share average surged to a 6-day high overnight, as a combination of a tech-led rally stateside combined with a weaker yen led to broad-based buying. The Nikkei ended the day up 1.79 percent, its highest close since March 6.

Australian shares reversed course and edged lower overnight, as gains in mining and energy stocks were offset by losses in financials after the sector came under further political scrutiny. The S&P/ASX 200 index ticked down 0.1 percent. The benchmark declined 0.4 percent on Monday.

In Korea, the Kospi index rallied 0.89 percent after the European Commission agreed to changes in a Brexit deal. It's the biggest daily gain since February 20

In China and Hong Kong, equities edged higher as China and the U.S. appeared to edge closer to a trade deal, but worries about domestic economic headwinds have capped gains. At the close, the Shanghai Composite index was up 1.1 percent, while the blue-chip CSI300 index was up 0.7 percent. In Hong Kong, the Hang Seng index was up 1.5 percent, while the Hang Seng China Enterprises index rose 1.7 percent.

In Europe, regional bourses traded mostly flat across the board. The FTSE 100 was underperforming on continued strength in the pound.

2. Oil Rises As Saudi Arabia Deepens OPEC Supply Cuts

Oil prices remain better bid, as Saudi Arabia appeared to deepen OPEC's supply cuts aimed at tightening markets, although gains were being capped by the ongoing surge in U.S. supply and worries over the global economy.

Brent crude futures were at $66.82 per barrel, up 0.4 percent, while U.S. West Texas Intermediate (WTI) crude oil futures were at $57.08 per barrel, up 0.5 percent, from Monday's close.

Oil prices have been receiving broad support in 2019 from supply cuts by OPEC aimed at tightening markets. On Monday, Saudi Arabia announced further plans to cut its crude oil exports in April to below 7M bpd, while keeping its output "well below" 10M bpd. That compares to production of around 10.14M bpd last month.

Also supporting prices is the political and economic crisis in OPEC-member Venezuela. The lack of electricity is making it very difficult to pump and produce crude.

Despite the gains, markets were being held back by revisions to global growth by OECD and G7 central banks.

Note: OPEC meets in Vienna on April 17-18, with another gathering scheduled for June 25-26, to discuss supply policy.

Crude prices are also being supported by Baker Hughes' latest weekly report showing the number of U.S rigs drilling for new oil production stateside fell by nine to 834.

This is the third consecutive week of declines as oil producers trim their 2019 spending budgets. Nevertheless, because the overall drilling level remains relatively high, the market still expects U.S crude output to rise above 13M bpd sooner than later.

3. Brexit Deal Hopes Push German Bund Yields Away From Lows

Yields on Tier 1 eurozone government bonds have backed up on hopes that Prime Minister Theresa May could be close to securing approval for her Brexit deal dented demand for safe-haven assets.

Germany's benchmark 10-year Bund yield rallied 2.5 bps to 0.09 percent — moving away from the 2-year lows hit last week in the wake of a dovish European Central Bank.

It's a similar story across the region with other highly rated sovereign yields also backing up 1-2 bps.

The yield on 10-year Treasuries has advanced 2 bps to 2.66 percent, the biggest rise in more than a week, while in the U.K., the 10-year Gilt yield increased 6 bps to 1.235 percent, the biggest increase in almost two weeks.

4. Dollar Playing Second Fiddle To Brexit

Sterling found support as markets priced in today's vote on the U.K.'s draft Brexit withdrawal deal. Expectations are that it will either pass or fail by a small enough margin to keep the deal alive. If the revised Brexit deal doesn't pass through Parliament, sterling is expected to fall, but the move would likely be capped, because the possibility of Article 50 being extended still leaves open the options of a softer Brexit.

EUR/USD was being pushed up by the rising pound. However, the single currency is not expected to rise significantly further because German industrial production data, due tomorrow, is expected to stay weak.

5. U.K. Economy Rebounded In January

Data out of the U.K. Tuesday morning showed that their economy rebounded in January after a weak December, keeping growth on an even path despite the ongoing political drama surrounding Brexit.

The ONS said the economy grew at an annualized rate of 1.1 percent in the three months through January, up from a revised 0.9 percent in the three months through December. Growth in January alone was 0.5 percent, reversing a 0.4 percent contraction in December.

Digging deeper, the expansion was driven by healthy growth in the services sector, especially wholesale and retail trade, which offset a poor three months for industrial production and construction.

Note: Uncertainty over the country's future ties weighed on investment last year, causing the economy to turn in its weakest annual performance in seven-years.

Related Links:

Late Night Brexit Deal Sees No Change To Irish Backstop

Brexit Time Again: As Parliament Votes, U.S. Stocks Have Mixed Tone With Boeing Down

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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