So far, much of the global equity rally has been supported by investor bets that U.S. economic growth will be strong enough to support corporate profits, but modest enough to keep the Fed from having to hike interest rates. The market will get their next look at how well that theory is holding up as earnings season kicks off in earnest later this week.
Overnight, some of the equity gains have been capped and are now drifting lower, along with U.S. equity futures, after President Trump threatened new tariffs on goods produced in Europe.
In commodities, crude oil trades atop of its recent five-month high as an escalation of fighting in OPEC+ producer Libya overshadowed an increase in U.S rigs.
On Brexit, the EU is said to be settling on the idea of offering an extension to Britain despite the lack of progress at home. If so, expect the EU to set a high price for delaying Brexit including the U.K. to potentially give up rights in future EU budget and trade talks.
With all this in mind, here are five things the global markets were talking about on Tuesday.
1. Global Bourses Post Mixed Results
In Japan, the Nikkei ended higher overnight as tech shares and machinery stocks outperformed. The Nikkei share average closed 0.2% higher, while the broader Topix shed 0.1%.
Down-under, Australian stocks were little changed overnight, with losses among financials erasing gains from energy stocks, as investors remained cautious ahead of a looming U.S earnings season. The S&P/ASX 200 index ticked up 0.01% at the close of trade. The benchmark rose 0.7% on Monday.
In South Korea, the Kospi index nudged down 0.1% at close of trade.
In China, the blue chip CSI300 index rallied overnight as Beijing took steps to encourage "urbanisation to support economic growth," but the broader Shanghai index ended lower on uncertainty over Sino-U.S. trade talks. At the close, the blue-chip CSI300 index gained 0.5%, while the Shanghai Composite index lost 0.2%.
In Hong Kong, stocks ended higher on China policy optimism. At the close of trade, the Hang Seng index was up 0.3%, while the Hang Seng China Enterprises index rallied 0.2%.
In Europe, regional bourses opened broadly lower, feeding through to some support for regional bond markets.
2. Oil Tops 5-Month Highs
Oil prices traded near their five-month highs overnight as markets continued to tighten amid OPEC-led supply cuts, escalating violence in Libya and U.S. sanctions against Iran and Venezuela.
Brent futures hit their strongest level since the fourth quarter, at $71.34 per barrel, before easing to $70.99 per barrel. U.S West Texas Intermediate (WTI) crude oil futures also hit a November 2018 high, at $64.77 per barrel, before easing to $64.42 per barrel.
Crude prices have been further lifted this week by escalating violence in Libya, a significant supplier of oil to Europe, which produced around 1.1 million bpd of crude in March.
Russia remains a reluctant participant in the supply cuts. Russia signaled on Monday that it wants to raise output when it meets with OPEC in June because of falling stockpiles. Stateside, crude oil production has risen by more than 2 million bpd since early 2018, to a record 12.2 million bpd.
3. Sovereign Yields Inch Lower, IMF In Focus
Eurozone yields were a touch lower Tuesday morning, with concern about U.S-European trade tensions providing some support to safe-haven debt markets a day ahead of a ECB meeting.
On Monday, the United States proposed a list of EU products ranging from large commercial aircraft to dairy products on which to slap tariffs as retaliation for European aircraft subsidies.
Investors are also focusing on the International Monetary Fund (IMF), which it's expected to publish its half-yearly World Economic Outlook later this session.
Germany's benchmark 10-year Bund yield continued to hover just below zero in early trade but were up 9 basis points from a three-year low of -0.09% in March.
The yield on 10-year U.S. Treasury note ticked downward to 2.51%, while in the U.K. the 10-year Gilt yield declined 1 bps to 1.108%.
4. Dollar Looking For Directional Help
Forex markets remain subdued as the market shifts its focus to tomorrow's key events with European Central Bank meeting, the emergency EU Council meeting to discuss the Brexit extension, the FOMC minutes and U.S. CPI data.
GBP/USD was surprisingly steady around the £1.3075 area as Prime Minister Theresa May prepared to travel to meet German Chancellor Angela Merkel and French President Emmanuel Macron ahead of Wednesday's summit, where Europe will decide on the U.K.'s Brexit extension request. Sterling, for a brief moment, did find some support, trading through the psychological €1.31 handle after reports circulated that Merkel was willing to put a five-year time limit on the Northern Ireland backstop. Dealers noted that such a limit would make it difficult for Britain's Parliament to reject May's Brexit deal.
EUR/USD was flat at €1.1270 and is not expected to rally by much due to the Trump administration's treat to impose tariffs on selected European goods in response to subsidies for Airbus. However, the negative impact should be more limited and less broad-based than the threat of auto tariffs, which are a larger part of the European economy.
5. Italy Retail Sales Rose In February
Data this morning from the ISTAT showed that Italian retail sales rose 0.1% in February from the month before, following on a 0.6% increase in January.
ISTAT revised up January's data from an originally reported 0.5%.
Digging deeper, sales rose 0.9% in unadjusted year-over-year terms in February after a 1.2% rise in January (revised from 1.3%).
Note: The data is expressed in ‘value terms' and are not adjusted for consumer prices, which increased 1.1% in February from the year earlier, based on Italy's EU-harmonised index (HICP).
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