by Pinchas Cohen
Global Affairs
Trading has mostly stayed within a holding pattern, ahead of tomorrow’s three potentially market moving, monumental events – former FBI Director James Comey’s testimony, the UK elections, and the ECB meeting and press conference.
While yesterday’s risk-off sentiment has eased and investors are selling safe-haven assets, the US dollar is struggling to rise in value. Ahead of Comey’s testimony tomorrow, FX traders are trying to determine whether the dollar's recent 2-percent plunge should be considered a buyable dip, or if the greenback is in fact overpriced. Even so, the dollar bounced back from its post-US election day low, but ultimately was pushed back down and is still fluctuating.
FX markets aren't alone in awaiting Comey's testimony. Investors and overall markets are also awaiting the outcome of his deposition, as it could possibly—although improbably— lead to the impeachment of the US's pro- market President, Donald Trump. Such a scenario, should it occur, would have enormous economic implications for both US and global markets.
However, rumor has it that a close confidant of Comey's said the former FBI director would stop short of saying he thought the President attempted to obstruct the federal probe of Russia’s role in the election.
While the dollar spent yesterday fluctuating between pushing above its post-election day lows and closing at new recent lows, gold reached its highest level over the same period.
US Treasuries bounced back after it was reported that China plans to reverse its debt holdings policy by buying Treasury notes, an about-face from last year's policy of selling Treasuries, in an effort to defend its currency. The yuan gained 2-percent versus the dollar this year, largely because the greenback is itself down 7%.
Shares on China's Shanghai Composite rallied, leading most Asian equity markets. The Aussie dollar gained, after the release of its quarterly GDP report which met expectations, allaying recent fears of an economic slowdown in Oz. China’s firm stance regarding defending its currency has helped Australia, its biggest trading partner, as well.
The ECB will decide policy on Thursday, though for all intents and purposes the central bank's intentions were already signaled on Monday the 29th, when Draghi addressed the European Parliament and emphatically said there will be no change of plans. Market narrative has been running up the story that he may shift guidance, considering recent Eurozone growth has overtaken both the US and China.
Oil, the wild card in yesterday’s clear distinction between risk-on and risk-off assets, fluctuated greatly with every development in the ongoing Gulf crisis. Of course, in the background, markets were also influenced by the announcement of an inventory drop. After large declines in value since the original November OPEC production freeze agreement, oil has regained the losses from its previous two sessions.
Today, however, oil retreated after the Energy Information Agency reported it expected American shale producers to inject 9.4 million barrels a day into supply this year. That's a revised update from its May projection. The agency forecast that daily output would to 10 million barrels a day in 2018, breaking the 1970 record of 9.6 million barrels a day.
Upcoming Events – “Super Thursday”
Thursday’s three events – the Comey testimony, UK elections and the ECB meeting could each have easily been the central theme for tomorrow, considering that they all have the ability to move the markets. Having all three of them occurr on the same day provides markets with a potential tsunami. Throw in the on-going crisis in the Gulf, and anything can happen.
Market Moves
Stocks
- The Stoxx Europe 600 Index fell 0.2 percent, dropping for a third straight session.
- Japan’s TOPIX ended little changed after erasing earlier declines, with almost twice as many stocks rising as falling.
- Australia’s S&P/ASX 200 Index finished flat, after closing Tuesday at the lowest level since February.
- The Shanghai Composite jumped 1.2 percent to its highest point in a month.
- Hong Kong’s Hang Seng fell 0.3 percent, after topping 26,000 on Tuesday for the first time since July 2015.
- Futures on the S&P 500 slipped 0.1 percent after the underlying gauge lost 0.3 percent on Tuesday.
Commodities
- Gold fell 0.1 percent to $1,292.52 an ounce after surging 1.1 percent in the previous session.
- WTI crude oil lost 0.3 percent, falling to $48.04 a barrel, following its 1.7 percent rise on Tuesday.
Bonds
- The yield on 10-year Treasuries held at 2.15 percent, after dropping four basis points on Tuesday.
- Australian government notes with a similar maturity rose one basis point to 2.38 percent.
- French, German, and UK benchmark yields were little changed after losing at least four basis points in the previous session.