US MARKET WRAP: EUR dragged down by German political uncertainty

The holiday-shortened week got off to a very quiet start. Markets were aligned in a risk-on fashion, with equities rising, Treasuries selling-off, gold sharply lower, and safe-haven FX down.

With US lawmakers away on Thanksgiving leave until next week, there isn’t expected to be much progress on the fiscal front this week – which has been one of the key drivers of US trading sentiment in recent weeks. Volumes are also expected to be thin this week. This week’s Fed meeting minutes are likely to be a non-event, confirming the December hike narrative. There is little by way of other tier-one releases this week.

EQUITIES: S&P 500 +0.13% at 2582; Dow Jones +0.31% at 23431; Nasdaq-100 -0.09% at 6307
Top-sectors: Telecoms +1.04%, Financials +0.52%, Industrials +0.42%
Bottom-sectors: Healthcare -0.46%, Utilities -0.35%, Energy -0.17%

US stocks mostly drifted higher, with chipmakers rising on reports that Cavium would acquire Marvell for $6bln. 

The healthcare sector was under pressure after Roche announced a positive outcome in a cancer drug, which weighed on Merck and Bristol-Myers.

Telecoms were buoyed after Verizon was upgraded to outperform at Wells Fargo. Wal-Mart, however, sank after Goldman slashed its price target cut its rating to neutral. Industrials meanwhile rebounded, helping to lift the Dow.

Focus was on Time Warner and AT&T after it was reported that the US was set to announce ‘a major antitrust review’ on Monday. The news also weighed on Charter, Comcast and Fox, after recent reports that Fox’ assets were being eyed with Comcast and Charter in the frame.

TREASURIES: US Dec 2017 T-Note futures settle 7 ticks lower at 124-22

The US yield curve bear-flattened on Monday, with yields from the fronts to the 10-year sector rising, though yields in the long-end were slightly lower. This left the major curves to flatten slightly again, with 5s30s breaching 70bps, and 2s10s came close to piercing 60bps (low was 60.6bps); 2s30s, meanwhile, flattened by around 2bps by settlement, holding just above 103bps.

This week’s Fed meeting minutes are expected to continue to point to a December hike, which has been driving short-end yields higher; however, continuing concerns about the prospects of long-term growth and inflationary pressures have kept the long-end bid.

FOREX: DXY jumps on risk sentiment, EUR weakness

The EUR came into European trade on the back-foot after it was reported that the so-called Jamaica coalition talks to form a German government had collapsed after the FDP abandoned negotiations. However, the reaction was milder than some had expected, and net, the EUR was off by around 50bps against the USD.

Germany’s President encouraged the sides to resume talks, and didn’t call snap elections, perhaps containing the losses. Additionally, analysts were pointing out that, while there is uncertainty, it isn’t a catastrophe yet; additionally, specs are quite long of EUR, and high quality sovereign supply is likely to be net negative for the week if the ECB continues to buy at its recent pace.

The DXY was also supported by expectations the Fed will allude to a December hike in its meeting minutes due to be published on Wednesday. The dollar, however, couldn’t make gains against the pound – which was stronger against the greenback as well as the single-currency – as traders expect Chancellor of the Exchequer Philip Hammond to deliver a solid budget where he will announce accounting tweaks that could lower the UK’s debt-to-gdp ratio, while leaving room for fiscal spending to support growth.

Commodity FX sagged on dollar strength as well as the weakness in crude. Havens were off, and gold dropped, backing away from Friday’s peak below $1,300, on the back of positive risk sentiment and a firm dollar, as well as a potential Fed hike in December.

CRUDE: WTI futures settle 46 cents lower at USD 56.09 per barrel; Brent futures settle 50 cents lower at USD 62.22 per barrel

Oil was trading lower as the end of November OPEC meeting comes into focus. The strength of the dollar was also said to play a role.

JODI reported today that Saudi crude output was higher, while exports were lower in September.

Crude prices did, however. Stabilise after a Genscape report forecasts stocks at Cushing will draw by around 1.7mln in the week; analysts also expect headline crude stocks to draw 2.2mln, distillates are seen off by 1.8mln, although gasoline stocks are forecast to show a build of 0.9mln. 

20 Nov 2017 - 21:00- Important- Source: RAN

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