US MARKET WRAP: Stocks print fresh record highs on Black Friday
FOREX: DXY finishes the week red on a firm EUR
DXY: The Dollar Index is red for the fourth consecutive day, and on course to print its third straight week of losses. The weakness seems to have been driven by strength in the EUR on the back of this week’s solid PMI surveys, which showed upside surprises. Next week, the focus will be back on tax reform, with lawmakers returning from the Thanksgiving Recess. The Senate Floor is expected to vote on its version of the tax reform bill, which may set the tone for the buck into year-end. Additionally, next week, the incoming FOMC Chair Jerome Powell will have his confirmation hearing, and analysts will be listening out for clues on whether Powell will endorse the current monetary policy stance, or whether he will be open to a re-assessment of the Fed’s policy framework, with options including a price-level target (as alluded to in the Fed’s latest meeting minutes).
EUR: The EUR is on course to finish the day in the green for a fourth consecutive session, which would also lock in four consecutive weekly gains. After falling to around 1.1725 vs. the USD earlier in the week on the back of uncertainties relating to the forming of a government in Germany, the single-currency has staged a recovery, punching through the 1.19 handle in Friday trade. There wasn’t any specific catalyst driving the EUR higher in afternoon trade, though some traders were citing technical factors, as well as the IFO survey out of Germany earlier in the session, which provides further survey evidence of the Eurozone’s fundamental recovery.
GBP: Sterling has weakened for four straight days against the EUR, though, at the time of writing is on course to end the week slightly higher against both the EUR and USD. GBP seems happy to look through data, and was unshaken by the latest consumer confidence release, which showed that sentiment had deteriorated to the lowest levels since the Brexit referendum. The fate of the pound is clearly linked to the progress (or lack of) being made in Brexit negotiations. This week, the flow of news suggests that the UK is preparing to up its offer of financial settlement with the EU in order to progress negotiations onto trade; however, there are some suggestions that the UK’s offer, reported to be around GBP 40bln, may be on the low-end of what the EU wants.
JPY: The yen dropped against the EUR after a decent IFO survey added to ‘recovery in Eurozone fundamentals’ narrative, and follows on from the impressive PMI data released on Thursday. EURJPY jumped to the highest in the week, though hasn’t managed to fully recoup last week’s losses. Meanwhile, against the USD, JPY has been more subdued over the last couple of days (also shrugging-off the surge in Chinese yields). USDJPY’s range since Q2 2017 has roughly been between 109 to 114.50, and as we head into the close of business for the week, the Japanese currency is lurking around 111.50, around the mid-point of that range. Technical traders are keeping an eye on the 200 DMA at 111.70. Meanwhile, analysts have argued that real-yield differentials will need to widen in order to help the pair move back towards the top of that range; but with the market sceptical over the prospects for US inflation, and only pricing in two hikes next year (versus the Fed’s forecast for three hikes), it will need either a repricing of Fed rate hike expectations and/or a smooth tax reform process enacted quickly to help facilitate such a move.
COMMODITY FX (CAD, AUD, NZD): The complex was broadly unchanged on Friday, despite the slide in oil prices, and copper rising above $7,000 per tonne (on supply drawing down, as well as USD weakness). Next week’s OPEC meeting will be a key driver for commodity FX, and the cartel, along with some non-cartel participants, are expected to extend the supply cut agreement for an additional nine-months. More idiosyncratically, next week’s speech from BOC Governor Poloz at the release of the Financial System Report will be crucial going into the December BOC meeting (as will the report be); with the BOC expected to stand pat at that meeting, traders will be keeping an eye out for clues about what the central bank intends to do in the new year.
EQUITIES: S&P 500 +0.21% at 5602; Dow Jones +0.14% at 23558; Nasdaq-100 +0.36% at 6409
Top-sectors: IT +0.54%, Materials +0.45%, Energy +0.27%
Bottom-sectors: Telecoms -0.29%, Financials -0.15%, Consumer Stapes -0.02%
The S&P 500 closed at fresh record highs in a holiday-shortened session. The VIX closed at a three-week low at 9.67.
Retailers were in vogue on Black Friday, and most traded firm throughout the course of the session, getting a boost to sales at the start of the Holiday shopping season. Adobe analytics said Black Friday online would rise to a record, although reports suggested that footfall at brick and mortar retailers was subdued.
Tech was leading the gains; Meanwhile rising commodities prices helped to lift the materials and energy sectors. On the other end of the scale, losses were led by Telecoms, Financials and Consumer Staples, though the losses were modest.
TREASURIES: US 10-Year T-Note futures Settle 4+ ticks lower at 124-31
Trading was thin and ranges were tight on Friday, with yields higher by between 1.5bps and 2.5bps across the curve. It left some of the major parts of the curve slightly steeper, though there was nothing to really write home about.
Next week’s PCE data will be eyed to see how much encouragement the Fed can take from the inflation landscape at its policy meeting in December. However, according to the minutes released earlier in the week, concerns that weak inflation may prove to be persistent front continue to linger in policymakers’ minds.
Elsewhere, the US Treasury will sell $88bln in 2-year, 5-year and 7-year paper next week
CRUDE: WTI future settle 93 cents higher at $58.95 per barrel; Brent futures settle 31 cents higher at $63.86 per barrel
Ahead of next week’s OPEC meeting, where the cartel is expected to announce a nine-month extension to its supply cut pact, oil traded on the front foot. WTI was outperforming on supply disruptions through the Keystone pipeline, and it was reported that shipments are now 85% lower after a spill reported last week.
Brent was higher, however, amid optimism that Russia is now on board with deal to extend the supply cut agreement. It was reported that Russia-OPEC are said to have outlined a deal with the Russian oil minister Novak backing OPEC+’s deal proposals, although he did note that different options still remain on the table. Novak added that he believes around 50% of the surplus has now left the market, crude prices have reached balance at the ‘acceptable level’ of around $60 per barrel, and said expects OPEC+ deal to be taken on 30 November.
24 Nov 2017 - 19:00- Important- Source: Newswires
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