by Pinhcas Cohen
The Big News
As the investigation into last night's suicide bombing in Manchester, UK continues, Asian and European markets either fell or remained flat. Investors’ can’t seem to catch a break, as the risk-on, risk-off roller coaster keeps chugging along.
At the same time, short-term traders also can’t get a break, but are finding opportunities where they can as these wild swings provide them with a target-rich environment for investments.
World Events
The blast that killed at least 22 people and injured 59, including children, at an Ariana Grande concert in Manchester has been confirmed as the worst terror attack in the UK since the 7/7 bombings in 2005. UK Prime Minister Theresa May has suspended her party's campaigning for the day as a result.
The attach has had a detrimental affect on the markets as well, with traders' risk tolerance sinking to new lows.
In the latest development from the ongoing investigation into President Donald Trump's administration's ties to Russia, the Washington Post has reported that the President had asked intelligence officials to make public statements indicating that there was no evidence of Russian involvement with his election campaign.
In consequence, the yen advanced against almost all FX majors, proving again it's the safe haven currency of our time, gaining 0.23%, whereas the Swissy has lost 0.2%, as of 3:04 EDT.
Not that the yen was the only asset doing well. Gold surpassed the yen; its value rose 0.4%. Treasury bonds have gained the most value, particularly the US 5-year. Its yield declined by 1.20% to 1.7769.
However, the big safe-haven winner – or loser in yield – is the UK 2-year Government Bond, whose yield dropped 0.83 basis points, or 20.16%, and is extremely volatile. This exceptional demand for UK bonds is a direct result of this most recent terror attack in Manchester.
Asian markets and European and US futures are in the red, with the exception of the open Swiss and Dutch markets, which are in the green. Also, the FTSE Futures eked a small gain, possibly as a result of a weaker pound.
The credit rating agency S&P has put out a credit watch, placing Brazil’s debt—which is already rated at 'BB', two steps below the acceptable investment grade—with negative implications. This means the country may be further downgraded in the next three months. The nation's fiscal adjustment is also at risk of stalling amid political uncertainty following allegations of bribery and corruption against President Michel Temer. The warning is likely to create a situation where investors will begin to flee and sell off their assets, but the selloff may provide unusual bargains for the daring, contrarian investor.
US monetary policy remains in focus after recent data showed all was not well for the US, the world's largest economy. Fed Governor Lael Brainard said she's not seeing much progress on core inflation, and investors seem to agree, as Treasury yields aren't able to overcome the March highs due to demand outpacing supply. This would not be the case should traders believe alternate high yields are coming.
Upcoming Events
Interest Rate Decisions
- Canada, tomorrow at 10:00EDT – forecast to remain at 0.50%
- South Africa, Thursday, forecast to remain at 7.00. This is an oil currency, and is subject to significant volatility depending on the OPEC decision scheduled for the the same day.
- South Korea, Thursday, forecast to remain at 1.25%. The won surged recently, despite North Korean missile launches, as it may be forming a base for the currency.
- Germany’s IFO report at 4:00 EDT, Business Climate forecast to rise from 112.9 to 113.1, Expectations forecast to rise from 105.2 to 105.4, while the Current Assessment forecast is set to decline from 121.1 to 121.0.
Economic Events
- French business confidence data has met expectations, and will rise from 104 to 105.
- The OPEC deal extension, to extend the limit on oil production from six to nine months, will be formally announced on Thursday and is considered by traders to be a foregone conclusion. However, the International Energy Agency warned last week that merely extending the deal won't be enough to bring markets in balance. Instead, deeper cuts are needed. Citigroup says there is a 60%-70% chance OPEC and its allies will announce even deeper cuts, taking 300,000-500,000 more barrels per day off the market.
Market Moves
Stocks
- Futures on the S&P 500 fell 0.1 percent as of 8:15 a.m. in London. The underlying gauge rose 0.5 percent on Monday. The index has climbed 1.6 percent in three days following a 1.8 percent drop last Wednesday, and sits just 0.4 percent from its all-time high.
- The Stoxx Europe 600 Index and the U.K. FTSE 100 Index barely registered any significant movements.
- Japan’s TOPIX dropped 0.2 percent after swinging between gains and losses. South Korea’s KOSPI rose 0.3 percent, Hong Kong’s Hang Seng fell 0.1 percent, and the Shanghai Composite Index lost 0.5 percent.
- The selloff in Brazilian assets resumed on Monday. The NEXT Funds IIbovespa Linked (T:1325), a Japanese equity ETF that tracks Brazil’s benchmark index, slumped 3.9 percent in Tokyo trading on Tuesday.
- Noble Group (SI:NOBG) plunged 28 percent before being halted in Singapore as the S&P said the embattled commodity trader could default on its debt over the next year as it spirals further into distress.
Currencies
- The U.S. dollar index declined 0.08% to finish at 96.907.
- The yen rose 0.1 percent to 111.14 per dollar.
- The pound slid 0.1 percent to $1.2987.
- The euro rose 0.1 percent to $1.1248.
- TheNew Zealand dollar jumped up 0.4 percent.
- The Mexican peso dropped 0.1 percent.
- The Bloomberg Dollar Spot Index was flat, trading near its lowest level since November.
Bonds
- The yield on 10-year Treasury notes fell two basis points to 2.24 percent.
- Yields on Australian government debt with a similar maturity lost four basis points to 2.45 percent.
- Germany benchmark yields slipped one basis point while France's and the UK's fell two basis points.
Commodities
- WTI crude oil fell 0.8 percent to $50.72, after jumping above $51 per barrel on Monday.
- Gold rose less than 0.1 percent to $1,261.74 an ounce.