GLOBAL MARKET SNAPSHOT
U.S. markets made new all-time highs and were not alone as the MSCI AC World Index gained +0.6% to close at 580.81, the highest on record. Global risk sentiment was given a boost by China’s National Health Commission saying on Wednesday that new cases of coronavirus declined for a second day with 2,015 new cases being reported. European markets were able to shake off a negative surprise in industrial output data, with carmakers and banks leading benchmark indices higher.
Bond yields moved higher with stocks as virus fears continued to subside. Dealer concessions ahead of a $27 billion auction of 10-year Treasury notes also put marginal upward pressure on yields. Italian spreads tightened after yesterday’s strong debt auction that saw more than €50 billion in demand for the €9 billion of 15-year paper yielding 1.49%, the country’s lowest on record. Opposite of what was in equities, Malaysia and Indonesia had two of the stronger performing bond issues today as the former’s 30-year yield fell 11 bps to 3.58% and the latter’s 5-year yield declined 11bps to 5.78%.
The U.S. dollar index increased +0.3%. The greenback strengthened against most crosses with the exception of the commodity-sensitive currencies. New Zealand dollar +1.0% saw particular strength after RBNZ held rates unchanged and signaled that future cuts aren’t imminent. The euro dropped -0.4%, its weakest in almost three years against the dollar and its weakest since 2016 versus Swiss franc. The shared currency was weighed down by data showing industrial output fell the most in almost four years. Brazilian real -0.5% was left behind by LatAm peers after retail sales surprisingly contracted in December and left the annual change shy of expectations (2.6% YoY vs. exp. 3.5%).
The Bloomberg Commodity Index increased +1.0%. Crude oil surged on Wednesday despite the EIA’s inventory report showing a net weekly build of 7.5 million barrels, the largest in over three months and much higher than the forecast of 3.0 million barrels. At the same time OPEC slashed its 2020 global demand growth forecast by 0.23 million barrels per day. Given the reaction to today’s reports it seems traders are resigned to the poor condition of the market and much more focused on prospective changes from OPEC on the supply side and demand expectations for China.
Central banks were on hold on Wednesday as Sweden’s Riksbank held its benchmark rate unchanged at zero and New Zealand’s RBNZ held rates at 1.0%. RBNZ did move markets though by dropping its reference to future rate cuts in its statement.
Eurozone industrial output fell -2.1% in December bringing the year-over-year change to -4.1%. The drop far exceeded expectations for a pullback of -1.6% MoM and -2.3% YoY.
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