Dow Jones Newswires , 23 March 2017 04:36
European Morning Briefing: Markets Focus on US Healthcare Bill
Stocks seen higher; EUR/USD 1.0791-94; German 10-Year bund yield 0.406%; Brent crude $50.97; gold $1245.29
-German Current Account Surplus to Decline, Finance Ministry Says
-Fed Could Allow Higher Inflation as Interest Rates Remain Low, Papers Suggest
-Volkswagen Tests Waters With First Bond Issue After Emissions Scandal
Watch For: Germany GFK consumer sentiment index; France business sentiment index; Eurozone consumer confidence; ECB's Lautenschlager speaks; earnings from Deutsche Postbank, Rheinmetall and Valneva
Germany's current account surplus will fall over the next months due to strong domestic demand, said the finance ministry, which also responded to international critics by warning that a change to its business model could hurt other countries.
"Germany isn't only the world's third largest exporter but also the third largest importer," the finance ministry said Thursday in its latest monthly report. "Particularly those partner countries' economies are profiting from German exports that are well integrated into the international supply chain, that show a strong industrial basis or that offer a good business climate."
The ministry added, "Any dismantling of well-established market-driven trade structures would be at the expense of countries' prosperity."
U.S. interest rates are likely to stay historically low, which should prompt the Federal Reserve to rethink its approach to inflation. Those are the conclusions of two new research papers by teams of Fed economists published Thursday by the Brookings Institution.
Taken together, the two papers conclude that increased demand for safe and liquid assets such as 10-year Treasury notes will continue to hold down yields, making it difficult for the central bank to raise its benchmark short-term interest rate while sticking to its 2% annual inflation target. One response would be to allow higher levels of inflation.
The research, due to be presented at a Brookings conference Thursday, is likely to reignite debate about the central bank's inflation strategy and could bring fresh calls for officials to raise the inflation target.
IG futures suggest the DAX will open 43 points higher, the CAC 40 11 points higher and the FTSE 100 8 points higher.
Global markets stabilized after skidding a day earlier, though investors were on edge ahead of a vote on U.S. health care later Thursday that could be a barometer for future Trump administration policies.
"There is a bit of cautiousness ahead of the health-care bill," said Greg McKenna, chief market strategist at AxiTrader.
He said a victory in the U.S. House of Representatives for a Republican proposal to replace the Affordable Care Act - despite some conservative opposition - would be "an unmistakable positive," showing that the administration can push through tax reform and infrastructure spending. Questions about risks to non-health care policies helped drive the recent selloff.
Meanwhile, a defeat could cast doubt on President Donald Trump's ability to push his agenda through Congress.
"In the lead-up to that," said McKenna, "we do nothing."
Japan's Nikkei traded 0.2% higher after falling 2.1% Wednesday on a stronger yen, while the Hang Seng rose 0.4% and the Shanghai Composite gained 0.3%.
Gains in technology shares buoyed the S&P 500 Wednesday as U.S. stocks stabilized following their worst day of the year.
Investors sent the S&P 500's technology sector to its biggest daily climb in three weeks, while tech companies accounted for the top four gainers in the Dow Jones Industrial Average.
Tech's advance helped major indexes steady after Tuesday's selloff. Technology shares in the S&P 500 rose 0.8% and the tech-heavy Nasdaq Composite added 0.5%.
Volkswagen plans to the return to the bond markets Thursday for the first time since its emissions-cheating scandal, testing confidence after an 18-month hiatus.
The multibillion-euro bond issuance is a sign of Volkswagen returning to its traditional funding pattern, said Jörg Boche, head of group treasury, during a call with investors on Wednesday. The proceeds will be used for general purposes, he said.
"It is not that we are underfunded in terms of liquidity," Mr. Boche said, adding the issuance was an exciting moment for the company.
The dollar rebounded slightly in Asian trading, with the WSJ Dollar Index up 0.1% and the dollar back above Y111.
Getting to $1.08 in early European trading Tuesday and staying around there since, the euro is liable to continue trading near current levels for the time being, says Hideo Watanabe, manager of forex products group at Aozora Bank.
That as the Bank of France's chief said Wednesday it's not nearly the right time to wind down accommodative monetary policy.
Assuming no headline news regarding the French elections among other eurozone topics, "I can expect the euro will likely move only slightly around $1.08-line" later today, says Wantanabe.
At 0350 GMT, EUR/USD was at 1.0791-94, USD/JPY was at 111.34-35 and GBP/USD was at 1.2484-86.
The German 10-Year bund yield was flat at 0.406% in Asian trading hours.
U.S. government bond prices climbed again Wednesday, marking their fourth straight session of gains as investors question President Donald Trump's ability to push through his legislative agenda.
The yield on the benchmark 10-year Treasury note settled at 2.398% Wednesday, compared with 2.432% Tuesday.
In some respects, not much has changed in the bond market in recent months. Despite its brief rise above 2.6%, the 10-year yield has mostly hovered between 2.3% and 2.5% this year, reflecting an improved economic outlook compared with last summer when it dropped to a record closing low of 1.366%.
After recent speculation that the Fed could raise interest rates as many as four times this year, investors are back to holding more modest expectations.
Fed-funds futures, used by hedge funds and money managers to bet on the Fed's policy outlook, showed 50% odds Wednesday that the Fed will raise rates at its June meeting, according to CME Group.
The odds for a rate increase by the Fed's September meeting were 74%, suggesting many investors think the Fed could wait until the third quarter to tighten policy again.
Crude futures rebounded in Asia trade Thursday after data showed U.S. gasoline and distillates stocks declined in the latest reporting week, signalling that refiners have returned from maintenance and crude demand in the U.S. is set to rise.
On the New York Mercantile Exchange, light, sweet crude futures for delivery in May traded at $48.39 a barrel, up $0.35 in the Globex electronic session. May Brent crude on London's ICE Futures exchange rose $0.33 to $50.97 a barrel.
Data by the U.S. Energy Information Administration showed U.S. gasoline stocks fell by 2.8 million barrels in the week ended March 17, marking a fifth straight drawdown. Gasoline demand is expected to march higher as U.S. approaches the summer driving season. Distillate stocks also fell by 1.9 million barrels.
Crude supplies, however, swelled by 5 million barrels, bringing the total to a record high of 533.1 million barrels. Apart from domestic production which rose for the fourth week to 9.13 million barrels a day, strong imports also contributed to the growth, analysts said.
The data offered mixed messages to the market. On one hand, the rise in U.S. refinery utilization rate indicates the annual maintenance season is now past and refiners will lap up more crude, said Societe Generale. But the accelerating crude output by upstream players means the U.S. is well positioned to crimp the Organization of the Petroleum Exporting Countries' effort to pare down the still-bloated global crude inventories.
London spot-gold prices ticked down in Asia trading as the dollar firmed, but the yellow metal remained near 3-week highs because of safe-haven demand due to political uncertainty.
"Investors remain cautious as they await the outcome of" Thursday's scheduled House vote on replacing Obamacare with a Republican alternative, notes ANZ.
Forthcoming elections in France are also adding to the cautious sentiment.
Gold was down $2.66 at $1,245.29/troy ounce.
(MORE TO FOLLOW) Dow Jones Newswires
March 23, 2017 00:36 ET (04:36 GMT)
2017 Dow Jones & Company, Inc.
Dow Jones Newswires , 23 March 2017 04:36
European Morning Briefing: Other Top Stories
U.K. Parliament Attacker Leaves 4 Dead, 40 Injured
A suspected Islamist terrorist mowed down scores of pedestrians on a crowded bridge before crashing his car near the gates of Parliament and stabbing a policeman, leaving four dead in an attack that struck at the heart of British democracy. U.K. Parliament Attacker Leaves 3 Dead, Including Police Officer
With Bloodshed on the Thames, a Lull from Terrorism Ends for the U.K.
It was July 7, 2005, that four Islamist extremists set off three bombs on the London Underground and another on a double-decker bus, killing 52 people, wounding more than 700 others and searing the date so deeply into the British psyche that it became known simply as 7/7. With Bloodshed on the Thames, a Lull in Terrorism Ends for the U.K.
London Attack Hands Theresa May Her First Security Crisis
Prime Minister Theresa May, who spent six years in charge of the U.K.'s interior ministry, is facing her first major test handling a security crisis since becoming the country's leader following the Brexit vote. London Attack Hands Theresa May Her First Security Crisis as Leader
Vehicles Becoming Favored Terrorist Attack Weapon
The assailant in a deadly attack in London Wednesday that left five people dead, including the attacker, used a weapon increasingly common in recent terrorist attacks: a road vehicle that typically draws little notice but can kill with devastating effect. Vehicles Becoming Favored Terrorist Attack Weapon
U.K. Lawmaker Is Hailed as a Hero for Helping Slain Police Officer
When a police officer was stabbed by a suspected terrorist outside the Houses of Parliament on Wednesday, an unlikely figure rushed to his side: Tobias Ellwood, a New York-born U.K. lawmaker and British army veteran. U.K. Lawmaker Is Hailed as a Hero for Helping Slain Police Officer
What We Know About the Attack Near the British Parliament
A sport-utility vehicle slammed into pedestrians on a central London bridge near Parliament, leaving four people dead and at least 40 injured. The man believed to be the attacker was shot dead by police, according to the U.K.'s top counterterrorism official. Here is what we know so far. What We Know About the Attack Near the British Parliament
European Hopes Dim for a Brexit Trade Pact
U.K. Prime Minister Theresa May declared that no Brexit deal is better than a bad deal. It should hardly come as a surprise that many in the European Union feel the same way. European Hopes Dim for a Brexit Trade Pact
Elliott Threatens to Force Akzo Nobel to Engage With PPG
U.S. activist investor Elliott Management has emerged as a key player in a $24 billion, trans-Atlantic standoff between Akzo Nobel and PPG Industries, two of the world's oldest industrial companies. Elliott Threatens to Force Akzo Nobel to Engage With PPG
Europeans Won't Follow Suit on Electronics on Flights
Countries in continental Europe said they won't for now adopt new U.S. and U.K. rules barring most electronic gear from the cabins of flights from the Middle East and North Africa-opening up an unusual split among Western security authorities over airplane safety. Europeans Won’t Follow Suit on Electronics on Flights
GOP Lawmaker Sparks New Battle Over Trump Spy Claim
Rep. Devin Nunes, the Republican chairman of the House Intelligence Committee, ignited a new battle over President Donald Trump's claims that he was spied on by the Obama administration, saying that U.S. intelligence agencies intercepted information about people involved in the Trump transition team. GOP Lawmaker Devin Nunes Sparks New Battle Over Trump Spy Claim
Brazilian Government Racing to Convince Markets Meat Is Safe
Brazil's government raced Wednesday to convince skittish local and global markets that meatpackers accused of paying bribes to meat inspectors in a corruption scandal did so to get their products out faster, not to sell rancid meat and poultry here and abroad. Brazil’s Government Racing to Convince Skittish Markets Meat Is Safe
Dow Jones Newswires , 24 March 2017 04:59
European Morning Briefing: Markets Cautious as U.S. Health Bill Stalls
Stocks seen little changed; EUR/USD 1.0761-64; 10-Year Bund yield 0.433%; Brent crude $50.63; gold $1243.88
-Raising Short-Term Rates Three Times in 2017 'Reasonable Baseline,' Fed's Kaplan Says
-Fed's Kashkari Pushes for Plan to Reduce Balance Sheet
-House Republicans Postpone Planned Vote on Health-Care Bill
-Swiss Economy Faces Risks From Global Uncertainty, Strong Franc
-U.K. Regulator Reopens Probe Into Barclays' 2008 Deal With Qatari Investors
-Union at BHP's Escondida Copper Mine in Chile to End Strike, Restart Work Saturday
-Shell Oil Spills Led to 'Astonishingly High' Pollution in Nigeria
-Experian Fined $3M Over Alleged Deception in Credit-Score Marketing
Watch For: Eurozone, Germany, France, U.S. PMI; France final 4Q GDP; Spain PPI;U.S. durable goods; speeches by Fed's Bullard, Williams
Federal Reserve Bank of Dallas President Robert Kaplan said Thursday that raising short-term interest rates three times this year "is a reasonable baseline," and that he is not "looking for a pause" in rate raises as long as the U.S. employment and inflation figures continue to improve.
Mr. Kaplan said that progress in reaching the central bank's full employment and inflation objectives "gives me confidence" to be "gradually and patiently removing accommodation."
Mr. Kaplan said the central bank will be able to make an announcement on plans for trimming the balance sheet, which will be "a healthy thing," but that "we need to make some further progress" before doing so. He didn't give specifics on timing, but said that when balance sheet announcements are made to the market, it will be done in "a gradual, predictable way."
Federal Reserve Bank of Minneapolis President Neel Kashkari on Thursday reiterated that Fed officials should decide on a strategy for shrinking the huge portfolio it has amassed from years of bond-buying before raising interest rates again, but wouldn't say whether he will dissent if they don't.
"It all depends on what the data is saying," he said.
Mr. Kashkari said officials should release their plans "as soon as possible" for reducing their $4.5 trillion portfolio to give markets plenty of time to understand and digest the plans. He said the process should be put "on autopilot," after which officials should return to raising interest rates.
Republicans postponed the vote on their legislation to overhaul the Affordable Care Act, after last-minute negotiations and personal lobbying from President Donald Trump failed to gain majority support for the bill.
House GOP leaders who had planned to put the bill to a floor vote Thursday instead spent tense hours jockeying over possible changes being sought by competing factions in the party, one made of conservatives and the other of centrist Republicans. Aides said the vote could be held Friday. The delay left the first major legislative effort by House Speaker Paul Ryan and Mr. Trump in doubt.
Switzerland's economy is expected to grow modestly this year but the expansion remains uneven due to a "significantly overvalued" franc, Swiss National Bank governing board member Andréa Maechler said Thursday.
Ms. Maechler said she expects Swiss gross domestic product to expand about 1.5% this year but noted that this expansion "is not yet broad-based."
European stocks are poised for a subdued open Friday, with DAX futures up 11 points and FTSE 100 futures up 2 points.
Investors in Asia-Pacific equities regained some risk appetite Friday, despite a delay in Donald Trump's attempt to repeal and replace the Affordable Care Act, as regional markets maintained cautious optimism ahead of a planned final vote.
Australia's S&P/ASX 200 rose 1.1%, Japan's Nikkei Stock Average added 0.6%, and Hong Kong's Hang Seng Index was up 0.36%.
Traders see the success or failure of the legislation as a bellwether for Mr. Trump's ability to deliver on tax reform and infrastructure spending plans.
"The [equity market] has arguably been long on optimism and short on substance for some time now," ANZ said. "The vote on the bill to repeal and replace Obamacare seems to be being interpreted by the market as a touchstone for whether the thrust of Trump's fiscal plans are going to be realized and hence whether a continuation of the reflation trade is warranted."
Still, Asia-Pacific markets opened higher as the rescheduling of the vote gave traders confidence that Republicans could still pass the bill.
"There's a view that tax reform will happen no matter what," said Chris Weston, chief market strategist at IG Group.
U.S. stocks erased early gains on Thursday and closed flat.
Looking ahead, the market will be watching out for PMI numbers from the European Union and the U.S.
Britain's financial regulator has reopened a probe into how Barclays persuaded Qatar's sovereign-wealth fund to bail out the bank during the 2008 financial crisis, just as a separate investigation of that matter by the Serious Fraud Office nears resolution.
The Financial Conduct Authority recently conducted a fresh round of interviews in the case and is studying new evidence, a person familiar with the matter said Thursday.
EUR/USD was a touch lower at 1.0772, from 1.0783 later Thursday in New York, as investors cautiously await the fate of the U.S. health-care bill.
With its upside weighed down after rising on speculation about European Central Bank tapering, EUR/USD direction "largely depends on the status of the U.S. bill," said Toshiyuki Umekawa, senior vice president of forex division at Mizuho Bank.
EUR/USD may move in either direction depending on the headlines coming out of Washington regarding this bill, said Mr. Umekawa, who tipped the pair's upside resistance at 1.0850.
The dollar has gotten a bid as Asian trading ramped up Friday, with the greenback rebounding some as President Trump is ready to move on from health-care reform if a vote doesn't succeed in the House.
The WSJ Dollar Index was up 0.2% in Asian trading, with the greenback rising above Y111.30 after falling below Y111 in New York trading.
The U.S. government bond market pulled back following the biggest four-day price gains since June.
The yield on the benchmark 10-year Treasury note had risen to as high as 2.437% Thursday, but at the end of a volatile session, the 10-year Treasury yield settled at 2.418%. It compared with 2.398% Wednesday which was the lowest close since the end of February.
Some traders warned that any setback in the U.S. legislative agenda is likely to stoke demand for haven bonds as investors pare back appetite for riskier assets.
The markets "will be very sensitive to any headlines coming out of Washington and could move quickly in either direction depending on what the news is," said Scott Buchta, head of fixed-income strategy at Brean Capital.
Oil prices logged meager gains in Asia, a pause in recent selling brought on by signs the OPEC deal is indirectly encouraging U.S. shale producers to boost their production.
"There is little new factors to add to the oil complex as U.S. inventories remain bloated and many questions remain as to the resolve of OPEC & Co. and their ability to reach quota levels-let alone roll over the caps for six months," said Stuart Ive, a client manager at OM Financial.
Going to the weekend, investors will be eyeing the weekly U.S. rig count and the outcome of a meeting in Kuwait of energy ministers from OPEC and some non-OPEC countries regarding the output cuts' progress.
At 0344 GMT, Nymex May oil was up 12 cents at $47.82/barrel and Brent added 7 cents to $50.63.
Royal Dutch Shell oil spills that haven't been cleaned up for over eight years have contributed to "astonishingly high" levels of pollution in a Nigerian community, according to a consultant who helped produce a confidential damage assessment for Shell and its partners in the cleanup.
Shell admitted liability for two large oil spills from a broken pipeline in 2008 in Bodo, a Niger Delta fishing community that, according to U.K. court claims, was inundated with over 500,000 barrels of oil -- roughly twice the amount when the Exxon Valdez ran aground in Alaska in 1989. Shell disputed the volume of the spills but reached an out-of-court settlement with the community for GBP55 million in 2015 -- or around $80 million at the time -- after facing a lawsuit in London.
An environmental damage study was also conducted that year as part of efforts to clean up the area under the Bodo Mediation Initiative, which included Shell's Nigerian subsidiary, civil society groups, and members of the local community and government.
The study found that "astonishingly high" levels of pollution remained in Bodo's mangroves and creeks years after the spill, endangering the community, wrote Kay Holtzmann, the former director of the cleanup project, in a Jan. 26 letter to the Bodo Mediation Initiative, which was seen by The Wall Street Journal.
London spot gold was trading in a narrow range in Asia, down $1.17 at $1,243.88/troy ounce, as investors remained cautious. But safe-haven demand continued to provide a floor to prices.
(MORE TO FOLLOW) Dow Jones Newswires
March 24, 2017 00:59 ET (04:59 GMT)
2017 Dow Jones & Company, Inc.
Dow Jones Newswires , 24 March 2017 04:59
European Morning Briefing: Other Top Stories
Europeans Struggle With Elusive Terror Threat
European officials say they are having trouble monitoring a growing roster of suspected extremists, as they try to zero in on which radicals pose the greatest threat and prevent them from committing terrorist acts. Europeans Struggle With Elusive Terror Threat
Health Vote's Outcome Carries High Stakes for Trump Presidency
The health-care bill now stalled in Congress is proving an early test of whether the deal-making skills that made President Donald Trump rich in the business world will also work in the legislative realm, where lawmakers face competing pressures and require different sorts of incentives to reach agreement. Health Vote’s Outcome Carries High Stakes for Trump Presidency
Trump Says If Vote on Health Bill Fails, Obamacare Stays
Budget Director Mick Mulvaney told House Republicans President Trump is done negotiating and wants a vote Friday. If it fails, Mr. Trump will leave Obamacare in place and move on to other legislative priorities. Trump Says If Vote on Health-Care Bill Fails, Obamacare Stays
Trump, Tillerson Settle on No. 2 at State Department
President Donald Trump is expected to nominate John J. Sullivan to be the State Department's No. 2 official, according to U.S. officials familiar with the discussions. Trump, Tillerson Settle on No. 2 at State Department
Cyprus Rebounds, With Debt Sale and Rating Increase
Four years after a banking crisis brought Cyprus to its knees, sending shockwaves through global markets, the small island country is reaping the rewards of a stabilizing economy. Cyprus Rebounds, Eyes Debt Sale