Futures Flirt With Records As Asian Stocks Rise; Commodities, Dollar Take A Breather

In a quiet overnight session in which Japan was closed, European shares are mixed as financials and auto weigh, Asian stocks rise led by materials while S&P futures little changed against a backdrop of the continuing commodity rally with oil holding near $48 a barrel, up fractionally on the session. Against a basket of currencies, the dollar index was up slightly at 101.12, very close to a 14-year peak. The dollar also kept most of its recent hefty gains on the yen at 111.05 though it has met resistance around 111.35 in the last couple of sessions

“I think markets had been a bit euphoric in the wake of Trump and now they are coming around to the understanding that there is not going to be fiscal stimulus that is going to be good for everyone” said Rabobank strategist Lyn Graham-Taylor said.

Emerging markets have struggled in recent days as surging U.S. bond yields sucked much-needed capital out of Asia. President-elect Donald Trump’s past talk of trade tariffs has also weighed on sentiment in the export-intensive region.

With Japan on holiday, Australia’s main index led the action in Asia with a rise of 1.35 percent to a one-month top helped by strength in bulk commodity prices. China’s blue-chip CSI300 index advanced 0.5 percent to a near 11-month peak as the yuan touched its lowest in six years.

Ahead of tomorrow’s Thanksgiving holiday in the US, European stocks were little changed, with miners leading gains after a metals index rose to the highest since June 2015 on Tuesday. Oil fluctuated after OPEC left unresolved participation by Iraq and Iran in the group’s plan to cut output. German two-year note yields touched a new record-low amid a scarcity of collateral and speculation the European Central Bank will ease policy at next month’s meeting. Treasuries gained before the Federal Reserve releases minutes of its November meeting.

“The reflation theme in the U.S. is dominating all markets,” said Christian Stocker, a strategist at UniCredit Bank AG in Munich, Germany. “In Europe the picture is a bit more complicate.d”

As Bloomberg notes, markets are flat ahead of U.S. economic reports including jobless claims, durable goods orders and consumer confidence for confirmation the Fed will hike rates next month.As the chart below shows, the market-implied probability of a rate hike has been at 100% for the past few days, just as S&P hit new all time highs above 2,200.

Developed-market shares and the dollar have been among the biggest winners since Donald Trump’s surprise election victory fueled speculation of more fiscal stimulus in the U.S., while government bonds and emerging markets have slumped.

Futures on the S&P 500 Index rose less than 0.1 percent at 10:12 a.m. in London, after all four major U.S. stock benchmarks climbed to records on Tuesday.

The Stoxx Europe 600 Index slipped 0.1 percent, while the U.K.’s FTSE 100 Index added 0.6 percent. U.K. Chancellor of the Exchequer Philip Hammond is scheduled to outline a series of measures to help “ordinary working-class families” and stress that a stable economy, fiscal discipline and better productivity are the best ways to raise living standards in his Autumn Statement to Parliament on Wednesday.

Earlier today Europe reported Flash November PMI Data, which largely came in stronger than expected. As BBG notes, Euro-area economic growth accelerated to its fastest pace this year as growing order books prompted companies to add more workers and raise prices. A Purchasing Managers’ Index for manufacturing and services rose to 54.1 in November from 53.3 a month earlier, IHS Markit said on Wednesday. That’s the strongest level in 11 months and above the 50 mark that divides expansion from contraction.

• Eurozone Nov. Flash Composite PMI 54.1; Est. 53.3
• Eurozone Nov. Flash Services PMI 54.1; Est. 52.9
• Eurozone Nov. Flash Manufacturing PMI 53.7; Est. 53.3
• Germany Nov. Flash Composite PMI 54.9; Est 55
• Germany Nov. Flash Services PMI 55; Est 54
• Germany Nov. Flash Manufacturing PMI 54.4; Est 54.8
• France Nov. Flash Composite PMI 52.3 Vs 51.6; Est 51.9
• France Nov. Flash Services PMI 52.6; Est 51.9
• France Nov. Flash Manufacturing PMI 51.5; Est 51.5

The signs that recovery is gathering momentum should give some relief to the European Central Bank as it faces a complex decision on Dec. 8 whether to extend its 1.7 trillion-euro ($1.8 trillion) quantitative-easing program. President Mario Draghi said this week that the recovery remains reliant on continued monetary support. However, any hints of rising inflationary pressures will be met with disappointment by the market which expects no changes from the ECB’s QE for the foreseeable future.

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Bulletin Headline Summary from RanSquawk

• European equities trade mixed with participants awaiting Chancellor Hammond’s inaugural Autumn budget, while Bunds have been hampered by ECB source comments regarding measures of addressing bond scarcity
• Another relatively quiet morning in FX markets, but notable was the hit on EUR/USD, with players still gunning for 1.0500 on the downside
• Looking ahead, highlights include FOMC minutes, UK Autumn Statement, US mfg PMI, US Durables and DoEs