The dollar rebounded from a key support level, strengthening against all major peers, pushing S&P futures higher as European shares rose, led by basic resources and real estate, while Asian stocks fall. Gold fell from its highest level since November as demand for some haven assets ebbed while global bonds declined. Oil dipped, pressured by a stronger dollar.
The Bloomberg Dollar Spot Index rose the most in almost two weeks, jumping against the offshore Chinese yuan on an unexpected fall in Beijing’s foreign exchange reserves below $3 trillion for the first time in six years, while a slumping euro benefited European stocks.“We think the dollar will go higher from here,†said Adam Cole, head of global foreign-exchange strategy in London at Royal Bank of Canada. “On balance Trump’s policies are dollar positive and that will win over the rhetoric.†The euro fell 0.8% to $1.0665, its biggest fall since Dec. 15 last year, while the dollar index was up over 0.7%, its biggest rise since Jan. 6.
European political jitters remained, and sent the spread between French and German 10-year bonds rose to 78 bps, the highest level since November 2012. It was 50 basis points only two weeks ago.
“The acceleration of the trend of wider spreads since the start of the year has been widespread and not just confined to France, where obviously the political tail risk is the greatest,” said Kenneth Broux, head of corporate research, FX and rates at Societe Generale.
Even as the main European indices advanced, banks posted the biggest declines on lackluster earnings and falling bond yields. European financial markets struggled with growing economic and political concerns involving the French and German elections on Tuesday as the euro neared its biggest fall this year and bond yield spreads over Germany reaching the widest in several years.
“The political calendar is likely to make some investors sit uneasy on some positions, particularly as the prevailing opinion remains that none of the anti-European parties will have a significant chance of getting close to power,” RBC Capital Markets strategists wrote in a note on Tuesday quoted by Reuters. “Whilst this is also our expectation, complacent markets will likely face at least one moment where the iron-clad view will be questioned.”
Among the rising political din, the markets broadly ignored a 3.0% plunge in German industrial output (exp.+0.3%), the biggest drop in 8 years, and yet another indication that the favorable global macro impulse driven mostly by China’s record credit injection in 2016 is fading fast.
European corporate earnings offered some cheer even though oil giant BP missed estimates, but failed to completely shrug off the unease fueled by the growing unpredictability of the French presidential election race. National Front Leader Marine Le Pen has vowed to fight globalization and take France out of the euro zone, while conservative candidate Francois Fillon on Monday vowed to fight on for the presidency despite a damaging scandal involving taxpayer-funded payments to his wife. Earlier on Tuesday, Emmanuel Macron, the independent centrist candidate and favorite to win the election, knocked down rumors he has a gay relationship outside his marriage since 2007.
Chipmaker AMS rose 16%, poised for its best-day ever after the company’s fourth-quarter revenue came in at the top end of the chipmaker’s expectations. BP was the biggest drag on the broader index, down 2.5%.
Elsewhere, MSCI’s index of Asia-Pacific ex-Japan fell 0.3% while Japan’s Nikkei closed down 0.35%, driven by a stronger Yen, although the USDJPY has since rebounded stronly. Chinese shares dropped 0.4%ahead of data that showed FX reserves fell for the seventh straight month in January and below $3 trillion for the first time in six years.  The dollar rose 0.5 percent against the offshore yuan its biggest rise in three weeks. Concerns remain over the speed at which China has depleted its cash resources to defend the currency. Reserves were almost $4 trillion in mid-2014.
U.S. stock futures pointed to a 0.3% higher open, undoing all over Monday’s 0.2% drop.
Oil prices buckled under the dollar’s gains, extending their decline following the biggest one-day loss since Jan. 18 on Monday as worries about rising oil supply out of the United States tussled with optimism about output curbs elsewhere. U.S. crude fell 0.5% to $52.72 a barrel, after falling 1.5% on Monday. Brent fell 0.6% to $55.40, after sliding 1.9% on Monday.
Bulletin Headline Summary from RanSquawk
- European stocks trade with little direction in a similar fashion to their Asian counterparts amid light new fundamental news
- Energy underperforms in line with oil prices while soft BP earnings sees them lag in the FTSE 100
- A light economic calendar remains the case today, with highlights including US API crude oil inventories, comments from ECB’s Weidmann and earnings from Walt Disney
Market Snapshot
- S&P 500 futures up 0.3% to 2293
- Stoxx 600 up 0.4% to 363
- FTSE 100 up 0.6% to 7216
- DAX up 0.4% to 11557
- German 10Yr yield down 1bp to 0.36%
- Italian 10Yr yield down 3bps to 2.35%
- Spanish 10Yr yield down less than 1bp to 1.78%
- S&P GSCI Index up less than 0.1% to 396.9
- MSCI Asia Pacific down 0.3% to 142
- Nikkei 225 down 0.3% to 18911
- Hang Seng down less than 0.1% to 23332
- Shanghai Composite down 0.1% to 3153
- S&P/ASX 200 up 0.1% to 5622
- US 10-yr yield up less than 1bp to 2.42%
- Dollar Index up 0.77% to 100.68
- WTI Crude futures down 0.3% to $52.84
- Brent Futures down 0.3% to $55.53
- Gold spot down 0.5% to $1,229
- Silver spot down 0.8% to $17.60
