Date: December 27, 2018:
U.S. Futures Slump Back, Denting Epic Stock Rally: Markets Wrap
The biggest one-day rally in American equities since 2009 faded into memory as U.S. stock-index futures tumbled alongside European shares on Thursday. Treasuries climbed, as oil and the dollar gave up some of the previous session’s advances. Contracts on the S&P 500, Dow and Nasdaq all retreated, after the underlying benchmarks soared about 5 percent Wednesday on signs of robust consumer spending. Losses in utility companies and carmakers dragged the Stoxx Europe 600 Index into the red. Asian shares were mixed, though Tokyo’s Topix Index posted the biggest advance in two years. Havens came back in vogue, with Treasury 10-year yields falling back below 2.8 percent, and gold climbing with the yen. European bonds were mixed. The euphoria of equity investors has lessened from Wednesday, when strong economic data eased concern about both the tenure of the Federal Reserve chief and progress on U.S.-China trade talks. Even with the previous session’s surge, it’s still a horrible month for American stocks, with the S&P 500 down almost 11 percent. Emerging markets are doing better, thanks to expectations of less aggressive tightening by the Fed. Elsewhere, WTI crude oil prices gave up a slice of the more than 8 percent gain from the previous day.
Italian Bonds Rise as Demand Increases at Two-Year Debt Auction
Italy’s bonds climbed after the Treasury successfully sold two-year debt, with investor demand rising from last month. The nation’s bonds reversed earlier declines, with investors offering to buy 1.78 times the amount of securities on sale, compared with a bid-to-cover ratio of 1.56 at the previous auction. The Treasury in Rome plans to auction as much as 5 billion euros ($5.7 billion) of debt Friday, including benchmark five-year and 10-year securities. Those sales represent the final government debt supply in the euro area for 2018. The results will provide an indication of the underlying demand for Italian bonds next year, according to Danske Bank A/S. Italian 10-year yields dropped last week to the lowest level since July after the government struck a deal with the European Commission on its 2019 budget, avoiding a disciplinary procedure. The nation’s parliament will vote on the budget by Dec. 29, according to La Repubblica, without saying where it got the information. There should be “decent demand at the auction as Italy has struck a deal on the 2019 budget with the EU,” said Jens Peter Sorensen, chief analyst at Danske Bank. “Typically, the auction is a good indicator for the demand for Italian government bonds going into 2019. If there is strong demand at the auction, then Italy tends to perform well in January,” he said. Italian 10-year yields fell three basis points to 2.80 percent as of 12:52 p.m. in London, after climbing to 2.91 percent. The yield spread versus German bunds narrowed one basis point to 257 basis points, after touching 249 on Dec. 20, the tightest since Sept. 28. The FTSE MIB index fell as much as 1.6 percent. Italy sold 2 billion euros of zero-coupon bonds due November 2020 Thursday. The increased demand came as investors sought the relative safety of fixed-income assets as equity markets across Europe tumbled. The FTSE MIB Index of stocks dropped to the lowest level in more than two years.
Hong Kong Exports Fall Unexpectedly on Global Slowdown
Hong Kong’s exports contracted unexpectedly in November, highlighting the risks for the trade-dependent city whose top two partners are embroiled in a trade war. Exports fell 0.8 percent compared to last year, versus almost 15 percent growth in October, the first decline since Jan 2017. Imports grew by 0.5 percent, pushing the trade deficit to HK$45 billion ($5.8 billion). Key Insights. Decreases in principal commodities like “non-metallic mineral manufactures,” electrical machinery, appliances and parts, textile yarn, fabrics and related products, contributed to the contraction, according to a statement by the Census and Statistics Department. Exports to China are more than half the total, and these shrank by 5 percent, while shipments to the U.S. and Japan, which are the second and third largest destinations, rose. “Looking ahead, merchandise exports could be subject to pressures as global economic growth continues to moderate. Despite the recent cooling of the US-Mainland trade tensions following the agreement reached in early December, the situation is still fluid and may add to the downside risks,” according to a government spokesman quoted in the statement.