Global Stocks, US Futures Rise Despite Growing Political Tension In Europe

In a relatively quiet session, which may see US traders sleep in a bit after last night’s Superbowl thriller, European and Asian shares rose ahead of Mario Draghi’s testimony at the European Parliament, while US equity futures were fractionally higher (up 0.1% to 2,293) after stocks jumped the most in a week, as traders assessed the trajectory for interest rates while scrutinizing every new Trump tweet.

As Reuters highlights, there was no overarching theme to Monday’s market moves, highlighting how correlations between financial market assets have broken down in recent months as investors sense the era of ultra-loose monetary policy may be winding up. The European STOXX 600 index rose 0.2%, led higher by basics resources shares and after some positive company results. MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.6%, with Taiwan .TWII leading the pack by adding 0.9 percent. Japan’s Nikkei rose 0.2%, with banks rising after U.S. Trump meets Japanese Prime Minister Shinzo Abe on Feb. 10 and 11, with trade and currencies likely to be on the agenda. China’s CSI 300 index rose 0.3%, though investors were cautious after the central bank unexpectedly raised short-term interest rates on Friday.

Despite the modest equity upside, caution has crept through European bonds and currencies after prospective French presidential candidate Marine Le Pen unveiled a manifesto pledge to take her country out of the euro, underscoring political risk in the world’s biggest single market, prompting gold, at $1,223, to what would be the highest close since November. The National Front leader on Sunday fired at globalization and monetary integration, calling for a referendum on European Union membership and a limit on immigration. The divergence between French and German bond yields became more pronounced, with the spread at the widest since 2013. Traders are assigning greater risk premiums to European countries where anti-establishment movements are gaining traction ahead of elections.

The euro was among the biggest losers among major currencies. The dollar inched up 0.1% against a basket of major currencies. Data on Friday showed average hourly earnings rose just 0.1 percent, suggesting any pick-up in inflation would be slight.This led some analysts to conclude the Fed would be in no hurry to raise interest rates. Currency investors are also awaiting details on expected pro-dollar tax and spending initiatives pledged by Trump. However, later on Friday, San Francisco Fed President John Williams said that the central bank can prepare to raise rates this year without knowing the details of any new U.S. fiscal policies.

Oil prices rose, partly due to the dollar’s relative weakness, but also on concern about any extension of new U.S. sanctions imposed on major oil producer Iran over that country’s missile program. Brent crude traded near the highest since 2015 amid fresh sanctions by the U.S. on Iran after a missile test. “The move by the U.S. to impose new restrictions on Iran … does raise the risk of further tensions disrupting (oil) supply,” ANZ bank said. Haven demand sent gold toward the highest close since November.

The Stoxx Europe 600 Index added 0.2 percent, after rising 0.6 percent on Friday. Miners climbed 0.9 percent, bouncing after a selloff on Friday, with Randgold Resources Ltd. gaining following quarterly results.

The yield on 10-year Treasuries lost one basis point to 2.45 percent. The yield difference between French and German 10-year bonds jumped above 70 basis points for the first time since 2014.French 10-year government bond yields 1.6 basis points to 1.1 percent. German equivalents, the euro zone benchmark, dipped 2 bps to a two-week low of about 0.4 percent, pushing the gap between the two to its widest in four years. “The likelihood of Le Pen winning is unlikely, but the situation in France is certainly raising fears among investors,” said DZ Bank rates strategist Christian Lenk. “French bonds will continue to underperform even though a lot is priced into the market.”

Among the key events this week we’ll see European banks including Societe Generale SA and UniCredit SpA report this week, and Sanofi and GlaxoSmithKline Plc will be among those delivering health-care earnings. Globally, watch out for numbers from SoftBank Group, the Walt Disney Co., Twitter Inc. and the Coca-Cola Co. The U.K. House of Commons will complete its debate on the Article 50 bill on Monday, the triggering of which will start the process of leaving the European Union. ECB President Mario Draghi can cite accelerating inflation, declining unemployment and 15 quarters of expansion as evidence that his stimulus policies are working when he appears before the European Parliament on Monday. He’ll probably also have to point to weak underlying price growth and a turbulent political environment

Market Snapshot

Global Top News