Futures, Oil Dip On Stronger Dollar Ahead Of "Hawkish" Yellen Speech

With Europe back from Easter break, we are seeing a modest continuation of the dollar strength witnessed every day last week, which in turn is pressuring oil and the commodity complex, and leading to some selling in US equity futures (down 0.2% to 2024) ahead of today’s main event which is Janet Yellen’s speech as the Economic Club of New York at 12:20pm, an event which judging by risk assets so far is expected to be far more hawkish than dovish: after all the S&P 500 is north of 2,000 for now.

Crude slid below $39 a barrel in New York in a fourth day of losses while commodity currencies such as Russia’s ruble and the Norwegian krone weakened. Euro-area sovereign securities climbed as lower energy prices dimmed the outlook for inflation and the European Central Bank prepared to increase its asset-purchase plan by 20 billion euros ($22 billion) a month in April. Treasuries advanced and U.S. equity-index futures dropped before a speech from Federal Reserve Chair Janet Yellen and several key pieces of economic data this week culminating in payrolls figures.

The shaky sentiment was summarized by Pedro Ricardo Santos, a broker at X-Trade Brokers DM SA in Lisbon. who told Bloomberg that “the correction in oil prices is outweighing any optimism about the economy in the markets. Investors will also expect a little more hawkishness from Yellen’s speech today. Although the likelihood of a rate increase in April is practically zero, many are looking for two more hikes by the end of the year.”

Market Snapshot:

S&P 500 futures down 0.2% to 2024

Stoxx 600 up 0.3% to 336

FTSE 100 up 0.3% to 6126

DAX up 0.7% to 9920

German 10Yr yield down 3bps to 0.15%

Italian 10Yr yield down 6bps to 1.24%

Spanish 10Yr yield down 7bps to 1.45%

S&P GSCI Index down 0.9% to 325

MSCI Asia Pacific down 0.5% to 127

Nikkei 225 down 0.2% to 17104

Hang Seng up 0.1% to 20366

Shanghai Composite down 1.3% to 2920

S&P/ASX 200 down 1.6% to 5005

US 10-yr yield down 1bp to 1.87%

Dollar Index up 0.13% to 96.07

WTI Crude futures down 1.4% to $38.83

Brent Futures down 1.8% to $39.70

Gold spot down 0.3% to $1,218

Silver spot down 0.8% to $15.12

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Looking at regional markets, we start in Asia stocks traded mostly negative following a subdued lead from Wall St. where discouraging data and a lack of EU participants kept risk-sentiment in check. ASX 200 (-0.77%) returned from its prolonged weekend to extend on last week’s financials weakness, while Nikkei 225 (-0.25%) was heavily pressured from the open following the largest decline in retail sales since 2014 and mass ex. dividends in Japan which totalled over 75% of Topix shares. Chinese markets (Shanghai Comp. -1.3%) conformed to the downbeat tone in the region and continued its recent declining trend with participants cautious ahead of several large named earnings reports and key PM! releases this week. 10yr JGBs traded lower with participants side-lined ahead of fiscal year-end, while the BoJ also refrained from entering the market with its bond purchase program.

Asia Top News

China Bull Who Beat 99% of All Bond Funds Says Yuan Drop Is Over: Seaman sees yuan rising on average 2-3% each year over decades

Offshore Yuan Gains as PBOC Raises Fixing, Fed Rate Bets Recede: Central bank boosts reference rate by most since March 18

RBA Rate Cut in Response to Stronger Aussie Seen by Bond Bull: Monetary easing more likely in 2H, Gor says

India Open to Importing U.S. Oil in Effort to Diversify Sources: India purchasing Iranian crude and engaging in other projects

Malaysia Building Society Becoming Islamic After Failed Mergers: Lender has stopped offering conventional loans, CEO says

European participants return from their long weekends today to see equities firmly in the green (Eurostoxx: +0.3%). Stocks have benefitted from upside in financials, with this the best performing sector in Europe. Material names underperform amid downside in the commodity complex, with a bid in USD weighing on the likes of WTI, which resides around the USD 39/bbl level, and base metals which are broadly in the red.