News & Views: Monday, November 24
What you need to know for today's trading day.
Iran Nuclear Talks Seen Ending With Only Agreement to Talk More (Bloomberg)
Iran May Propose Million-Barrel Daily OPEC Cut in Saudi Talks (Bloomberg)
Natural Gas Joining Commodity Losers as U.S. Arctic Blast Ends (Bloomberg)
Stalled Greek bailout talks to resume in Paris on Tuesday (Reuters)
China's Companies Scrap $1 Billion in Bond Sales as Yields Jump (Bloomberg)
Japanese markets were closed overnight for Labor Thanksgiving Day, and will remain closed until Tuesday.
The assets having the largest positive risk-adjusted return overnight are Chinese equities, led by the offshore Hong Kong Hang Seng index, but most of that is follow through from the post rate cut optimism on last Friday. To put that into perspective, the US-domiciled H-share ETF FXI is up 80bps this morning and the A-shares ETF ASHR is up ~120bps. There was a number of bearish research notes out this weekend about how the rate cut will do very little for the Chinese economy, but it's always important to keep in mind that Chinese equities are equally as insensitive to economic data as US equities and more susceptible to changes in monetary policy, which is clearly tilted dovish and shows no signs of stopping in that regard. Similarly, the Chinese yuan is showing the largest negative risk-adjusted return in currencies. Lowering the FX value of your currency is the new "keeping up with the Joneses" - especially in Asia.
Other equity indices are also having follow through from last Friday, most notably Spanish equities, which is the top performing equity index on a risk-adjusted basis overnight that was not closed when the PBoC cut rates. European credit indices are also the top performing fixed income assets on a risk-adjusted basis this morning. Lastly, European peripheral sovereign bonds are having 5 to 6bps of spread tightening this morning at their 5yr points even though ECB Vice President Constancio said over the weekend that the central bank will monitor the effects of the program in the first quarter and decide if a larger scope of assets is needed to increase the size of its balance sheet at the pace they had expected. It's certainly not a "no" for QE, but it's on a different timetable than the market has expected.
Separately, the European Commission announced this weekend that it is starting a 26bln Euro fund that would work as a risk-sharing device for private investment. This can only be viewed as a positive evolution for growth in Europe because it bridges the gap between efficient (private) and inefficient (public) uses of capital.
Natural gas futures are the worst performing commodity on a risk-adjusted basis this morning and are down 10% over the past two sessions. Temperatures next week are moderating even though we may see snow this week in the Northeast. Another polar vortex is still forecast for the winter season, however.
Oddly, news came out this weekend that the Iran energy ministry will speak with Saudi Arabia - the main controller - at the OPEC meeting this Thursday in Vienna to cut production by 1mm barrels per day according to press reports this weekend. However, crude oil, both Brent and WTi, are slightly lower this morning, which puts things into perspective in terms of what is "priced in."
- German IFO current assessment (Nov) up to 110.0 vs 108 expected, prior 108.4
- German IFO expectations up to 99.7 vs 98.5 exp, prior 98.3
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