Global equity and crude oil markets attempted a tentative recovery on Wednesday after three days of sharp losses that saw investors seek out the safety of bonds amid mounting pessimism over world growth.
Oil’s spectacular fall – down almost 10 percent since last Thursday – and world stocks’ plunge to 19-month lows have spurred speculation the U.S. Federal Reserve might be done with tightening after its policy meeting later in the day.
While Brent crude inched up 0.7 percent to $56.6 a barrel after plunging 6 percent overnight, its 35 percent fall since October is sending a disinflationary pulse through the world just as trade and economic activity are cooling LCoc1.
The latest jolt on the growth front came from Japan which said its export growth slowed to a crawl in November, an ominous signal for the trade-focused economy.
And on Tuesday, logistics and delivery firm FedEx, considered a bellwether for the world economy, slashed its 2019 forecast, noting “ongoing deceleration” in global growth”.
European shares opened a touch firmer and MSCI’s global equity index firmed a touch, though it remains near 19-month lows, and has fallen 6 percent since the start of this month .MIWD00000PUS, given the fragile nature of the Sino-U.S. tariff truce and signs that company earnings worldwide are slowing.
“It’s a confluence of several important factors: the market is adjusting its outlook on growth and there is a consensus we will see a slowdown. More importantly, the market is adjusting to the idea this will translate into lower earnings growth,” said Norman Villamin, chief investment officer for private banking at Union Bancaire Privee in Zurich.
“It’s being complicated by the tightening liquidity situation with the Fed expected to move today and the ECB having signaled the end of its (stimulus)”.
Futures <0#FF:> are sticking with a two-in-three chance of a rate rise on Wednesday and Villamin expects the Fed to move twice in 2019. That’s a more hawkish call than the broader market which is pricing less than one rise in 2019, down from three not long back.
The expectations of a Fed pause and the equity selloff sent 10-year Treasury yields to the lowest since August at 2.799 percent US10YT=RR – down 20 basis points in December – while two-year yields US2YT=RR touched a three-month trough of 2.629 percent, sliding from November’s 2.977 percent peak.
Yields in Japan and Australia also reached multi-month lows.
Reasons for the bond rally were easy to find. Bank of America Merrill Lynch’s closely watched monthly survey found more than half of its participants now flagging a global economic slowdown next year. It also showed the third biggest decline in inflation expectations on record.
The poll also revealed the largest ever one-month rotation into fixed-income assets, their gains coming at the expense of equities.
The steep drop in Treasury yields undermined one of the U.S. dollar’s major props and pulled its index back 0.3 percent to 96.8 .DXY, from a recent top of 97.711.
Against the yen, the dollar fell 0.15 percent to 112.37 yen JPY=, while the euro nudged up to $1.1383 EUR= from a $1.1266 low.
Villamin of UBP said that while uncertainty had grown about the Fed’s rate rise path, other currencies from the yen to the euro still lacked interest rate support.
“Why the dollar won’t be too weak is that the alternatives are not attractive,” he said. “The only real attractive currency out there is the dollar … we think dollar strength will stay another 3-6 months.”
U.S. futures pointed to a firmer Wall Street opening ESc1.
The bright spot on world markets is Italy where bond yields continued their fall after Rome struck a deal with the EU Commission over its contentious 2019 budget, signaling an end to weeks or wrangling.
The Italian/German 10-year bond yield gap – a measure of Italian risk – narrowed to around 255 bps, the tightest since late September DE10IT10=RR. That spread had been over 300 bps as recently as end-November.
“Everyone was expecting an agreement to be reached, but many people were expecting this to come in Q1 or Q2 next year,” said Commerzbank rates strategist Michael Leister.
“With risk sentiment stabilizing this morning, it looks like the momentum can increase in Italian bonds.”
Additional reporting by Wayne Cole in Sydney and Dhara Ranasinghe in London; Editing by Andrew Heavens
Eric Trump bragged about the stock market as the US crossed 100,000 dead — and it didn’t go well
On Wednesday, the number of reported coronavirus deaths in the United States officially hit the 100,000 mark — a milestone experts have been anticipating for days.
But at the same time, President Donald Trump's second son chose to take the moment to brag about how the stock market was doing.
GREAT DAY for the DOW!! https://t.co/t0cK3wOKUu
— Eric Trump (@EricTrump) May 27, 2020
Navajo Nation got masks from a former Trump official — that ‘are not approved by the FDA’: report
The Indian Health Service acknowledged on Wednesday that 1 million respirator masks it purchased from a former Trump White House official do not meet Food and Drug Administration standards for “use in healthcare settings by health care providers.”
The IHS statement calls into question why the agency purchased expensive medical gear that it now cannot use as intended. The masks were purchased as part of a frantic agency push to supply Navajo hospitals with desperately needed protective equipment in the midst of the coronavirus pandemic.
ProPublica revealed last week that Zach Fuentes, President Donald Trump’s former deputy chief of staff, formed a company in early April and 11 days later won a $3 million contract with IHS to provide specialized respirator masks to the agency for use in Navajo hospitals. The contract was granted with limited competitive bidding.
‘There needs to be a prosecution’ of cop who killed George Floyd: CNN guest says ‘call it what it is’
On CNN Wednesday, criminal defense attorney Joey Jackson walked through why the Minneapolis police officer responsible for George Floyd's suffocation death must be prosecuted.
"Bottom line, question here from looking at this, should the officer face charges?" asked host Erin Burnett.
"Erin, I don't think there is any question about that, and I think if you look at it, under any reasonable measure there needs to be a prosecution," said Jackson. "You know, when you look at issues of excessive force — and I know this comes with a lot of emotion, and it should because of the blatant nature of what occurred. But if you even look at it legally and forget about the emotion, you look and you see, was there an imminent fear that the officer was facing when he had his knee in the neck of Mr. Floyd? And the answer is resoundingly no. You look at the force he used, that is the officer, and you say is it proportionate to whatever threat was posed? The answer is no, you don't see any threat. You see a person detained and really not resisting at all."