Thursday is a stronger version of Wednesday for global shares with deeper dollar weakness
European stocks regain mojo
European shares are on course for their second back-to-back weekly gains since May. After a punishing summer, ‘momentum’ effects are possible as the end of the week nears, and participants look to book solid gains. Investors are more likely to keep hold of them by Friday’s close if the lull in escalation between Washington and Beijing holds. With zero locus of control, wariness isn’t far below the surface. These indices still feel like they could turn on a dime—and in fact they did exactly that, in recent days.
Miners, banks favoured
Emerging market-linked shares are prominent again. Standard Chartered has led most of London’s session. Investors could be offering more latitude to than would be seen in a more unsettled market. The lender released details of Nigeria’s investigation into StanChart’s role in a debacle involving South African’s MTN and a subsidiary in the east African country. The stock is down 18% this year compared to a 12% fall by the FTSE 350 Banks index, matched by Europe’s banking gauge. For now, StanChart contributes to lifting Europe’s bank shares to the top of the pack. Lenders continue to ride rising yields, though pressures that pushed them off side for the persist. Mining news also underpins improved investor appetite for that sector, reflecting firmer counterparts in China this week. Waiting in the wings once the swell passes are further dominoes falling in the metals complex. Nickel succumbed to reduced demand this week and now trades below January levels.
Technology downtime done
U.S. technology leaders retake the initiative in volume after Wednesday’s brief swing into leading Chinese techs. Slightly puzzling, after a revival in Treasury yields triggered a rethink on high-growth, low-yielding U.S. techs earlier in the week. But the Dollar Index has affirmed apparent strength across majors with a clear crack below the neckline of a ‘head & shoulders’ support. Whilst the benchmark yield is comfortably above 3%—at 3.075%, it’s down from Wednesday’s 3.0920% cycle high. Investors are signalling they don’t expect the rate to continue accelerating at this week’s pace.
Salzburg music barely changed
Such speculation could yet to be proved to be incorrect. On Thursday though, ‘major’ currency momentum comes from many sources. Norway’s central bank unexpectedly signalling slower hikes for one, catapulted EUR/NOK to the biggest hourly gain of the year. Short covering also supports the single currency, as does Brexit news. Salzburg’s summit in all probability will wind down with no sign of a deal—mostly on the ‘backstop’—though that is partly why a handful of EU gatherings were scheduled through to late November. For sterling, incrementally improving Brexit deal prospects come on the back of improving data, whilst rate markets price more tightening beyond another expected in December. There are now decent chances OIS could soon project the first 2019 rise in June (currently pegged at 20.16bp), rather than August (now pricing a 25.67bp rise).
Fed in view
At the same time, yield differentials still favour the dollar. The U.S./Germany 10-year spread remains near a record wide. Elsewhere, the best guess on currencies in the stressed half of the G20 and beyond is that relief is a pause rather than a turn. Next week’s Fed event risk and broad reaction should begin to answer some of the questions left for investors by this week’s surprises.