Euro weakens before ECB move as US stocks climb with commodities
LONDON, Nov 30 — The euro touched its weakest level since April and the yield gap between German and US notes reached the widest in nine years as traders prepared for the European Central Bank to ramp up stimulus later this week. US stocks advanced.
The euro headed for its worst month versus the dollar since March amid growing speculation the ECB, led by President Mario Draghi, will take additional steps to boost inflation. The weaker shared currency sent European stocks toward a second monthly gain, while the Standard & Poor’s 500 Index rose after its smallest weekly move since July. Emerging-market stocks slumped towards the worst week since August.
Economists in a Bloomberg survey unanimously predict the ECB will add to stimulus, highlighting a policy divergence with the Federal Reserve as the odds of a US interest-rate increase in December remain above 70 per cent.
“It’s all about assessing your positions ahead of the ECB this week,” said Allan von Mehren, chief analyst at Danske Bank A/S in Copenhagen. “While I think Draghi will deliver, the market has already been priced quite aggressively for a deposit- rate cut.”
In addition to the ECB’s policy decision on Thursday, the International Monetary Fund will decide this week whether to grant China’s yuan status as a reserve currency, OPEC members will meet to discuss oil production, Fed Chair Janet Yellen will appear before Congress, and then on Friday, the monthly US payrolls report is due.
Stocks
The S&P 500 rose 0.2 per cent at 9:31am in New York, with the index on track for a 0.7 per cent gain in November after surging 8.3 per cent in October.
“We’re treading waters for now as the markets are waiting for the central banks’ decisions,” said Benedict Goette, the Zurich-based founder of asset-management firm Compass Capital, currently merging with Crossbow Partners. “A Fed hike is pretty much priced in by now, so equities will probably trade in a tight range.”
The lull in the stock market is continuing after light trading amid the Thanksgiving holiday left US equities little changed last week. Investors are awaiting reports from pending home sales today to manufacturing data tomorrow and the monthly Labor Department jobs update on Friday.
The Stoxx Europe 600 Index climbed 0.4 per cent. The benchmark measure is heading for a 2.6 per cent monthly gain after rising 8 per cent in October. Carmakers led gains in November with an 8 per cent advance, while resource producers fell 7.6 per cent.
Miners fell today as shares in BHP Billiton Ltd. dropped to the lowest since November 2008 after iron-ore prices slid. Volkswagen AG and PSA Peugeot Citroen advanced more than 2 per cent. Aryzta AG, a Swiss owner of bakery chains, jumped 6.8 per cent after reporting quarterly sales that met analysts’ estimates.
Currencies
The euro fell as low as US$1.0563, its weakest level since April. The currency has weakened 4 per cent in November, its biggest loss since a 4.2 per cent decline in March, when the ECB embarked on its €1.1-trillion (RM5-trillion) asset-purchase programme.
The pound briefly fell below US$1.50 for the first time since April after the newest member of the Bank of England’s Monetary Policy Committee said he’s comfortable with keeping interest rates at a record low. The dollar is headed for a 2.1 per cent gain versus the yen this month, the most since May.
Turkey’s lira rose 0.5 per cent after its biggest weekly decline since March. The lira advanced after Turkey and the European Union agreed on measures to counter terrorism and help stem a refugee crisis, backed by EU aid.
The offshore yuan rebounded from an early loss on suspected central bank intervention before an International Monetary Fund vote today on whether to add China’s currency to its reserves basket.
Bonds
The yield on 10-year Treasury notes was little changed at 2.22 per cent, with the rate higher by eight basis points in November.
With the Fed and ECB headed in opposite directions on monetary policy, the extra yield that two-year Treasuries offer over their German counterparts widened to 136 basis points, the most since 2006 on a closing basis.
The yield on US two-year notes has climbed about 22 basis points in November, set for the biggest monthly gain since December 2009, while equivalent German bond yields have dropped the most since January 2014.
The average yield on euro-denominated investment-grade corporate bonds fell to 1.22 per cent on Friday, the lowest since June 2, according to Bank of America Merrill Lynch index data.
ISS A/S, the world’s largest listed cleaning company, was offering €500 million of five-year notes, according to a person familiar with the matter.
Commodities
West Texas intermediate oil added 1.1 per cent to US$42.18 a barrel before a decision on the Organisation of Petroleum Exporting Countries’ production policy on December 4. Futures climbed in London, with Brent gaining 1 per cent to US$45.32 a barrel.
Gold headed for the biggest monthly drop in more than two years on prospects for a stronger dollar as monetary policy diverges between the US and Europe. Platinum slipped to a seven-year low.
Iron ore with 62 per cent content delivered to Qingdao dropped 3.4 per cent to US$42.97 a dry ton today, the lowest level in daily data dating back to May 2008, according to Metal Bulletin Ltd. The most-active iron ore futures in Singapore sank below US$40 a ton for the first time.
Emerging markets
The MSCI Emerging Markets Index fell 1 per cent. The gauge has fallen 3.5 per cent in November, exceeding the 0.4 per cent drop in the MSCI World Index of developed stocks.
The Shanghai Composite Index gained 0.3 per cent and ended November up 1.9 per cent, its second monthly gain. Stocks erased losses in the last hour of trading today as a second day of price swings tested the government’s plan to trim support for the equity market.
Omani stocks extended the longest-losing streak on record as the price of the country’s main source of income, oil and gas, declined. The MSM30 Index slipped for a 19th day to the lowest in almost 12 months in the face of another year of shrinking government revenue.
The Kospi index fell 1.8 per cent, the most since September, after a report showed South Korea’s October industrial production missed estimates. Samsung Electronics Co. fell 3.2 per cent. The company’s vice chairman Lee Jae Yong is unlikely to be promoted to chairman, Chosun Ilbo newspaper reported, citing an unidentified Samsung official. — Bloomberg
