Euro Drops on Draghi; S&P 500 Futures Rise With Emerging Markets
Frankfurt (Nov 20) A sliding euro, record-low bond yields in Europe and the best week for emerging markets since mid-October show financial markets are heeding central banks’ efforts to prime them for key policy decisions next month.
The shared currency weakened toward a seven-month low versus the dollar as European Central Bank President Mario Draghi hinted at additional monetary easing, just as the Federal Reserve prepares to raise interest rates. U.S. stock futures advanced while yields on German notes slid to all-time lows. Emerging-market equities and currencies extended their best week since mid-October.
“We should be in little doubt that the ECB are again attempting to adjust the monetary policy dial,” said Jeremy Stretch, head of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “While far from an explicit aim, easing monetary conditions, via a cheaper euro is also a positive by-product of such policies.”
Central bankers in Europe and the U.S. are attempting to keep a lid on volatility before their policy decisions in December. Stocks around the world rallied this week and bonds were supported by optimism the Fed will take a gradual approach to raising interest rates. U.S. policy makers have done their best to prepare investors for higher borrowing costs, according to Vice Chairman Stanley Fischer.
The euro dropped 0.5 percent to $1.0682 at 7:41 a.m. New York time, approaching Nov. 18’s low of $1.0617 that was its weakest level since April. Germany’s two-year note yield touched minus 0.389 percent and the Stoxx Europe 600 Index rose 0.3 percent, set for a 3.4 percent advance on the week that would be the most in a month.
The euro fell against every other major currency apart from the ruble and Czech koruna, dropping the most against Malaysia’s ringgit, Indonesia’s rupiah and South Korea’s won. It fell 0.5 percent to 131.21 yen.
A Bloomberg measure of 20 developing-nation currencies was poised for its first weekly advance since the period ending Oct. 9. The gauge gained for a fourth day, heading for a 0.8 percent advance this week. Brazil’s real and South African’s rand are the biggest winners this week, each strengthening more than 3 percent versus the dollar.
The Bloomberg Dollar Spot Index, which tracks the U.S. currency versus 10 major counterparts, was little changed on the week, held back by investor speculation that the pace of Fed rate increases will be measured.
Standard & Poor’s 500 Index E-mini futures expiring in December rose 0.3 percent, with the gauge already headed for a 2.9 percent advance this week. Nike Inc. added 4.2 percent in early New York trading after saying it will buy back $12 billion in stock and split its shares 2-for-1.
Energy companies and banks declined in European markets, while miners gained. Barclays Plc fell 2.1 percent after Morgan Stanley lowered its rating on the stock. National Bank of Greece SA tumbled 30 percent, extending a record low, after completing a share sale.
ABN Amro Group NV climbed 3.4 percent after raising 3.3 billion euros in an initial public offering. Imperial Tobacco Group Plc gained 2.2 percent on speculation that British American Tobacco Plc is arranging financing to make a takeover bid for its peer.
Spanish government bonds advanced for a fourth day, pushing the 10-year yield down six basis points to 1.63 percent, the lowest this month. Italy’s 10-year yield slipped three basis points to 1.49 percent.
Germany’s 10-year bunds were little changed after a nine-day rally fueled by speculation the ECB is preparing to boost stimulus, either by cutting its deposit rate, expanding its bond-buying program, or both. The yield on the nation’s five-year notes fell to minus 0.15 percent, the least since April. Austria’s two-year note yield set an all-time low.
In Japan the two-year note yield held at minus 0.02 percent, the lowest since Jan. 21 on a closing price basis.
U.S. Treasuries were little changed with the 10-year yield at 2.25 percent. The Bank of America Merrill Lynch MOVE Index of price swings in U.S. debt fell for a second day on Thursday after touching the lowest this year on Nov. 16.
“It’s a good world to be in,” said Fabrizio Fiorini, chief investment officer at Aletti Gestielle SGR SpA in Milan. “A Fed rate hike in December will be positive because we will wake up the day after and we will discover that emerging markets don’t suffer, dollar doesn’t appreciate more and rates are higher but not in a dramatic way.”
The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies climbed was little changed at 71 basis points. An index of default swaps on junk-rated companies was at 296 basis points.
The MSCI Emerging Markets Index was headed for a 2.5 percent weekly advance. Philippine equities rose 1.6 percent, the most among peers, on the first day of trading after a two-day holiday.
While emerging-market stocks have trailed developed nation peers by 51 percentage points over the last three years as commodity prices and economic growth slowed, Goldman Sachs Group Inc. predicts they’re about to turn the corner. Developing countries will grow 4.9 percent next year, from an estimated 4.4 percent in 2015, marking the first acceleration since 2010, Goldman Sachs said.
As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year EM assets put in a bottom and start to find their feet,” strategists led by Kamakshya Trivedi wrote in a note Thursday.
Zinc jumped for a second day on the London Metal Exchange, rising from a six-year low. Copper rose 0.6 percent to $4,659 a ton. Gold climbed 0.2 percent after Draghi’s comments.
Oil, trading near a 12-week low, headed for a third weekly decline in New York on signs a global glut will be prolonged amid the longest run of U.S. stockpile gains in seven months. West Texas Intermediate futures dropped below $40 a barrel on the New York Mercantile Exchange, to the lowest since August.