Thursday 08:40 GMT
Overview
The euro is a touch firmer and Bund yields are trundling higher with Treasuries as traders await the latest monetary policy decision by the European Central Bank.
Oil prices are trying to rally after a savage sell-off, but energy stocks are under pressure and weighing on equity benchmarks.
Hot topic (1)
After a period when politicians seemed to rule the market roost — the Trump presidency and French election concerns, for example — the central banks are back.
Monetary policy is in focus as the European Central Bank prepares to deliver its strategy decision on Thursday, and investors adjust to the prospect of a higher US interest rate environment.
The ECB is not expected to change interest rates from their record low levels.
But what about its €2.3tn stimulus programme? President Mario Draghi potentially faces a difficult task in convincing the market that he can navigate a path between ensuring the less healthy parts of the bloc’s economy continue to benefit from his largesse while also assuaging those concerned about signs of bubbling global inflationary pressures. A report on Thursday showed China factory gate prices accelerating at the fastest in eight years, for example.
All things considered, investors reckon Mr Draghi will err on the dovish side, given he would not want to be seen laying the path for an imminent policy tightening ahead of potentially euro-destabilising elections in the Netherlands and France.
As traders wait, the euro is up less than 0.1 per cent to $1.0547, while German 2-year and 10-year bond yields, which move opposite to their bond prices, are up 2 basis points to minus 0.83 per cent and up 3bp to 0.40 per cent respectively.
In contrast, similar maturity US government bonds are adding 1bp to 1.37 per cent and gaining 3bp to 2.58 per cent. The former is the highest 2-year yield since August 2009, and reflects growing expectations that the Federal Reserve may have to quicken the pace of interest rate rises given evidence of an improving economy.
Data released on Wednesday showed 298,000 private US sector jobs were created in February, 100,000 above forecasts and a figure that suggests the official monthly labour market report on Friday will not only cement expectations for a 25 basis point rate rise by the Fed next week but also makes the chances of another three hikes this year more likely.
Gold tends not to like higher US bond yields, which often deliver a firmer dollar, and so the precious metal is down another 0.2 per cent to $1,205 — its cheapest in five weeks.
Hot topic (2)
Oil prices are fighting to recover after a sharp fall in the previous session prompted by news that US crude inventories surged last week to a record high.
The size of the sell-off came as a shock to traders after more than two months of prices holding in a tight range, with the market seemingly finding equilibrium as Opec production cuts were seen being counteracted by increased output by US drillers.
Indeed moves had been relatively so meagre that the CBOE Oil Vix, a measure of implied market volatility, hit a 30-month trough of less than 25 at the start of March.
Meanwhile, speculators had built up near record futures and options bets that prices would eventually break higher.
This meant that when it was revealed on Wednesday that US stockpiles had risen by 8.2m barrels — four times analysts’ forecasts — the bulls had to scramble to close their long positions, adding to the selling. The CBOE Oil Vix jumped 20 per cent on the day to 31.7 as trading volumes ballooned.
Brent crude, the international benchmark that lost 5 per cent, is up 1.3 per cent on Thursday to $53.80 a barrel. West Texas Intermediate, the main US contract, is recovering 0.9 per cent to $50.73 a barrel after tumbling 5.4 per cent the day before.
Equities
US index futures suggest the S&P 500 will open later in the day at 2,364, recovering 1 of the 5.4 points lost on Wednesday when the S&P energy sector lost 2.5 per cent amid the oil price rout.
The pan-European Stoxx 600 is down 0.3 per cent as UK-listed miners attract sellers.
And energy company shares in Asia fared badly as they played catch-up. Australia’s S&P/ASX 200 lost 0.3 per cent as resources groups weighed, and the same dynamic was a feature of a 1.2 per cent drop for Hong Kong’s Hang Seng.
Tokyo’s Topix is relatively energy-light and so along with the sight of a weaker yen it outperformed with a 0.3 per cent advance, helped by gains in the IT and consumer discretionary segments.
Forex
The dollar continues to dominate. The yen is down 0.2 per cent to ¥114.60, near its weakest versus the greenback in five weeks.
Sterling is off 0.1 per cent to $1.2155, hovering near seven-week lows, as investors reflect on the government’s budget statement and remain concerned by the potential economic fallout of Brexit.
China’s renminbi is resting at its softest level in nearly two months.
Additional reporting by Hudson Lockett in Hong Kong
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