TH: European stocks touch three-month high as euro drops before ECB
LONDON (Nov 30): European stocks rose to a three-month high, the euro touched its weakest level since April and the yield gap between German and U.S. notes reached the widest in nine years as traders prepared for the European Central Bank to ramp up stimulus later this week.
The euro headed for its worst month versus the dollar since March with economists surveyed by Bloomberg unanimously predicting the ECB, led by President Mario Draghi, will take additional steps to boost inflation. 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. While carmakers led gains in Europe stocks, miners fell as shares in BHP Billiton Ltd. dropped to the lowest since November 2008 after iron-ore prices slid. Emerging-market stocks dropped to a two-week low.
The ECB’s monetary-policy decision on Thursday is just one of a slate of key economic events this week. The International Monetary Fund will decide whether to grant China’s yuan status as a reserve currency, OPEC members will meet to discuss oil production, Federal Reserve Chair Janet Yellen will appear before Congress, and then on Friday, the monthly U.S. payrolls report is due. With the odds of a U.S. interest-rate increase in December holding above 70%, the focus is shifting to policy divergence and how other central banks may respond to Fed tightening.
“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.”
Stocks
The Stoxx Europe 600 Index climbed 0.5% at 8:45 a.m. in New York, and E-mini futures on the Standard & Poor’s 500 Index were 0.2% higher.
Volkswagen AG and PSA Peugeot Citroen advanced more than 2%. Aryzta AG, a Swiss owner of bakery chains, jumped 6.8% after reporting quarterly sales that met analysts’ estimates.
BHP Billiton tumbled 4.1% in London, as Brazil sought as much as 20 billion reais (US$5.2 billion) compensation for a dam collapse at an iron-ore venture co-owned with Vale SA. Delta Lloyd NV sank 9.6% as the Dutch insurer said it will raise as much as 1 billion euros (US$1.06 billion) by selling stock in a rights offer. Aberdeen Asset Management Plc fell 4.1%, after the money manager reported quarterly outflows.
Currencies
The euro fell as low as US$1.0563, its weakest level since April. The currency has weakened 4% in November, its biggest loss since a 4.2% decline in March, when the ECB embarked on its 1.1 trillion-euro asset-purchase program.
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% gain versus the yen this month, the most since May.
Turkey’s lira rose 0.5% after its biggest weekly decline since March. The EU pledged to restart Turkey’s membership bid and a package of 3 billion euros in assistance for refugees in return for Turkey bolstering its border controls.
The offshore yuan rebounded from an early loss on suspected central bank intervention, before an International Monetary Fund vote on Monday on whether to add China’s currency to its reserves basket.
Bonds
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 U.S. 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 cost of insuring corporate debt was little changed. The Markit iTraxx Europe Index of credit-default swaps on investment-grade companies held near 70 basis points, while the non-investment grade Markit iTraxx Europe Crossover Index was around 292 basis points. Both indexes are set for their first back-to-back monthly declines since February.
The average yield on euro-denominated investment-grade corporate bonds fell to 1.22% 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 euros of five-year notes, according to a person familiar with the matter.
Commodities
West Texas intermediate oil added 1.1% to US$42.18 a barrel, before a decision on the Organization of Petroleum Exporting Countries’ production policy on Dec 4. Futures climbed in London, with Brent gaining 1% 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 U.S. and Europe. Platinum slipped to a seven-year low.
Iron ore with 62% content delivered to Qingdao dropped 3.4% to US$42.97 a dry ton on Monday, 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 $40 a ton for the first time.
Emerging Markets
The MSCI Emerging Markets Index fell 1.1%. The gauge has fallen 3.7% in November, exceeding the 0.4% drop in the MSCI World Index of developed stocks.
The Shanghai Composite Index gained 0.3% and ended November up 1.9%, its second monthly gain. Stocks erased losses in the last hour of trading on Monday, 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%, the most since September, after a report showed South Korea’s October industrial production missed estimates. Samsung Electronics Co. fell 3.2%. The company’s Vice Chairman Lee Jae Yong is unlikely to be promoted to chairman, Chosun Ilbo newspaper reported, citing an unidentified Samsung official.
