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Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges

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Emerging Markets
  • Bonds Rise With Emerging Markets After Trump Selloff; Oil Surges

The fallout from Donald Trump’s election to the U.S. presidency eased off in financial markets with Treasuries and emerging markets halting their slide. Stocks jumped with crude.

Treasury 10-year note yields fell from this year’s high and Italy’s bonds outperformed German bunds, which investors tend to favor in times of turmoil. The Dow Jones Industrial Average climbed to a record and shares in developing nations rallied after a four-day slump. The dollar advanced to a five-month high against the yen, and Mexico’s peso led gains among major currencies. Oil surged the most in seven months as OPEC members were said to be making a final diplomatic push toward securing a deal to cut output.

Trump’s election victory, which came with pledges to cut taxes, spend more than $500 billion on infrastructure and restrict imports, triggered a record selloff in global bonds as traders assessed the implication for inflation and interest rates. Some, including Fidelity Investments’ Ford O’Neil, have already expressed skepticism that Trump’s proposals will be fully backed by Congress, while Goldman Sachs Group Inc. last week said the rally in iron and copper was “too much, too fast.”

“Many people were surprised by the market reaction to the election, but now portfolio managers are starting to focus more on where potential investment opportunities may be with a Trump administration,” said Ross Yarrow, director of U.S. Equities at Robert W. Baird & Co. in London. There has been “lots of chatter of fiscal stimulus and tax reform, but there are still a lot of moving parts and no firm details.”

Bonds

The yield on benchmark Treasury 10-year notes dropped three basis points, or 0.03 percentage point, to 2.23 percent as of 4 p.m. New York time. The 41 basis-point jump over the last three trading sessions marked the steepest climb in more than seven years and the 14-day relative strength index for the securities indicated they were the most oversold since 1990, a potential signal that they may be set for a reversal.

O’Neil, who oversees about $100 billion in bonds for Fidelity Investments, said the sharp run-up in yields following the election may not be justified given that Trump will face resistance from Congress in getting his fiscal stimulus plans approved.

Federal Reserve Bank of Richmond President Jeffrey Lacker said Monday that easier fiscal policy may require higher rates, but it’s too early for the central bank to react to potential policy changes by the incoming administration.

Italy’s 10-year yield slid 12 basis points to 1.96 percent, after rising for five consecutive days, and that on Spanish securities with a similar due date dropped to 1.45 percent, from as high as 1.66 percent on Monday. German bund yields were little changed at 0.31 percent, as a report showed growth in Europe’s biggest economy slowed to the weakest pace in a year last quarter.

Indian bonds rallied on expectations liquidity will improve in the wake of Prime Minister Narendra Modi’s surprise Nov. 8 crackdown on unaccounted wealth through the withdrawal of high denomination bills. Japan’s 10-year bond yield increased to zero, having been negative for almost eight weeks, as a gauge of demand weakened at a sale of five-year securities on Tuesday.

Currencies

A broad index of the greenback fluctuated after a four-day rally, its longest in a month, as U.S. retail sales figures were stronger than forecast, while Federal Reserve Bank of Boston President Eric Rosengren said the central bank would tighten monetary policy faster with more fiscal stimulus. The president-elect’s proposals to increase spending and cut taxes are fueling bets economic growth will accelerate and push the Fed to raise interest rates.

“The dollar is potentially going to go a lot higher still, if we do go down the route of extra fiscal stimulus,” which would also result in higher interest rates, Jeremy Hale, head of global macro strategy and asset allocation at Citigroup Inc., said in a Bloomberg Television interview. “That mixture of growth stimulus through the fiscal side and tighter monetary policy can be very powerful for the currency.”

The Bloomberg Dollar Spot Index, which tracks the U.S. currency against 10 major peers, lost 0.1 percent. It surged 2.8 percent last week, the most since 2011, and on Monday erased its losses for this year. The greenback rose 0.8 percent to 109.23 yen.

The pound fell for a second day versus the dollar as a report showed U.K. inflation unexpectedly slowed in October. Bank of England Governor Mark Carney told lawmakers that sterling weakness was due to the outlook for slower growth.

The MSCI Emerging Markets Currency Index rose 0.4 percent as Mexico’s peso and South Africa’s rand rallied more than 1.8 percent. China’s yuan slipped to its weakest level since 2008.

Commodities

Iron ore slid 9 percent in Singapore, extending the last session’s retreat from a two-year high. The price soared by a record 27 percent last week, driven by speculative interest in China and optimism Trump’s policies will boost steel demand. Goldman Sachs said Friday that iron ore’s reaction to the Trump win was excessive, while Capital Economics Ltd. warned prices will face growing pressure from rising supply.

Copper pulled back from near a one-year high, while gold rebounded from a five-month low. It slid 4.4 percent over the last three days as the dollar strengthened.

Crude oil rose 5.8 percent to $45.81 a barrel in New York. Qatar, Algeria and Venezuela are leading the effort to finalize a deal, a delegate familiar with the talks said.

Stocks

The S&P 500 Index rose 0.8 percent to 2,180.39, after edging lower Monday for a second straight decline. The Dow Average advanced for a seventh straight day, while the Nasdaq Composite Index rallied 1.1 percent.

As central bankers look for signs of stronger growth, a report today showed sales at retailers rose more than forecast last month in a broad advance after an even stronger September than initially estimated, marking the biggest back-to-back increase since 2014. A separate reading on November manufacturing in the New York region unexpectedly rose.

“The retail sales data showed broad-based gains rather than just narrowly focused on home improvement and autos. That’s heartening,” said Brian Jacobsen, the chief portfolio strategist at Wells Fargo Funds Management LLC, which oversees $242 billion. “This is another data release that if the Fed had in hand when it met at the beginning of November, it probably would have hiked. The economic data isn’t likely going to derail this Trump-bump in the market. It could be handed off to a Santa Claus Rally.”

The Stoxx Europe 600 Index rose 0.3 percent. It has swung between intraday gains and losses for six sessions, matching a streak last seen in August, and has struggled to break out of a trading range of about 20 points since July.

CEO/Founder Investors King Ltd, a foreign exchange research analyst, contributing author on New York-based Talk Markets and Investing.com, with over a decade experience in the global financial markets.

Markets

Communities in Delta State Shut OML30 Operates by Heritage Energy Operational Services Ltd

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Oil

The OML30 operated by Heritage Energy Operational Services Limited in Delta State has been shut down by the host communities for failing to meet its obligations to the 112 host communities.

The host communities, led by its Management Committee/President Generals, had accused the company of gross indifference and failure in its obligations to the host communities despite several meetings and calls to ensure a peaceful resolution.

The station with a production capacity of 80,000 barrels per day and eight flow stations operates within the Ughelli area of Delta State.

The host communities specifically accused HEOSL of failure to pay the GMOU fund for the last two years despite mediation by the Delta State Government on May 18, 2020.

Also, the host communities accused HEOSL of ‘total stoppage of scholarship award and payment to host communities since 2016’.

The Chairman, Dr Harrison Oboghor and Secretary, Mr Ibuje Joseph that led the OML30 host communities explained to journalists on Monday that the host communities had resolved not to backpedal until all their demands were met.

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Markets

Crude Oil Recovers from 4 Percent Decline as Joe Biden Wins

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Oil Prices Recover from 4 Percent Decline as Joe Biden Wins

Crude oil prices rose with other financial markets on Monday following a 4 percent decline on Friday.

This was after Joe Biden, the former Vice-President and now the President-elect won the race to the White House.

Global benchmark oil, Brent crude oil, gained $1.06 or 2.7 percent to $40.51 per barrel on Monday while the U.S West Texas Intermediate crude oil gained $1.07 or 2.9 percent to $38.21 per barrel.

On Friday, Brent crude oil declined by 4 percent as global uncertainty surged amid unclear US election and a series of negative comments from President Trump. However, on Saturday when it became clear that Joe Biden has won, global financial markets rebounded in anticipation of additional stimulus given Biden’s position on economic growth and recovery.

Trading this morning has a risk-on flavor, reflecting increasing confidence that Joe Biden will occupy the White House, but the Republican Party will retain control of the Senate,” Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“The outcome is ideal from a market point of view. Neither party controls the Congress, so both trade wars and higher taxes are largely off the agenda.”

The president-elect and his team are now working on mitigating the risk of COVID-19, grow the world’s largest economy by protecting small businesses and the middle class that is the backbone of the American economy.

There will be some repercussions further down the road,” said OCBC’s economist Howie Lee, raising the possibility of lockdowns in the United States under Biden.

“Either you’re crimping energy demand or consumption behavior.”

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Markets

Nigeria, Other OPEC Members Oil Revenue to Hit 18 Year Low in 2020

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Revenue of OPEC Members to Drop to 18 Year Low in 2020

The United States Energy Information Administration (EIA) has predicted that the oil revenue of members of the Organisation of the Petroleum Exporting Countries (OPEC) will decline to 18-year low in 2020.

EIA said their combined oil export revenue will plunge to its lowest level since 2002. It proceeded to put a value to the projection by saying members of the oil cartel would earn around $323 billion in net oil export in 2020.

If realised, this forecast revenue would be the lowest in 18 years. Lower crude oil prices and lower export volumes drive this expected decrease in export revenues,” it said.

The oil expert based its projection on weak global oil demand and low oil prices because of COVID-19.

It said this coupled with production cuts by OPEC members in recent months will impact net revenue of the cartel in 2020.

It said, “OPEC earned an estimated $595bn in net oil export revenues in 2019, less than half of the estimated record high of $1.2tn, which was earned in 2012.

“Continued declines in revenue in 2020 could be detrimental to member countries’ fiscal budgets, which rely heavily on revenues from oil sales to import goods, fund social programmes, and support public services.”

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