Daily Market Color

OPEC Meeting, Political Uncertainties Keep Investors Conservative

Trump equity rally eases as Treasury yields come off the highs  On Monday, investors reversed the trend from the three week post-election market action that had major US stock indexes reaching all-time highs as bond markets experienced a dramatic selloff.  We have seen a 0.1%-0.4% decline for the three main US stock indices during most of today’s trading session, while Treasury prices gained, pushing yields down 1-5 bps across major maturities.  The largest yield change have occurred in the belly of the curve.  We have also witnessed a rise in gold prices, as the commodity posted its biggest gains in four weeks.  The US dollar, in contrast, pared a portion of its gains from its recent surge.  After rising 1.5% against the Japanese yen in the days following the election, the dollar gave back as much as 0.8% today, bringing its value down to 112.3 Yen/$.   

Oil prices continued to fluctuate as OPEC’s formal meeting in Vienna draws nearer.  The latest updates include commentary from Saudi Arabia’s oil minister regarding the potential for moving forward without an agreement, and optimism towards securing a deal from the oil minister of Iraq.  On Sunday, Saudi oil minister Khalid Al-Falih discussed the possibility of leaving Vienna without a definitive plan in place, stating his belief that the market may rebalance anyway, with the potential for increased demand offsetting current supply.  Crude traded down 2% at the onset of the session before recovering, and ultimately gaining more than two percent after the Iraqi Oil Minister Jabbar Al-Luaibi expressed his hopefulness in striking an accord. WTI crude finished the day trading near $47/barrel while a barrel of Brent crude climbed to $48.15.    

Political Uncertainties Influence Global Markets
This year’s unexpected Brexit and American election populist outcomes have European investors concerned over the fate of Italy’s referendum set for this upcoming Sunday, December 4th.  The changes proposed in the vote would serve to restructure the nation’s current legislative process by reducing the power of the Senate and granting the prime minister greater law-making discretion.  The standing Italian prime minister, Matteo Renzi, has vowed to resign his position if a “no” outcome were to prevail, breeding further expectation of an early election that will feature a member from the Five Star Movement.  If elected, the populist party plans to enact a referendum similar to that of the U.K.’s, potentially leading to the departure of Italy from the European Union and threatening to disrupt the overall balance of the euro region.  With recent polls foreshadowing a “no” result, Italian bank stocks have tumbled while spreads between Italian and German 10-year bonds have widened to 189 basis points, the largest gap in 2.5 years. 

In France yesterday, former Prime Minister Francois Fillon secured the French Republican nomination after winning the run-off vote by a substantial margin.  Once considered an underdog, current polls point towards Fillon as the favorite to become the next French president (elections to be held in Spring 2017), promising widespread change in all facets of public policy.  His economic plans include eliminating the mandatory 35-hour workweek, cutting civil service jobs, raising the retirement age, and reducing public spending by 100 billion euros.  Much of Fillon’s increased popularity has resulted from the same voter sentiment that led to the election of Donald Trump, a desire for a change from the political status quo, which Fillon recognized in his campaign promise to change the country’s “software.”  

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