The Monday Market Minute
- Global stocks hold near all-time highs amid U.S.-China trade optimism, but U.S. airstrikes in Iraq and Syria unsettle bulls and boost crude prices.
- U.S. military strikes on Kataib Hezbollah militants follow the killing of a civilian American contractor in Iraq on Friday.
- Global oil prices hit three-month highs following the attacks, boosted as well by a bigger-than-expected 5.5 million draw down of U.S. crude stocks last week.
- Improving global investment tone clips gains for the U.S. dollar, which is on pace for its weakest gain in six years against a basket of six global currencies.
- Wall Street futures set for modest gains for both the Dow and the S&P 500 heading into a holiday-thinned trading week for global financial markets. .
Wall futures edged lower Monday, while oil prices jumped to the highest level in three months following U.S. airstrikes on suspected Iran-backed militia in Iraq and Syria.
The U.S. military strikes late Sunday, carried out in response to the killing of an American contractor and four U.S. servicemen working at an Iraqi military base, reportedly killed as many as 25 Kataib Hezbollah fighters and could trigger renewed tensions between Washington and Tehran heading into the new year.
Oil prices extended gains in overnight trading following the airstrikes, taking global crude to the highest level in three months, as traders bet the military action would slow Iraqi exports.
A bigger-than-expected reduction in U.S. crude supplies of 5.5 million barrels last week, as well as hopes that a phase one trade deal with China will be formalized in the coming weeks, added to the bullish tenor that lifted by U.S. crude prices even as Wall Street equity futures drifted lower.
Contacts tied to the Dow Jones Industrial Average suggest only a modest 20 point dip at the start of trading, following on from Friday's record close, while those linked to the S&P 500 look to clip around 2.5 points to the benchmark, which is on pace for a year-to-date gain of 29.25%.
Brent crude futures contracts for February delivery, the global benchmark, were seen 49 cents higher from their Friday close in New York and trading at $68.65 per barrel, while WTI contracts for the same month were marked 18 cents higher at $61.90 per barrel.
European stocks, however, drifted lower in thin volumes Monday as investors stayed away from markets during the holiday-shortened week, with the Stoxx 600 benchmark slipping 0.37% in Frankfurt and Britain's FTSE 100 sliding 0.27% in London as the pound edged higher, to 1.3111 against the U.S. dollar.
Improving global market sentiment, which has helped not only U.S. markets hit record peaks but also lifted European markets to all-time highs earlier this month, has taken some steam out of the U.S. dollar, however, as has the Federal Reserve's balance sheet expansion and dovish signalling on interest rates.
The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.1% lower in early Monday trading at 96.84, putting it on pace for a modest 0.7% year-to-date gain, the weakest in six years.
Overnight in Asia, the dollar weakness gave regional markets a boost, as did reports of further tinkering on interest rates from the People's Bank of China, as the MSCI Asia ex-Japan index bumped 0.08% to the upside -- and the highest level in 18 months -- even as Japan's Nikkei 225 closed 0.76% lower at 23,656.62 points heading into an extended New Year holiday season.