The Thursday Market Minute

  • Global stocks edge higher as government bond yields steady near multi-year lows in Germany and Japan, piercing equity market sentiment amid increasing recession concerns. 
  • U.S. Treasury curve remains inverted between 3-month bills and 10-year notes after tipping for the first time since 2007 last week.
  • Treasury Secretary Steve Mnuchin and Trade Representative Robert Lighthizer arrive in Beijing for high level trade talks amid reports of progress in key areas linked to technology transfers and intellectual property protections.
  • U.K. Prime Minister Theresa May vows to resign in order to push her Withdrawal Agreement over the final hurdle as lawmakers fail to agree on any of the eight Brexit options they voted on last night.
  • Global oil prices slide after a surprise 2.8 million build in U.S. crude stocks that was offset by reports of a modest decline in March OPEC production rates.
  • U.S. equity futures suggest a softer open on Wall Street ahead of weekly jobless claims and detailed fourth quarter readings for GDP growth, core consumer prices and consumer spending at 8:30 am Eastern Time.

Market Snapshot

Global stocks edged higher Thursday as reports of progress in U.S.-China trade talks offset a coordinated slide in government bond yields around the world, which continued to pierce equity market sentiment as data from the world's biggest economies weakens and recession concerns accelerate.

Benchmark government bond yields re-tested multi-month, and in some cases multi-year lows in overnight trading, with paper from both Japan and German trading deeply in negative territory at the lowest levels since 2016.

That's added further downward pressure on U.S. Treasury yields, which were already influenced by a dovish Federal Reserve, weakening manufacturing data and an unsteady housing market, to trade at a December 2017 low of 2.34% in overnight dealing. 

Still, stocks in Asia managed to hold onto at least meager gains heading into the close of the session, with the MSIC ex-Japan index edging 0.14% to the upside, following reports of notable progress in U.S.-China trade talks, specifically related to the sensitive issues of intellectual property theft and forced technology transfers, as Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arrive in Beijing for top-level negotiations.

U.S. equity futures, however, remained cautious, with contracts tied to the Dow Jones Industrial Average suggesting only a 30 point opening bell gain and those linked to the broader S&P 500 indicting a 2 point advance ahead of weekly jobless claims and detailed fourth quarter readings for GDP growth, core consumer prices and consumer spending. 

Equities are likely to remain skittish until the current turmoil in global fixed income markets subsides, although many analyst have suggested that U.S. stocks remain the only real alternative for risk-seeking investors in world where 10-year bonds from the world's third largest economy -- Japan -- trade with a negative yield of nearly 10 basis points.

German bunds, too, remain mired in negative returns after European Central Bank President Mario Draghi hinted that currency area interest rates aren't likely to rise this year and that the bank would look at "mitigating the side effects" of its negative deposit rate on the region's lenders.

Germany's Debt Management Office, meanwhile, sold €2.433 billion in 10-year bunds at a negative yield of 0.005%, while getting more than €6.31 billion in bids for the first benchmark sale with a negative yield in nearly three years. The sale means roughly one fifth of the world's outstanding debt -- around $11 trillion -- is trading with a negative yield.

European stocks were also weaker at the start of trading in London and Frankfurt, even as the euro slipped to 1.1239 following Draghi's dovish assessment of the region's economy yesterday, but reversed those declines to lift the Stoxx 600 dipping 0.29% higher by late morning trade. 

Britain's FTSE 100 added 0.7% as the pound slipped lower against the U.S. dollar in overnight trading after a series of so-called indicative votes in Parliament last night failed to find majority support for any of the eight Brexit options put forward, leaving lawmakers with little choice but to support Prime Minister Theresa May's Withdrawal Agreement or consider revoking Brexit altogether.

May attempted to push for the latter yesterday when she told 1922 Committee, a group comprised of Conservative Party members of parliament, that she will allow for a new leadership contest once her Withdrawal Agreement is passed in the House.

"This has been a testing time for our country and our party. We're nearly there. We're almost ready to start a new chapter and build that bright future," May told her party colleagues in a statement released by the Committee. "But before we do that, we have to finish the job at hand."

"I know there is a desire for a new approach -- and new leadership -- in the second phase of the Brexit negotiations and I won't stand in the way of that," she added.

Global oil prices were also on the back foot Thursday following a surprise build-up in U.S. crude stocks last week, based on Energy Information Administration data, which offset reporting from Reuters that suggested OPEC production levels narrowed modestly, to 13.4 million barrels per day, over the month of March.

Brent crude contracts for May delivery, the global benchmark for oil prices, were marked 25 cents lower from their Wednesday close in New York and changing hands at $67.58 per barrel in early European dealing while WTI contracts for the same month, which are more tightly linked to U.S. gasoline prices, were seen 315 cents lower at $59.26 per barrel.