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The Thursday Market Minute

  • Global stocks mixed in the wake of a dovish take on U.S. interest rates from Fed Chairman Jerome Powell, with stocks in China held down by trade concerns and U.S. markets losing steam from last night's rally.
  • Fed Chair Powell says U.S. rates "just below" neutral, reversing his October assessment and slowing rate hike bets for 2019, but also raising questions over Fed independence following stinging criticism from President Donald Trump.
  • Global oil prices extend declines as U.S. stockpiles swell to 450 million barrels amid record production and the longest streak of builds since 2015.
  • Deutsche Bank shares tumble as German prosecutors raid the lender's Frankfurt headquarters amid an ongoing European money laundering probe. 
  • U.S. equity futures slip modestly into the red in early European trading ahead of inflation and jobs data that could support Powell's assessment on rates even as he talks up the strength of the U.S. economy.

Market Snapshot

Global stocks traded mixed Thursday, with European and Asia markets riding the tailwind from last night's Federal Reserve-fulled rally on Wall Street while U.S. futures remained cautious as investors await developments from this week's make-or-break trade summit between President Donald Trump and Xi Jinping.

With that risk in focus, however, markets were given a huge dose of optimism yesterday when Federal Reserve Chairman Jerome Powell appeared to reverse an earlier assessment on monetary policy, telling the Economic Club of New York that the Fed Funds rate was "just below" a neutral rate that would neither accelerate nor slow growth in the world's largest economy. Last month, Powell had spooked markets by suggesting that rate was a "long way" from neutral, a view that triggered a near 10% correction in U.S. stocks and accelerated bets on faster rate hikes in 2019.

"We know that things often turn out to be quite different from even the most careful forecasts," Powell said. "Our gradual pace of raising interest rates has been an exercise in balancing risks", adding that rates, while "still low by historical standards" remain "just below the broad range of estimates of the level that would be neutral for the economy."

While Powell's change-of-heart can certainly be justified  by incoming data, particularly in the housing sector, there are concerns that recent criticism from President Trump, who said this week the Fed is "way off base" and that he's not "even a little bit happy" with his choice of Powell, has influenced the Fed's thinking and possibly affected its independence.

That might explain why last night's 2.5% rally on Wall Street, the biggest in eight months, was followed only by modest gains in Asia, where the Nikkei 225 closed 0.4% higher at 22,262.60 points and the MSCI Asia ex-Japan index was marked 0.63% higher into the final hours of trading. China stocks, meanwhile, fell more than 1.3% following a report that U.S. Trade Representative Robert Lighthizer had floated the idea of a 40% tariffs on China-made cars and criticized Beijing for its "egregious" trade policies.

Billions of Dollars are pouring into the coffers of the U.S.A. because of the Tariffs being charged to China, and there is a long way to go. If companies don't want to pay Tariffs, build in the U.S.A. Otherwise, lets just make our Country richer than ever before!

— Donald J. Trump (@realDonaldTrump) November 29, 2018

Early indications from U.S. equity futures also suggest some investor caution over trade heading into the planned Saturday meeting between Trump and Xi on the sidelines of the G20 summit in Argentina, with contracts tied to the Dow Jones Industrial Average indicating an 105 point decline while those linked to the S&P 500 guide to a 13 point pullback for the broader benchmark.

In Europe, the region-wide Stoxx 600 rose 0.1% by mid-day in Frankfurt, led by gains of nearly 0.3% for France's CAC-40. Britain's FTSE 100 was also on the move, rising 0.66% in London as the pound failed to rally against a softer U.S. dollar, boosting the value of stocks on the benchmark which generate most of their revenues outside of the United Kingdom.

Germany's DAX index, however, was essentially flat amid deep declines for Deutsche Bank (DB)  , which plunged Thursday after prosecutors in Germany raided the lender's Frankfurt headquarters as part of an ongoing probe into money laundering that has implicated several European banks over the past year.

Deutsche Bank shares were marked 3.75% lower at €8.27 each following news of the raid, a move that extends the stocks year-to-date decline to around 50% and trims its market value to around €16 billion.

European automaker shares were also weakened Thursday after a key European lawmaker, Budget Commissioner Gunther Oettinger, warned that the White House could apply fresh tariffs on exports to the United States before the end of the year.

Volkswagen AG (VLKAY) shares reversed earlier gains following news of Ottinger's comments, and were marked 0.7% lower on the Deutsche Boerse in Frankfurt at €148.80 each by mid-day. Domestic rival BMW AG (BMWYY) was marked 1.26% lower at €72.81 each while Daimler AG slipped 0.32% lower at €50.29 each. The Stoxx Europe 600 Automobiles and Parts index, which had traded 0.75% higher earlier in the session, slipped 0.13% into negative territory at 476.88 points following the Wirtschaftwoche report.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.2% higher on the session, and but nearly 0.2% lower from early Wednesday trading, as investors retreated to the euro and the yen following Powell's potentially-dovish speech in New York. Benchmark 10-year Treasury bond yields touched a mid-September low of 3.012% in early European dealing.

Global oil prices extended declines Thursday, taking U.S. crude prices below $50 for the first time in more than a year, after data from the Energy Information Administration yesterday showing U.S. crude stocks rose by a bigger-than-expected 3.58 million barrels last week, the 10th consecutive gain and the longest streak since 2015, taking the total to just over 450 million barrels. 

Brent crude contracts for January delivery, the global benchmark, were seen 68 cents lower from their Wednesday close in New York and changing hands at $58.08 per barrel while WTI contracts for the same month, which are more tightly liked to U.S gas prices, were marked 46 cents lower at $49.83 per barrel.