It's all about politics this morning as Italy's Renzi resigns following referendum defeat, Donald Trump does foreign policy via Twitter, and Brexit is back in the dock. Here are some of the things people in markets are talking about today.
No referendum panic
As polls predicted, Italian voters rejected Prime Minister Matteo Renzi's referendum on constitutional reform yesterday. And true to his word, Renzi announced that he would present his resignation to the president this morning. While initial market reaction was risk-off, with the euro and Italian assets hit, markets recovered their composure quite quickly. By 4:55 a.m. ET, the FTSE MIB Index was unchanged and the euro was trading at $1.0639. Italy's 10-year bond yield was 2.0167 percent, up 11 basis points, but certainly not showing signs of investor panic. Also in Europe, the re-run of Austria's presidential election yesterday saw the far-right candidate defeated by pro-European candidate Van der Bellen.
Brexit in dock
The U.K. Supreme Court will today hear the government's case against holding a vote in parliament before triggering Britain's exit from the European Union. The 11-judge court, which was only established seven years ago, is not expected to rule on the case before January. Meanwhile, rather than a hard or soft Brexit, government ministers now seem to be split on whether the U.K. should opt for a 'gray Brexit.' In eco-news, U.K. services PMI accelerated at the fastest pace in 10 months in November, rising to 55.2.
President-elect Donald Trump criticized China in a series of tweets yesterday and he rejected concerns over his decision to take a phone call from Taiwan's president. Trump's foreign policy has already been compared to Nixon's 'madman' approach, in which the former president chose to be unpredictable in order to keep America's adversaries off-balance. Also on Twitter, the PEOTUS had a warning for companies that offshore their manufacturing, saying they will face heavy new taxes if they wish to sell into the U.S.
Overnight, the MSCI Asia Pacific Index lost 0.6 percent while Japan's Topix index dropped 0.8 percent as the initial risk-off reaction to the Italian referendum result dominated. Also in Asia, China's second largest stock exchange, Shenzhen, opened up to the world via a link with Hong Kong that started operating. In Europe, the Stoxx 600 Index was 1.1 percent higher as traders shrugged off Italy's vote and PMIs showed the region's economy expanded at the fastest pace this year. S&P 500 futures were higher.
While the oil market continues to digest the OPEC deal, U.S. shale companies are taking advantage of the rally to hedge their oil price risk to next year and beyond. West Texas Intermediate for December 2017 delivery is now more expensive than the June 2018 contract, a condition known as backwardation, and a big change from the contango that had existed recently. WTI for January delivery was trading at $52.13 a barrel at 5:40 a.m. ET, the highest level in 16 months.
What we've been reading
This is what's caught our eye over the weekend.
- Odd Lots Podcast: Was November the start of a huge turning point in markets?
- Greenspan's irrational exuberance looks even more entrenched 20 years on.
- Here's one sign that dollar deleveraging is already here.
- Trump fans seeing a Reagan economic redux are forgetting the lessons of 1980s.
- Silver spenders are propping up Japan's economy.
- Hungary's central bank splurges on real estate.
- A fake U.S. Embassy in Ghana shut down after operating for 10 years.