European markets are expected to open higher on Monday, shrugging off broadly lower trade in Asia, amid a tick-up in bond yields and the U.S. dollar that is stoking risk appetite.
London’s FTSE 100 is called up 49 points at 6,779, the German DAX is expected to open 75 points higher at 10,742, while the French CACis seen 31 points to the good at 4,520.
The dollar index, which measures the greenback against a basket of currencies, was trading around 99.579 on Monday, up 0.52 percent. It comes on the back of a sell-off in U.S. Treasuries, with yields on the 10-year note up 2.2 percent, their highest level since January.
Chris Weston, chief market strategist at IG Index, said that sentiment towards being short U.S. Treasuries and emerging markets, but long the dollar has been driven by the “central thematic of reflation, nationalism and de-regulation” coming out of U.S. President Donald Trump’s administration.
“It seems it is too early to fade this move and as long as you are in assets that are directly reacting to this central thematic then stay with it,” Weston told CNBC by email.
Analysts see Trump’s policies as leading to higher inflation which would attract inflows into the U.S. dollar and boost expectations that the Federal Reserve could raise interest rates soon. On Friday, Fed vice chair Stanley Fischer said that the case for tightening monetary policy is”quite strong” thanks to a strong economy.
“Early indications would appear to suggest that the Federal Reserve remains on course to hike rates next month after comments by Fed vice Chair Stanley Fischer on Friday that suggested additional fiscal stimulus could alter the rate dynamics for the U.S. economy,” Michael Hewson, chief market analyst at CMC Markets, wrote in a note.
“The tone of his remarks suggested that, unlike market expectations of a single rate rise that we could well see additional rate rises follow on quite quickly, if market measures of inflation expectations continue to increase.”
In Asia, markets trade mixed with Japan’s Nikkei 225 outperforming after the country’s third-quarter gross domestic product grew by an annualized 2.2 percent, beating market expectations.
Meanwhile, economic data out of China on Monday were mixed. China’s fixed-asset investment rose 8.3 percent in the January-to-October period, beating market expectations, while October industrial output and retail sales growth missed forecasts. The Shanghai Composite and Shenzhen Composite were trading higher.
In the commodities space, oil prices were flat-to-lower on Monday after the OPEC reported record output at the end of last week. And amid the focus on risk assets, the price of gold – a typical safe-haven – fell.
Source: CNBC
