Market commentary: Drop in US wages clouds interest rate outlook

The dollar fell for a second day after an unexpected drop in U.S. wages clouded the outlook for interest rates, and crude oil resumed declines. European markets opened positively, while Shanghai shares retreated. The greenback weakened against most major peers as the euro gained 0.1 percent. The Euro Stoxx 50 added 0.5 percent.

Russia’s ruble retreated as oil fell 1.8 percent. The Ruble slid 2 percent to 62.8 per dollar. Russia is due to publish final inflation figures for December today, while Foreign Minister Sergei Lavrov meets Ukrainian, German and French ministers on cease-fire agreement in eastern Ukraine.

Gold advanced 0.5 percent as copper traded near the lowest since 2009. Japan’s markets are closed today.

The biggest drop in American hourly earnings since records began in 2006 is combining with sliding oil prices to dampen the outlook for U.S. inflation. That’s making an early Federal Reserve interest-rate increase less likely, reducing the allure of the dollar as it trades near a 10-year high against major peers.

Venezuelan President Nicolas Maduro, in comments broadcast on state television during a tour of OPEC producers in the Middle East said oil prices need to return to $100 a barrel for economic equilibrium. The countries sovereign bonds have come under intense pressure recently, as many analysts see the country defaulting on its bonds, or having to significantly devalue its currency in order to service the countries’ large debt obligations.

Goldman Sachs said U.S. oil prices need to trade near $40 a barrel in the first half of this year to curb shale investments as it gave up on OPEC cutting output to balance the market. The bank cut its forecasts for global benchmark crude prices, predicting inventories will increase over the first half of this year, according to an e-mailed report. Excess storage and tanker capacity suggests the market can run a surplus far longer than it has in the past.

China’s Shanghai Composite Index, the world’s best- performing major index in the past 12 months, dropped amid speculation it’s advanced too far, too fast. The gauge retreated 4.3 percent through the last three days.

Billionaire Li Ka-shing’s Cheung Kong Holdings Ltd. surged 15 percent after a reorganization. Cheung Kong offered $24 billion in stock to buy out unit Hutchison Whampoa Ltd. and will spin off its property assets.  The Shanghai Composite Index slid 1.7 percent.

Royal Bank of Scotland Group Plc is looking to put most of its Asian corporate banking business up for sale, according to a person with knowledge of the discussions. CEO Ross McEwan, 57, will hold a series of meetings in Singapore today to consider ways to scale back the lender’s Asian business. The lender said last month that it’s shutting its Japanese trading business.

Since taking over in 2013, McEwan has been selling units and cutting jobs outside of the U.K. as he seeks to focus on the bank’s domestic market to help reverse six straight annual losses. McEwan said in February he wants RBS to increase its U.K. assets from 60 percent to 80 percent of its global business as part of his plan to shrink in scale while boosting profitability.

Roche Holding AG will pay more than $1 billion for a majority stake in Foundation Medicine Inc., giving the drugmaker access to genomic tests to screen tumors and aiding the development of a new generation of treatments that use the body’s own immune system to fight cancer.

Global sovereign bond yields extended declines to a record after an unexpected drop in U.S. wages led traders to push back bets on when the Federal Reserve will raise interest rates. Bonds in the Bank of America Merrill Lynch Global Broad Market Sovereign Plus Index had an effective yield of 1.24 percent, an all-time low based on data starting in 1996.

The yield on benchmark 10-year Treasuries stayed below 2 percent after falling below that level last week for the first time since October.  U.S. government securities returned 1.3 percent in January through last week, after gaining 6.2 percent in 2014, according to the Bloomberg U.S. Treasury Bond Index.

This article was issued by Mr. Simon Psaila, Trader/Analyst at Calamatta Cuschieri. For more information visit, www.cc.com.mt . The information, view and opinions provided in this article is being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri & Co. Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.

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