Markets mixed as central banks shift from GFC-era policies

US stocks appear to be stabilising after signs this week that central banks are planning to gradually leave behind a decade of unprecedented monetary stimulus.

On Wednesday the Federal Reserve said US interest rates will probably go up four times in 2018 – instead of three – and the European Central Bank said it would end its bond-buying programme in December. However, the ECB doesn’t expect rates in the eurozone will start to rise at least until summer of next year, and some analysts believed it may be longer.

The ECB now plans to reduce monthly asset purchases between October and December to €15 billion until the end of 2018 and then conclude the programme.

European Central Bank president Mario Draghi played down political upheavals in Italy and dismissed suggestions that the euro zone’s third-largest economy might quit the single currency.

As a result, the euro touched on its steepest one-day drop against the US dollar since June 2016, down 1.64% at 1.160. The dollar index, which measures the greenback against six other top currencies, rose 1.1%.

The Dow Jones Industrial Average fell 25.89 points, or 0.10%, to 25,175.31 but the S&P 500 gained 6.86 points, or 0.25%, to 2782.49 and the Nasdaq Composite added 65.34 points, or 0.85%, to 7,764.04.

In US treasuries, benchmark 10-year notes last rose 32 points in price to yield 2.9461% from 2.979% late on Wednesday. The 30-year bond US30YT=RR last rose 21/32 in price to yield 3.0688%, from 3.102%.

But oil prices were mixed, with Brent dipping and US crude gaining, as a key supply-setting meeting of the Organisation of the Petroleum Exporting Countries (Opec) is set for June 22-23 in Vienna.

Overnight, US crude oil futures settled at $US66.89 a barrel; Brent crude oil lost 80USc to settle at $US75.94 a barrel; while West Texas Intermediate crude gained 25c to settle at $US66.89.

Both benchmarks hit 3.5-year highs in May but have since fallen again, indicating investors expect the market will soon be better supplied as US crude production rises and as Opec increases its output.

In 2017, Opec began cutting about 1.8 million barrels per day to support the market. But, with Brent prices up today by 180% from their 2016 low, global crude inventories falling, Venezuelan production plummeting and sanctions against Iran, the group may soon end their supply cuts.

Russian Energy Minister Alexander Novak says members of the Opec production cut may soon consider returning up to 1.5 million bpd to the market gradually. Saudi Energy Minister Khalid al-Falih expects a reasonable and moderate agreement on production at next week’s meeting.

ZTE fallout
The White House is moving to stop a Senate push to reverse US President Donald Trump's deal with Chinese telecom giant ZTE.

A provision attached to the fiscal 2019 National Defense Authorisation Act, which could get a vote today, would overturn the settlement, which allows ZTE to continue operating in the US. But administration officials have been quietly pressuring lawmakers to drop bills or amendments that seek to reimpose restrictions on Chinese firms, according to Politico.

White House deputy press secretary Hogan Gidley warned that congressional actions on ZTE should respect "the separation of powers." Mr Gidley argued the steps already taken "will ensure ZTE pays for its violations and gives our government complete oversight of its future activity without undue harm to American suppliers and their workers."

Last week the Trump administration announced the deal to lift a seven-year ban on US companies doing business with ZTE and required the telecom giant to pay a $US1 billion fine, change its management and step up its sanction compliance efforts.

A spokeswoman for Senator Tom Cotton, a sponsor of the new amendment, says there is "widespread, bipartisan support in both the Senate and the House for blocking US government agencies from using ZTE and Huawei products or subsidising them in any way."

ZTE’s precarious standing sparked a major plunge in its stock, which dropped 42% on Wednesday. It marked the first day of trading for the company in almost two months.

NAFTA talks continue
Canadian Foreign Minister Chrystia Freeland says Canada agreed with the US to continue NAFTA negotiations but specific dates have not yet been set.

The talks will continue in the coming months, providing the US, Canada and Mexico with the opportunity to resolve the thorniest sticking points in the negotiations, including automotive rules of origin and the sunset clause.

But as Ms Freeland arrived in Washington for a two-day visit this week, she announced a stern warning: Canada will retaliate against US tariffs on steel and aluminium, and that tit-for-tat action will end up hurting the constituents Mr Trump wishes to protect.

"The idea that we could pose a national security threat to you is more than absurd – it is hurtful. No one will benefit from this beggar thy neighbour dispute. The price will be paid, in part, by American consumers and by American businesses," she says.

Ms Freeland offered a bold defence of the global rules-based trading system and called on the US to return to its traditional role leading and working to strengthen those multilateral institutions it helped build.

"You may feel today that your size allows you to go mano-a-mano with your traditional adversaries and be guaranteed to win. But if history tells us one thing, it is that no one nation's pre-eminence is eternal."

Ms Freeland will likely meet with US Trade Representative Robert Lighthizer today, schedules permitting.

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