LDN - Business

Bitcoin futures steal spotlight, momentum keeps pushing stocks up

[December 11, 2017]

By Helen Reid

LONDON (Reuters) - World stocks climbed and equity volatility neared a record low on Monday as investors focused on strong economic growth signs ahead of a slew of interest rate decisions, while the launch of bitcoin futures fed the market's cryptocurrency obsession.

European stocks drew strength from a positive Asian session to trade higher in early deals. The rally dissipated after the open but Germany's cyclicals-heavy DAX <.GDAXI> and the index of leading European companies <.STOXX50> held onto gains.

Strong banks and mining stocks supported benchmarks, and Britain's FTSE climbed 0.7 percent, helped by a weaker pound.

Stealing the spotlight was the debut of bitcoin futures contracts, allowing investors to bet on the price of the cryptocurrency in one, two or three months.

The one-month contract, the most-traded on the Chicago-based CBOE Global Markets exchange <XBTc1>, opened at $15,850 on Sunday night -- a gain of 21 percent.

It was last quoted at $17,500, having earlier traded as high as $18,850, while bitcoin itself hovered at $16,415.36. <BTC=BTSP>

Bitcoin has rocketed up a gravity-defying 1,600 percent since the start of the year, attracting institutional interest -- and concerns that it is a bubble in the making.

"The one-month contract is trading at around an 11 percent premium to the underlying bitcoin, and for me that's a clear indication that there's no connection between the two markets," said Lukas Daalder, chief investment officer at Robeco.

Several online brokerages have not yet allowed trading of the new futures.

"I can understand you don't see that many people who are willing to offer this contract, because you can't hedge your underlying risk if you can't short it," Daalder added.

"This only adds to the bitcoin phenomenon. It's interesting to watch, but not a market that I would like to touch."

While frantic trading kept bitcoin volatility dizzying, a gauge of S&P 500 volatility <.VIX> hovered below 10, nearing the record low hit in November, though it was edging up slightly after four days of falls.

World stocks rose, flirting with their most recent record highs, boosted by more benign Asian trading after Friday's strong U.S. employment data and Chinese trade figures cemented optimism on the global economy.

Global stocks <.MIWD00000PUS> rose 0.2 percent to 505.31, nearing last week's record of 507.09.

"Momentum behind stock markets has been pretty solid, supported in part by good numbers on the economic front and not bad earnings. I don't see anything happening right now that could break the momentum," said Daalder.

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A collection of Bitcoin (virtual currency) tokens are displayed in this picture illustration taken December 8, 2017. REUTERS/Benoit Tessier/Illustration

BIG WEEK FOR MONETARY POLICY MOVES

Currency and bond markets were cautious ahead of a big week of policy meetings globally, although the Federal Reserve is the only major central bank expected to raise interest rates.

The Bank of England and the European Central Bank are widely seen holding rates steady.

"Global growth has strengthened but there is very little evidence yet that inflation pressures are picking up, which continues to favor only a gradual pace of monetary policy normalization," Lee Hardman, strategist at MUFG, told clients.

Sterling <GBP=> stabilized, edging slightly lower after a volatile week, last at $1.3383.

The dollar index, which measures the greenback against a basket of currencies, eased 0.2 percent to 93.75, still hovering near a three-week high after five straight sessions of gains.

Sluggish U.S. wage growth and inflation have sparked some concern over rate rises, and traders will zoom in on the Fed's future rate projections on Wednesday.

"It's a tall order for the median Fed dots to shift lower, but we may see a slight downshift in the distribution," said ING forex strategists in a note, adding that the dollar index could fall below 93 as a 25bp rate rise from the Fed is priced in.

Data on Friday showed average hourly earnings in the United States came in lower than economists forecast despite stronger-than-expected non-farm payrolls.

Most high-grade euro zone bond yields were a tad lower, with 10-year Bund yields, the benchmark for the region, edging below 0.30 percent. <DE10YT=TWEB>

"Bunds have drifted lower in recent weeks," said Robeco's Daalder. "I would say there's some complacency for sure, but I don't see any major moves until the new year."

The gap between U.S. and German bond yields came close to its widest since April as the monetary policy paths of the two central banks diverged.

In commodities, signs of increased drilling activity after the latest rise in the U.S. rig count dampened oil prices.

U.S. crude <CLc1> fell to $56.91 a barrel before recovering to trade flat at $57.26, and Brent crude <LCOc1> inched up to $63.47, holding near a recent 2-1/2 year peak of $64.65.

Spot gold was firmer at $1,250.81 an ounce <XAU=>.

(Reporting by Helen Reid; Additional reporting by Sujata Rao and Abhinav Ramnarayam; Editing by Catherine Evans)

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