Opening Bell: U.S. Earnings Help Global Rally; Dollar Retreats; WTI Climbs

Key Events

European equities and futures on the S&P 500, Dow and NASDAQ 100 flashed green on Tuesday, after Berkshire Hathaway (NYSE:BRKa)'s solid earnings report spurred a rebound across Asian indices.

The pan-European STOXX 600 opened with a 0.22 percent upside gap and then extended gains, to 0.56 percent at 10.23 GMT. The rally was led by basic resources and carmakers, two of the most sensitive sectors to tariff jitters. Their outperformance signals that traders managed to shrug off geopolitical worries and focus on corporate growth.

Earlier, during Asian trade, stocks bounced back from earlier losses that had been prompted by concerns that ongoing trade headwinds will end up halting the first synchronized global growth since the 2008 financial crisis.

Ironically, Chinese shares led the regional comeback, with the Shanghai Composite jumping 2.74 percent (thereby wiping out Monday’s losses) and Hong Kong’s Hang Seng adding 1.54 percent to its two-day rally. Japan’s TOPIX gained 0.76 percent, also offsetting yesterday’s decline.

Global Financial Affairs

In the US session, equities advanced for a third straight day, after capping a fifth consecutive weekly gain on Friday. Financial shares and energy producers led the gains, buoyed by Berkshire Hathaway's strong results and higher oil prices respectively.

The S&P 500 climbed 0.35 percent, with eight out of 11 sectors closing in positive territory. Communication Services (+1.00 percent) outperformed, while Real Estate (-0.21 percent) fared as the day's laggard. Materials (-0.03 percent) also edged lower, in a sign that heightened tariff risk was still playing on traders’ minds.

The NASDAQ Composite rallied 0.61 percent and the Russell 2000 outperformed its peers with a 0.65 percent climb. The Dow Jones Industrial Average underperformed, inching 0.16 percent higher. Once again, the outperformance of small-cap stocks listed on the Russell versus mega-cap shares listed on the Dow—with the former being less dependent on exports and therefore less exposed to trade disputes—underpins lingering trade concerns.

The SPX closed at its highest level since the late-January double-digit correction, which marked its first in two years. Technically, the benchmark posted a peak higher than the July 25, of 2,848.03, extending the uptrend since the February low.

As earnings season enters its final phase, upbeat results from several major companies have helped push the S&P 500 within touching distance of an all-time record, even amid investor fears over the escalating trade war between the US and China. Other geopolitical concerns also loom in the background, as uncertainty lingers over plans for the denuclearization of the Korean peninsula and over the effect of mounting pressure on Iran by the Trump administration via stronger economic sanctions.

The Chinese equity rally that followed the strong corporate report posted by Berkshire Hathaway—seen as a proxy to the health of the US economy—may add to the confusion. Today's market moves raise the question of whether a country can still pursue an economic war against another nation, after market globalization has put everyone in the same boat?

Yields on 10-year US Treasurys edged higher, though technically they are struggling to stay above the uptrend line since July 24.

In FX markets, the Dollar Index slipped lower, giving up yesterday’s advance. Technically, the greenback is retreating after reaching the top of an ascending triangle on Monday. The pattern develops as demand absorbs all the available supply within the consolidation. An upside breakout would indicate that demand is bidding up the price to find more willing sellers.

The Turkish lira was higher against the dollar after falling more than 4% yesterday, hitting record lows as investors remain concerned over the independence of the country’s central bank from President Recep Tayyip Erdoğan. Monday's move follows a similar decline seen last week when the US imposed sanctions against several Turkish officials. One US dollar now buys about 5.3 lire.

Sterling found its footing after dropping to an 11-month low on Brexit headaches.

In commodities, WTI jumped higher for a second day on the back of reports of a decline in Saudi Arabian production and re-newed Iranian sanctions. Technically, the price is retesting the resistance of yesterday’s powerful shooting star at the top of a descending triangle.

Up Ahead

• Earnings Season continues:

• Disney (NYSE:DIS), due today after market close, $1.95 EPS forecast, VS $1.58 for the same quarter last year.

• Twenty-First Century Fox (NASDAQ:FOX), due tomorrow after market close, $0.53 EPS forecast, VS$0.36 for the same quarter last year.

• The Bank of Japan releases minutes from its July 30-31 meeting on Wednesday.

• The preliminary reading of Japan's second-quarter gross domestic product is out on Thursday. Economists expect a robust rebound from the first-quarter contraction.

• Analysts expect data due on Friday will show a pick-up in US consumer prices in July

Market Moves

Stocks

• The Stoxx Europe 600 gained 0.3 percent.

• Futures on the S&P 500 gained 0.2 percent to the highest level in about six months.

• The MSCI All-Country World Index climbed 0.3 percent to the highest level in more than a week.

• The MSCI Emerging Market Index climbed 0.6 percent, the most substantial increase in almost two weeks.

Currencies

• The Dollar Index fell 0.16 percent, the most significant fall in more than a week.

• The euro advanced 0.2 percent to $1.158, the first advance in more than a week.

• The British pound gained 0.2 percent to $1.297, the largest advance in more than a week.

Bonds

• Germany’s 10-year yield declined less than one basis point to 0.39 percent, the lowest level in more than two weeks

• Britain’s 10-year yield fell less than one basis point to 1.304 percent, the lowest level in more than a week.

Commodities

• WTI crude rose 0.63 percent to $69.33; Brent crude, the global benchmark, rose 0.5% to $74.10 a barrel.

• Gold rose 0.38 percent to $1,213.32