Opening Bell: Trade Optimism Buoys Futures, Global Equities; Oil Slips

Key Events

Shares in Europe gained this morning, as optimism for renewed trade negotiations drove markets higher. This same sentiment earlier spurred a rebound in Asia, halting the most extended selloff for regional markets since 2002.

US futures for the S&P 500, NASDAQ 100 and Dow, though relatively flat at time of writing, remain in positive territory, suggesting their underlying indices will open higher than where they finished yesterday's mixed session. The euro and pound are in a holding pattern ahead of today's key ECB and BoE policy meetings. Traders will be looking for clues as to exactly when each of the central banks will attempt to move toward tighter monetary policy without slowing local economic growth.

Global Financial Affairs

The pan-European STOXX 600 gained more than 0.2 percent, the fourth out of five sessions that the index advanced, adding a total of 1.2 percent. However, the benchmark’s moves were fueled by miners, but limited by declines in utilities shares.

Earlier today the MSCI Asia Pacific Index climbed for the first time in 11 sessions, though it closed marginally lower, down 0.03%. Hong Kong's Hang Seng outperformed the region, jumping 2.54 percent, with shares of Chinese state-owned companies leading the advances. The turnaround follows news that US Treasury Secretary Steven Mnuchin invited a group of Chinese officials to renew trade negotiations, just days after President Donald Trump threatened to slap additional tariffs on nearly all Chines goods.

China’s Shanghai Composite gained 1.15 percent, half of the boost seen in Hong Kong shares, as local investors priced in the lower outlook for economic growth on the mainland.

Japan’s Nikkei 225 added 0.97 percent. Technically, the price has been developing an ascending channel, which occurs when demand gradually absorbs supply. An upside breakout would demonstrate that buyers are willing to bid prices higher still, in an effort to find new willing sellers.

South Korea’s KOSPI edged up 0.14 percent though Australia's S&P/ASX 200 underperformed, as regional banks and insurers were hit with damaging testimony of misconduct. Miners, however, offset some of the selloff on the recovery in commodity prices, driven by the recent jump in the price of oil.

During yesterday's US session, stocks were mixed, as a selloff in technology and financial shares offset optimism that trade negotiations between the world’s two largest economies might avert the roiling trade war. The S&P 500 closed flat, eking out a 0.0.4 percent gain with the uptick in Consumer Staples (+1.16 percent), offset by Financials (-0.92 percent).

The mega-cap Dow Jones Industrial Average advanced 0.11 percent. Since multinationals suffered the most from the trade war narrative, they therefore stand to gain the most from any policy reversal. The 30-component index was whipsawed by yesterday's Wall Street Journal report that the US was reaching out to Chinese officials. It fluctuated by over 200 points during the course of yesterday's trade.

The tech-heavy NASDAQ Composite dropped 0.23 percent as chipmakers fell, after investment banks Goldman Sachs and Stifel Financial downgraded both the sector as well as the outlook for several individual companies, including Micron Technology (NASDAQ:MU). KLA-Tencor (NASDAQ:KLAC), Broadcom (NASDAQ:AVGO) and NVIDIA (NASDAQ:NVDA) all slumped amid mounting industry concerns.

Some analysts regard semiconductors as a key indicator for the whole technology sector and even for the broader stock market. Miller Tabak & Co. equity strategist Matt Maley said:

“If the semis do indeed break-down from here as we move through the rest of September, it could/should lead investors to rotate away from the tech stocks in a more meaningful fashion than they did last week.”

The Russell 2000 fell 0.19 percent. A boost for export-driven corporations came into favor at the expense of the domestic companies listed on the small cap index.

The yield on 2-year Treasurys continued to rally for a fifth day, reaching the highest point in a decade.

The dollar trimmed yesterday's losses, as trade talk optimism reduced the need for any flights to safe havens. The global reserve currency yesterday fell below the uptrend line since mid-May, for a second time, as well as the 50 DMA.

A broken uptrend is presumed to act as resistance if enough traders change their minds about the trend. The 100 DMA (blue) is stubbornly pointing up, at 944.6. While the dollar should overcome its mid-August, 96.98 peak to extend the rising trend, a close above 95.50 should already be greeted with optimism by traders.

Crude oil pared two days of gains, spurred by the outlook for tighter supply. The potential impact on commodities from Hurricane Florence faded with lower wind speeds, but there are other factors that could move oil in the coming week.

Technically, the price of oil found resistance by the neckline—the line drawn between the highs—of an H&S bottom. A rally above $71 would suggest a supply-demand flip, with more rallies to follow, to challenge the $75 peak of early July.

Up Ahead

• China releases August industrial production, retail sales data early Friday in Asia.
• US retail sales, industrial production, consumer sentiment reports all due on Friday.

Market Moves

All information correct as of time of writing

Stocks

• The Stoxx Europe 600 Index increased more than 0.2 percent as of 4:33 EDT, the highest in more than a week.
• Futures on the S&P 500 Index declined less than 0.05 percent.
• The MSCI All-Country World Equity Index advanced 0.2 percent to the highest in more than a week.
• The MSCI Emerging Markets increased 0.12 percent.

Currencies

• The Dollar Index gained less than 0.1 percent.
• The euro increased less than 0.05 percent to $1.162, the strongest in more than a week.
• The Japanese yen fell 0.17 percent to 111.44 per dollar.
• The Turkish lira fell 0.3 percent to 6.45 per dollar.
• South Africa’s rand jumped 0.3 percent to 14.9051 per dollar, the strongest move for the currency in more than a week, its sixth consecutive advance.
• The MSCI Emerging Market Currency Index climbed 0.2 percent.

Bonds

• The yield on 10-year Treasuries gained less than one basis point to 2.97 percent.
• Germany’s 10-year yield increased less than one basis point to 0.41 percent.
• Britain’s 10-year yield advanced one basis point to 1.493 percent.
• The spread of Italy’s 10-year bonds over Germany’s climbed two basis points.

Commodities

• The Bloomberg Commodity Index declined 0.2 percent, the first retreat in a week.
• West Texas Intermediate crude fell 0.9 percent to $69.75 a barrel, the biggest fall in a week.
• LME copper advanced 0.3 percent to $6,017.00 per metric ton, the highest in two weeks.
• Gold dipped 0.1 percent to $1,204.85 an ounce.