Opening Bell: Pound Plunges; Futures Climb On Trade, Fed Optimism

Key Events

European stocks on the STOXX 600 and futures on the S&P 500, Dow and NASDAQ 100 gave up early gains this morning. US futures, however, later climbed into positive territory, suggesting that Federal Reserve Chairman Jerome Powell’s upbeat outlook on the US economy, as well as headlines of favorable trade talks, may support US stocks in the upcoming session, though the news seems to have fallen short of boosting European markets.

One notable exception was the UK’s FTSE 100, which was trading at the height of the session after Prime Minister Theresa May secured backing from her cabinet for a withdrawal agreement with the EU on Wednesday.

The pound, however, tumbled over a full percentage point to the lowest level since late October on reports that Brexit Secretary Dominic Raab had resigned, rebuffing May's deal and reigniting fears over the PM's ability to secure Parliament’s backing or even to survive as leader. On the data front, UK retail sales also disappointed across the board, adding to the downbeat sentiment.

In the earlier Asian session, Japan’s Nikkei 225 bucked the region's upbeat trend, edging 0.2 percent lower, while Hong Kong’s Hang Seng jumped 1.75 percent after Tencent Holdings (HK:0700) Q3 earnings beat expectations. China’s Shanghai Composite climbed 1.36 percent, as reports indicated officials have outlined a series of potential trade concessions to the US for the first time since the summer.

Global Financial Affairs

Yesterday, equities in the US dropped for a fifth consecutive session, after Democrats suggested they may reject the Trump Administration’s NAFTA 2.0 deal and Apple (NASDAQ:AAPL) continued to spark worries among investors. Traders shed their Technology positions (-1.2%) as more Apple suppliers cut their respective outlook, setting the sector up for further losses.

The S&P 500 dropped 0.76 percent to the lowest level in two weeks, with all sectors but Communication Services (+0.49 percent) in the red. Financials (-1.35%) underperformed, dragged lower by Goldman Sachs' (NYSE:GS) woes. The US investment bank has come under fire for a money laundering scandal involving a multi-billion dollar Malasian fund, with GS stock sinking as much as 13 percent in the last four days, hitting the lowest level since November 2016.

The NASDAQ Composite gave up 0.90 percent, the Dow Jones Industrial Average slid 0.81 percent, over 200 points, and the Russell 2000 lost 0.46 percent.

Given that investors long for stability, after all the current uncertainties from trade to Brexit and the Italian budget, perhaps the Fed’s policy steadfastness will begin to be appreciated by traders, even if it means a rising cost of borrowing. In a question-and-answer session late on Wednesday Powell played down recent turbulence in equities, saying volatility was only one of many factors that the Fed takes under consideration for its monetary policy decisions. Policy makers have raised interest rates three times this year and a fourth increase is projected for next month.

Elsewhere, the Australian dollar climbed after a strong jobs report.

Oil drifted lower but then confirmed the signs of stabilization it posted yesterday. WTI prices rebounded on Wednesday from a record-long losing streak that saw it falling into a bear market on fears that the ongoing trade jitters would limit global growth and therefore strain fuel demand. Investors now look to EIA crude inventories.

Up Ahead

• US data on retail sales for the month of October and the Philadelphia Fed Manufacturing Index for November are coming out later today.
• The President of the European Central Bank, Mario Draghi, will hold a speech on Friday.
• Also on Friday, eurozone CPI figures for the month of October will be published.

Market Moves

Stocks

• Futures on the S&P 500 gained 0.5 percent as of 8:08 a.m. London time, the first advance in more than a week.
• The STOXX Europe 600 fell 0.36 percent for a second day and a total loss of 0.95%.
• The UK’s FTSE 100 gained 0.4 percent, the largest advance in more than a week.
• Germany’s DAX climbed 0.4 percent.
• The MSCI Asia Pacific Index edged 0.8 percent higher, the first advance in a week and the largest climb in almost two weeks.
• The MSCI Emerging Market Index climbed 1.1 percent to the highest level in a week on the biggest climb in almost two weeks.

Currencies

• The Dollar Index dropped 0.0.05 percent in a particularly volatile day that included a 0.2 loss and a 0.1 gain.
• The euro pared a 0.3 percent gain to 0.11 to $1.1323, the strongest level in a week.
• The British pound plunged 1.12 percent to $1.2836.
• The Japanese yen slipped 0.21 percent to 113.32 per dollar.

Bonds

• The yield on 10-year Treasuries fell less than one basis point to 3.12 percent.
• Germany’s 10-year yield dropped less than one basis point to 0.39 percent.
• Britain’s 10-year yield slid four basis points to 1.464 percent.
• The spread of Italy’s 10-year bonds over Germany’s slipped two basis points to 3.0734 percentage points.

Commodities

• Gold climbed 0.3 percent to $1,214.41 an ounce, the highest level in a week.