Opening Bell: Futures, Euro Stocks Bounce Ahead Of Fed; Oil Selloff Eases

Key Events

Hopes that a dovish Fed would infuse confidence in growth boosted futures on the S&P 500, Dow and NASDAQ 100 as well as European shares, which edged higher this morning, after a mixed Asian session. The oil selloff, which had sent shockwaves across global markets, also eased.

The STOXX Europe 600 climbed 0.28% at the open, with banks and pharmaceutical companies leading the gains, after a three-day rout sent prices to a near two-year low and shaved 12.06 percent of value off the pan-European benchmark. Bulls temporarily found resistance as bears increased supply, paring gains to 0.15 percent, but the index then resumed its climb to about 0.46 percent in the late European morning.

The pharmaceutical sector was boosted by a 5.7% jump in GlaxoSmithKline (LON:GSK), after the British multinational drug maker announced a joint venture with Pfizer's (NYSE:PFE) consumer health division as well as plans to split into two businesses: one dedicated to prescription drugs and vaccines, the other arm focused on over-the-counter products.

During the earlier Asian session, most regional stocks ended lower, after disappointing Japanese trade data added to traders' defensiveness ahead of the Federal Reserve's interest rate decision. Falling energy shares, fueled by oil price jitters also contributed to the selling. Japan’s Nikkei slipped 0.60 percent lower. China’s Shanghai Composite tumbled 1.05%, weighed down by a rout in healthcare stocks due to concerns of a new drug procurement policy. Also, Softbank's (T:9984) telecom unit slid 15 percent below the price of its IPO—the world's second largest after Alibaba's (NYSE:BABA)foray into the public market—an underwhelming debut.

Global Financial Affairs

Yesterday, US stocks failed an attempt to rally from a 14-month low on increased volatility, ending the session mostly unchanged. The S&P 500 closed flat (+ 0.01%) after a 0.55% higher opening—in line with upbeat futures trading—and intraday swings between a 1.1 percent advance and a 0.68 percent drop.

However, bulls may focus on the fact that yesterday’s failed rally was not part of the preceding three-day selloff, which was driven by fears over the end of economic expansion in the US, due to rising rates, the ongoing US-China trade war and a slowing global economy. Rather, yesterday’s decline was due to slumping oil prices, which dragged Energy shares 2.36 percent lower. Losses in the second worst performing sector, Consumer Staples, were more contained (-1.18%).

It's important to note that oil prices are not falling in a vacuum. They are part of a broader narrative that pivots around expectations of an economic slowdown, which would reduce demand for black gold.

In general, a failed rally is a negative indicator. It reveals that even when bulls attempted to stage an offensive, bears didn't yield to pressure but instead fought back.

In another indication of pessimism, the VIX closed at the highest level since February.

To make things worse, logistics giant FedEx (NYSE:FDX) provided softer guidance due to global trade headwinds. The company's stock sank 6 percent in the aftermarket and was trading around the same level in the premarket—despite beating expectations of $3.94 earnings per share ($4.03) and of $17.75 billion revenue ($17.8 billions). The global delivery service joined the many other companies whose executives lowered forward guidance on concerns over the effect of the ongoing US-China trade war.

The Dow Jones Industrial Average gained 0.35 percent. The NASDAQ Composite outperformed climbing 0.45% and the Russell 2000 eked out a 0.03 percent gain.

Investors, however, were primarily focusing on bond markets ahead of today’s expected fourth rate hike of the year. The yield on 10-year Treasuries opened lower, at 2.8 percent, but soon rebounded to 2.819, slightly above yesterday’s 2.818 close. Last week bonds completed a top, whose span goes back to February.

Italian bonds jumped on speculation the European Commission will agree to a budget deal. The yield on benchmark Japanese notes slipped to near 0 percent before posting a rapid turnaround as the surge in demand triggered a margin call.

The dollar fell for a third day against most major currencies.

Speculation that risk sentiment is improving helped oil prices rebound from a third-day selloff over worries of oversupply and an end to global growth.

Overall, today’s Fed meeting seems to be having an unusually large impact on markets, most probably due to its crucial timing: equity markets are on the verge of a top as fears mount over an economic slowdown. US President Donald Trump’s continued campaign against the Fed's tightening path probably exacerbates the impact of any decision.

Up Ahead

• The Fed wraps up its final policy meeting of 2018 today. The rate decision will be followed by a press conference with Chairman Jerome Powell.
• The Bank of Japan’s monetary policy decision is due on Thursday, followed by a briefing from Governor Haruhiko Kuroda. A Bank of England decision is also coming up on Thursday.

Market Moves

Stocks

• The Stoxx Europe 600 climbed 0.14 percent, the first advance in a week.
• Futures on the S&P 500 Index ticked 0.6 percent higher, the first advance in a week and the biggest increase in more than two weeks.
• The MSCI All-Country World Index rose 0.1 percent, the largest advance in a week.
• The MSCI Emerging Market Index gained 0.5 percent.

Currencies

• The Dollar Index dropped 0.16 percent for the third day and a total loss of 0.63%, to the lowest level in more than a week.
• The euro gained 0.3 percent to $1.1398, the strongest level in almost four weeks.
• The Japanese yen climbed 0.1 percent to 112.40 per dollar, the strongest level in more than seven weeks.
• The British pound rose 0.2 percent to $1.2669, the strongest level in more than a week.
• The MSCI Emerging Markets Currency Index gained 0.2 percent.

Bonds

• The yield on 10-year Treasuries fell less than one basis point to 2.81 percent, the lowest level in almost four months.
• Germany’s 10-year yield climbed less than one basis point to 0.25 percent.
• Britain’s 10-year yield was unchanged at 1.28 percent.
• The spread of Italy’s 10-year bonds over Germany’s fell 15 basis points to 2.5392 percentage points to the narrowest level in almost 12 weeks.

Commodities

• The Bloomberg Commodity Index increased 0.1 percent.
• West Texas Intermediate crude gained 0.2 percent to $46.31 a barrel.
• LME copper climbed 0.5 percent to $6,001.50 per metric ton, the biggest climb in more than a week.
• gold edged 0.1 percent higher to $1,250.20 an ounce, the highest in more than five months.