Opening Bell: Futures Climb Despite Stock Rout; Gold Shines; WTI Pops

Key Events

US Treasurys gained ground alongside stock futures on the S&P 500, Dow and NASDAQ 100 this morning, as cautious traders waited to see whether political uncertainty at home would prompt another selloff at the opening bell. Gold, meanwhile, strengthened its position after posting an outstanding monthly performance.

With European markets still closed for Christmas, Asian stocks and US contracts received a lot more attention than usual. Amid ongoing negative headlines, the biggest question for investors remains whether stocks have fully entered a bear market or just a correction, similar to the one seen in February 2016.

In the early global open, Asian shares extended last week's selloff amid heightened volatility stemming from fears that political instability in the US would exacerbate recession risks. US futures also initially dropped on reports of US President Donald Trump’s mounting frustration over Treasury Secretary Steven Mnuchin's failure to ease market worries, just hours after the president had actually expressed confidence in Mnuchin, calling him a “very smart person.”

Earlier this week, the market keeled over as the Trump's campaign against Fed Chair Jerome Powell turned into speculation his dismissal from the central bank's top position would follow shortly. And Mnuchin's call to the six largest US banks, made to reassure investors by confirming that the institutions had enough liquidity available for lending despite the market selloff, only seemed to worsen the situation, reminding investors of language used just before the 2008 crash.

Nonetheless, today, Japan’s Nikkei still managed to rebound in the final hour, closing 0.89 percent in the green after a five-day losing streak.

Conversely, China’s Shanghai Composite lost 0.26% despite new rules aimed at streamlining policy for state, private and foreign firms. The offshore yuan was little changed after the news. While only a few weeks ago reports of such policy goals from Chinese officials spurred a global rally, traders are more cautious now. Their wariness was already highlighted by the lack of any meaningful response to the publicized Trump-Xi trade tariff truce at the beginning of the month.

South Korea's KOSPI hit a two month low, closing 1.31 percent in the red. The drop completed a continuation H&S pattern, suggesting another leg down in the bear market, after falling 22 percent between January 30 and October 3.

Markets in Australia and Hong Kong were closed for post-Christmas holidays. Overall, the MSCI Asia Pacific Index is at a 22-month low.

Global Financial Affairs

US equities saw their worst Christmas Eve performance ever on Monday, slipping to the lowest level since April 2017—thereby hitting a 20-month low. The ongoing selloff is also set to cap the worst December on record. Finally, US shares are also on track for their worst quarterly performance since 2008.

While it has already been established that the NASDAQ indices and the Russell 2000 are in a bear market, reports that the S&P 500 has joined its peers are inaccurate. The widely accepted measure of a bear market is a 20 percent drop since an index's most recent peak. From the record close of 2,888.92 it posted on September 20 to Monday’s close of 2,351.10, the SPX has dropped by precisely 579.65 points, or 19.78 percent—meaning it's still 0.22 points off official mark.

That said, all major US indices are in an obvious downtrend. While, as we wrote on Monday, we do expect an end-of-year rally, we believe stocks are headed considerably lower.

Meanwhile, 10-year Treasurys resumed their advance since November 7, up 15.8 percent so far. Both the dollar and gold, normally in negative correlation, are also edging higher for the second day.

West Texas Intermediate crude moved past $43 after tumbling to its lowest level since June 2017 on Monday, on fears that economic contraction will dent fuel demand in an already oversupplied market.

Up Ahead

• India’s central bank releases a financial-stability report on Wednesday.
• US new home sales are due on Thursday.

Market Moves

Stocks

• Futures on the S&P 500 Index climbed 0.3 percent as of 8:44 a.m. London time, the first advance in two weeks.
• The MSCI Asia Pacific Index advanced 0.2 percent, the first advance in a week and the biggest gain in more than a week.
• The MSCI Emerging Market Index fell 0.3 percent, hitting the lowest level in eight weeks with its fifth straight decline.
• Japan's Topix gained 1.1 percent, the first advance in more than a week and the biggest climb in two weeks.

Currencies

• The Bloomberg Dollar Spot Index advanced 0.1 percent.
• The euro dropped 0.1 percent to $1.1386.
• The British pound climbed 0.1 percent to $1.2691.
• The Japanese yen slid 0.2 percent to 110.55 per dollar, the first retreat in almost two weeks.

Bonds

• The yield on 10-year Treasuries fell one basis point to 2.72 percent, the lowest level in almost 11 months.

Commodities

• West Texas Intermediate crude was up 1 percent at $42.95 a barrel.
• Gold gained 0.3 percent to $1,272.22 an ounce.