Opening Bell: U.S. Futures Weak Ahead Of Fed Minutes; Gold Shines; Yuan Pops

Key Events

European shares climbed this morning, while futures on the S&P 500, Dow and NASDAQ 100 meandered ahead of minutes coming out from the Fed later on Wednesday and from the ECB on Thursday.

The STOXX 600 gained ground alongside automobile producers and miners shares, paring yesterday's decline. However, upon touching the 200 DMA, the pan-European benchmark slightly retreated, though it still hovers at its highest level since Oct. 9.

In the U.K., the pound retreated from a three-day advance as British Prime Minister Theresa May returned to Brussels to negotiate her new Brexit deal with EU officials.

During the earlier Asian session, South Korea's KOSPI outperformed its regional peers with a 1.09% gain, with foreign investors buying 429 billion won ($382 million) worth of stocks. Hong Kong's Hang Seng leaped 1.01%, reaching a six-month high. Japan's Nikkei advanced 0.60%, boosted by a weaker yen and by traders back-pedaling into risk assets.

The yen's weakness was likely driven by a wider-than-expected Japanese trade deficit—unless the currency is losing its haven status to other assets such as the Swiss franc, which is climbing for the third day.

Meanwhile, the dollar stabilized as the yuan jumped on renewed U.S. calls that China let its currency be driven by market dynamics.

Within trade negotiations, a weaker yuan represents a key sticking point for the U.S., as it is a backdoor tool for China to offset rising U.S. tariffs. The issue, however, was raised long before the trade war began. Should the renminbi continue to strengthen, as the chart suggests, it should help ease trade talks.

Global Financial Affairs

In yesterday's session, U.S. equities slightly extended an advance after Walmart (NYSE:WMT)'s earnings report boosted retailers shares. Homebuilders also jumped after an industry survey posted a more upbeat sentiment ahead of the key Spring home-buying season.

The S&P 500 led the rally with a 0.15% increase—though sector analysis conveys a mixed picture as well as a general lack of leadership. Materials (+0.62%) outperformed, presumably due to positive trade rhetoric, while Industrials (-0.04%) closed in the red—which raises questions as to why multinationals' stocks aren't providing superior returns if the U.S. and China are on track for a trade resolution. Utilities (+0.59%), a defensive sector, ranked as the day's second best performer.

Consumer Staples (+0.52%) was boosted by Walmart's earnings beat, while it is less clear why Consumer Discretionary (+0.41%) also posted a solid performance.Healthcare (-0.24%) underperformed on investment funds' selling.

Overall, it's understandable why Walmart's success may yield a positive impact on the broader market, as a proxy stock to consumer spending. However, when we take a longer-term view, we see a symmetrical pattern since January 2018 underscoring equal eagerness by sellers and buyers—which often comes as an omen of a potential market top. Furthermore, the price of 102.2 is about 2.5% below the pattern top at 104—the sellers' line.

The Dow Jones Industrial Average eked out a +0.03% gain and the NASDAQ Composite edged 0.19% higher. The Russell 2000 outperformed, posting a 0.48% advance.

Once again we see small-cap stocks outperform, when they should be sold off wildly if the much claimed U.S.-China trade spat was really the main market driver. We would therefore renew our argument that it is the Fed's monetary policy that carries the biggest effect on markets.

We have also pointed out that even if U.S. and China come to an agreement, the U.S. President is likely to have more tariffs on the cards, targeted to other jurisdictions and sectors—such as Germany's carmakers.

In other news, gold hit its highest level since April, in line with our forecasts. While this may be due to dollar weakness, it may also be driven by U.S. futures' risk-off mode.

Palladium soared for the fifth straight day to $1,473.30—a record level—as shortage started to bite.

Oil rose above $56 but later dropped. It was seen forming a shooting star on an intraday basis—the second this week, after the one it posted on Monday. Meanwhile, the upward price pressure prompted by Saudi supply cuts is being offset by record U.S. shale production.

Up Ahead

• The Federal Reserve will publish minutes from its latest monetary policy meeting on Wednesday.
• Bank of Canada Governor Stephen Poloz speaks on Thursday
• ECB President Mario Draghi speaks on Friday
• Also on Friday, Reserve Bank of Australia Governor Philip Lowe testifies before the parliament.

Market Moves

Stocks

• The STOXX 600 advanced 0.5 percent, to the highest in 19 weeks.
• The MSCI All-Country World Index gained 0.3 percent to the highest in 19 weeks.
• The MSCI Emerging Market Index jumped 1.1 percent to the highest in two weeks on the biggest surge in almost three weeks.

Currencies

• The euro gained 0.1 percent to $1.135, reaching the strongest in two weeks on its fifth consecutive advance.
• The Japanese yen fell 0.2 percent to 110.87 per dollar, the weakest in a week on the largest fall in a week.
• The Turkish lira slid 0.3 percent to 5.2962 per dollar.
• South Africa’s rand dropped 0.4 percent to 14.1067 per dollar.
• The MSCI Emerging Markets Currency Index gained 0.4 percent to the highest in two weeks on the biggest increase in almost three weeks.

Bonds

• The yield on 10-year Treasurys advanced one basis point to 2.64 percent.
• Germany’s 10-year yield slipped less than one basis point to 0.10 percent.
• Britain’s 10-year yield slid one basis point to 1.164 percent.
• The spread of Italy’s 10-year bonds over Germany’s climbed one basis point to 2.6945 percentage points.

Commodities

• The Bloomberg Commodity Index gained 0.2 percent to the highest in almost 10 weeks.
• West Texas Intermediate crude advanced 0.2 percent to $56.21 a barrel, reaching the highest in more than three months on its sixth consecutive advance.
• LME copper climbed 0.3 percent to $6,340.00 per metric ton, hitting the highest in more than 21 weeks with its sixth consecutive advance.
• Gold increased 0.2 percent to $1,343.52 an ounce, reaching the highest in 10 months on its fifth consecutive advance.