Opening Bell: Europe, U.S. Futures Shrug Off Asian Risk-Off; Pound Thrives

Key Events

European shares rebounded this morning, after this week’s global stock rally, which was also helped by upbeat U.S. retail data and chipmakers' gains, absorbed the buying opportunity presented by last week’s rout, losing steam. Futures on the S&P 500, Dow and NASDAQ 100 also clung onto green territory.

In the Asian session, every major index posted losses. Japan’s Nikkei 225 (-0.99%) underperformed after the country’s machinery orders dropped the most in four months, in a ripple effect of the U.S.-Sino trade war. Also, the country’s larger firms offered lower pay raises compared to previous months, in line with the weaker economic backdrop. Technically, the index slipped well below but closed nearly above the 100 DMA, demonstrating some support.

Global Financial Affairs

In yesterday’s U.S. session, equities climbed for a second day. The S&P 500 gained 0.3%, with all sectors but Industrials (-0.83%) edging higher and Healthcare (+0.73%) leading the rally after President Donald Trump significantly cut Medicare spending in his 2020 budget proposal. Technically, the index's gain was paltry and well off its highs. It formed a shooting star, as selling orders increased when prices neared the March 4 peak that had spurred last week’s rout.

The Dow Jones Industrial Average slipped 0.38% weighed down by Boeing (NYSE:BA), as the aircraft company stock extended losses on news that more countries grounded the 737 Max jet after Sunday's Ethiopian Airlines plane crash. BA dropped 6.15% to $375.41 on Tuesday, for a total dip of 11.15% in the last two days. Absent an overall market decline, we consider this a buying opportunity, as the day’s lows confirmed the support—seen on Monday—of the November-December-January highs. Also, the 100 and 200 DMA’s realigning with the $360 price level reinforces the presumed support.

The NASDAQ Composite added 0.44% to the tech-led rally, for a total of 2.28% gains over the last two days. Like the S&P 500, the index produced a small real body, suggesting bulls are losing momentum below the March 4 peak.

The Russell 2000 underperformed, eking out a 0.12% climb and forming a doji.

Meanwhile, the yield on 10-year Treasurys appeared to have found its footing after yesterday’s sharp drop. From a technical standpoint, yields attempted to regain a passage into a symmetrical triangle, bearish in a downtrend, only to fall to the lowest since Jan. 3, confirming and reinforcing the pattern’s resistance—as we had forecast.

The dollar is falling for a fourth day, as U.S. inflation dropped to 1.5% YoY, halving last summer’s 3% gain. The softer read bolstered the market narrative that the Fed will remain cautious with interest rates hikes. We consider this drop a buying opportunity, as the price is correcting to the bottom of a rising channel, supported by the 200 DMA. Currently, the price also remains above the 50 and 100 DMAs.

On the other side of the Atlantic, the pound extended a weekly advance ahead of another crucial vote, by British lawmakers, on whether to trigger Brexit with no agreement with the EU or delay proceedings until the country secures more favorable terms. The Bank of England urged financial institutions to ready their contingency plans and ramp up liquidity, after Prime Minister Theresa May's proposal was rejected in the House of Commons yesterday.

The Australian dollar fluctuated lower along with the country’s sovereign bonds, after weakening consumer confidence exacerbated pre-existing concerns of an economic slowdown. The Aussie is finding support above the January trough—the lowest level since Jan. 2016.

WTI crude opened higher, reaching a two-week peak, after the API reported an unexpected draw of 2.6 million barrels in inventories, which fell significantly below the expected build of 2.655 million barrels. Stockpiles were depleted due to an electricity blackout in Venezuela, as well as the OPEC+ oil supply cuts. Technically, the 50 DMA is crossing over the 100 DMA, but the price needs to breakout of its range since Feb. 20, scaling above its highest point of $57.88, posted on March 1.

Up Ahead

• Chinese retail sales and industrial production data are scheduled for release on Thursday. The National People’s Congress is set to wrap up with a speech by Premier Li Keqiang on Friday.
• Bank of Japan Governor Haruhiko Kuroda will speak on Friday, after a monetary policy decision.

Market Moves

Stocks

• The Stoxx Europe 600 Index slid 0.1 percent.
• The MSCI All-Country World Index dropped 0.1 percent.
• The U.K.’s FTSE 100 fell 0.1 percent to 7,141.60.
• The MSCI Emerging Market Index slipped 0.2 percent.

Currencies

• The Dollar Index climbed 0.1 percent.
• The euro was unchanged at $1.1288, the strongest in a week.
• The British pound gained 0.5 percent to $1.3137.
• The Japanese yen dropped less than 0.05 percent to 111.37 per dollar.

Bonds

• The yield on 10-year Treasurys rose one basis point to 2.62 percent.
• Germany’s 10-year yield gained one basis point to 0.07 percent.
• Britain’s 10-year yield ticked one basis point higher to 1.177 percent.
• Japan’s 10-year yield fell one basis point to -0.042 percent.

Commodities

• West Texas Intermediate crude gained 0.7 percent to $57.25 a barrel, the highest in almost three weeks.
• Gold climbed 0.2 percent to $1,304.41 an ounce, the highest in almost two weeks.
• The Bloomberg Commodity Index rose 0.1 percent to 80.90, the highest in more than a week.