Opening Bell: Global Stocks Caught Between Fed Hopes And Trade Ambiguity

Key Events

Global stocks halted their rally this morning as trade uncertainty retuned to markets after reports of a lack of co-operation by Chinese negotiators. Futures on the S&P 500, Dow and NASDAQ 100 wavered around neutral levels as investors took a cautious stance ahead of today's Fed monetary policy announcement, amid mounting hopes that the central bank's dot plot projections would strengthen the case for a slower path to tightening.

The STOXX Europe 600 opened 0.16% lower and resumed the slide, with miners and oil firms contributing to losses. The stock of German chemical producer Bayer (DE:BAYGN) plunged over 12%, nearly wiping out all of this year’s profits and heading for the biggest drop in 15 years, after the multinational firm suffered a setback in a trial over claims its Roundup weed killer causes cancer.

In the earlier Asian session, equities opened lower after reports that China has been pushing back U.S. demands—including stricter intellectual property rules—in trade negotiations. Stocks fluctuated as investors weighed between trade uncertainties and expectations for an accommodative stance by the Fed. Remarks by U.S. President Donald Trump that “talks with China are going very well” may have eased some concerns.

China’s Shanghai Composite (-0.01%) closed flat, rebounding from a 1.2% drop, after the 50 DMA crossed over the 200 DMA, triggering a golden cross. Hong Kong’s Hang Seng fell 0.49%. The yuan remained relatively steady, weathering the reported U.S. dissatisfaction with China. South Korea’s KOSPI (-0.02%) also came in at neutral levels, and Australia’s S&P/ASX 200 slid 0.32%.

Japan’s Nikkei 225 managed to eke out a 0.2% gain, even after Sony (T:6758) and Nintendo (T:7974) shares tumbled over 3% after Google (NASDAQ:GOOGL) unveiled its new video game streaming platform Stadia. The index's heavyweight Fast Retailing (T:9983) climbed, offsetting losses in gaming shares.

Global Financial Affairs

In yesterday’s U.S. trading session, all major indices closed in the red except the NASDAQ Composite (+0.12%), on the conflicting U.S.-China trade reports.

The S&P 500 ticked 0.1% lower, giving up a 0.28% higher open and a 0.7% intraday high. Losses in Utilities (-1.14%) and Financials (-0.78%) offset gains in Healthcare (+0.79%) and Consumer Discretionary (+0.5%). Technically, the pushback came within 1% above the October-November peaks, as the 50 DMA approaches the 200 DMA.

The Dow Jones Industrial Average slipped 0.1%. Technically, the price found resistance by the February peak, as the 50 DMA attempts to scale above the 200 DMA.

The Russell 2000 dropped 0.65%, outperforming the other majors. Here we have another example of the trade-proxy breakdown. Non-export reliant small caps should have outperformed, given the latest trade uncertainty. We have been studying and reporting this pattern breakdown in the last couple of months, finding in the correlation between inflation, the dollar and companies' capitalization size a possible alternative driver. Yesterday, the USD fell to the lowest level of the month on speculation of a dovish fed—a tailwind for multinationals, which would attract more demand at the expense of domestic firms.

Meanwhile, yields on 10-year Treasurys fell today after a three-day advance, supporting the outlook for lower rates on the horizon, which would make current bonds more attractive. Technically, yields are developing a pennant continuation pattern—something to be expected they completed a symmetrical triangle, which itself followed the violation of the long-term uptrend line since July 2016.

Technically, however, we have been pointing out for some time that the 1.3% drop since March 7 should be viewed in the prism of a correction within an uptrend, with the 200 DMA drawing an organic uptrend line, as well as ascending channel bottom. The RSI confirms that momentum supports the price movement, also suggesting that the dollar will continue to climb. If not from the outlook for higher rates, the greenback is likely benefiting to its safe-haven status.

Sterling dropped, perhaps signaling pessimism over Prime Minister Theresa May's quest for an extension on the Brexit deadline that could enable her to strike a final deal with parliament.

The euro held steady even after German produce inflation disappointed on inflation.

Gold futures fell today, ending a three-day straight advance and wiping out yesterday’s gain. Technically, the precious metal fell below the 50 DMA, as it forms the right shoulder of a H&S top.

Iron ore dropped after a Brazilian ruling that will allow Vale (NYSE:VALE to restart a major mining project.

Up Ahead

• The Fed is expected to hold interest rates steady on Wednesday. It is also expected to announce it will stop rolling off assets from its balance sheet, and to lower projections for the number of rate hikes for the year.
• Central banks in U.K., Thailand, the Philippines and Indonesia are all scheduled for policy meetings this week.
• In the euro zone, PMI numbers out on Friday will give an indication on the health of the region’s industrial and service sectors at the end of the first quarter.

Earnings

• Micron Technology (NASDAQ:MU) is slated to announce earnings after market close on Wednesday. Analysts see a $1.66 earnings with a $5.86 billion revenue.
• Nike (NYSE:NKE) is due to report earnings after market close on Thursday. Analysts forecast a $0.64 EPS on a $9.58 billion revenue, expecting the release to confirm the company's growth momentum remains on an upward trajectory.
• Tiffany & Co (NYSE:TIF) is expected to release earnings before market open on Friday, with a $1.6 EPS and $1.34 billion forecast.

Market Moves

Stocks

• The STOXX 600 saw the first retreat in more than a week.
• The MSCI Asia Pacific Index dipped 0.1 %.
• The MSCI Emerging Market Index slipped 0.1 %.

Currencies

• The Dollar Index advanced 0.16 %, where it’s trading at the height of the session.
• The euro gave up less than 0.05 % to $1.135.
• The Japanese yen slid 0.2 % to 111.56 per dollar.
• The MSCI Emerging Markets Currency Index gained less than 0.05 % to the highest in three weeks.
• The Australian dollar dropped less than 0.05 % to 0.709 per dollar.

Bonds

• The yield on 10-year Treasurys fell one basis point to 2.60 %.
• Germany’s 10-year yield increased less than one basis point to 0.10 %, the highest in two weeks.
• Britain’s 10-year yield decreased less than one basis point to 1.184 %, the lowest in more than a week.
• The spread of Italy’s 10-year bonds over Germany’s declined less than one basis point to 2.394 %age points.

Commodities

• The Bloomberg Commodity Index dropped less than 0.05 %.
• LME copper declined 0.1 % to $6,452.50 per metric ton.
• Gold fell 0.2 % to $1,303.92 an ounce.