Opening Bell: Stocks, Oil Bounce As Trump Softens After China Toughens

Key Events

Futures on the S&P 500, Dow and NASDAQ 100 climbed across the board this morning, breaking away from Asian selloffs after U.S. President Donald Trump forecasted trade negotiations will be “very successful."

Europe's STOXX 600 also benefited from reassurance on the trade front, with carmakers, particularly exposed to tariffs uncertainty, leading the gains.

In the earlier Asian session, Hong Kong’s Hang Seng underperformed with a 1.50% slide, while China’s Shanghai Composite dropped "only" 0.69%, suggesting foreign investors are playing the China-U.S. trade theme on Hong Kong’s free market. South Korea’s KOSPI (+0.14%) was the only major Asian index to close in green territory.

Global Financial Affairs

In the U.S. session, equities plunged for the fifth day out of six as China imposed retaliatory tariffs on $60bn worth of U.S. goods. A few banks warned that global trade disruption increases the odds of a global economic slowdown. Even if they’re wrong, a meltdown of financial markets would in itself prompt that outcome.

While we have been bearish in the medium term since early December, we would advise against being overly pessimistic over what has proved to be a very fluid situation. As of now, we consider this selloff a forest fire that helps the natural market cycle of growth and replenishment, or a much-needed rebalancing of a market that prematurely priced in a trade resolution as a foregone conclusion. For aggressive traders, it may even prove a unique buying dip. We will alert you when a bonafide reversal occurs.

Meanwhile, the world’s two superpowers assert their dominance in the global market. JPMorgan global market strategist Samantha Azzarello pointed out that China’s retaliation came right in time for the weekly market open, and not any time sooner. And trade risk is on course to escalate further, as U.S. officials are expected to release details of tariffs on all remaining Chinese goods, to the tune of $300 billion.

The Dow Jones Industrial Average tumbled more than 600 points, or 2.38%, on China's reported tariff countermeasures, which are set to hit some of the biggest U.S. exports to the Asian country, including Apple (NASDAQ:AAPL) and Caterpillar (NYSE:CAT)—with the stocks of the two companies plunging 5.6% and 4.9% respectively on the session.

The S&P 500 shed 2.41% of its value, with Communication Services (-3.1%) taking the brunt of the selloff. Defensive stocks in the Utilities sector (+1.07%) were the only ones to close in green territory.

China's fresh tariff hikes targeted soybean and cotton prices as well, causing them to spiral further. China's tit-for-tat measures have hit Trump’s farmers support base since last year.

On the European trade-front, EU officials confirmed they were finalizing a list of U.S. imports they will impose higher duties on should the U.S. Administration go ahead with levies on European automobile imports. The report was enough to send shares on the STOXX 600 1.21% lower.

Meanwhile, other assets signaled a shift to risk-on on Tuesday after signs of an improved trade outlook. Yields on 10-year Treasurys pared much of yesterday’s losses, pushing the Dollar Index higher, after finding support above the 50 DMA in the two previous session.

Gold retreated both on risk-on and USD strength. Technically, it crossed above its downtrend line since February and remains above the 100 DMA for now, potentially blowing out a H&S top. This jibes with the greenback’s struggle to remain above its ascending triangle. Also, the MACD and RSI demonstrate bullish interest.

Oil bounced back after dropping on concerns that trade jitters would affect global demand—which in turn reversed the upward price pressure prompted by tensions in the Persian Gulf. The WTI price found resistance by the 50 DMA after falling yesterday below it. The 200 DMA is its next support above the $60 mark.

Up Ahead

• Earnings this week include Vodafone (NASDAQ:VOD), Tencent (HK:0700) and NVIDIA (NASDAQ:NVDA).
• Alibaba (NYSE:BABA) unveils earnings before market open on Wednesday. There's a lot at stake for the Chinese e-commerce giant if heightened U.S.-China trade tensions lead to severe weakening of consumer demand.
• Macy’s (NYSE:M) also reports before market open on Wednesday. First-quarter results from the U.S. retailer face close scrutiny after slowing sales have recently hit its stock price.
• A slew of Federal Reserve policymakers will speak this week: Boston Fed President Eric Rosengren and Fed Vice Chairman Richard Clarida speak at a “Fed Listens” event hosted by the Boston Fed. New York Fed President John Williams) speaks at an event in Zurich. Kansas City Fed President Esther George and Richmond Fed President Thomas Barkin also make appearances.
• Japan balance of payments is due on Tuesday.
• China industrial production and retail sales are out on Wednesday.
• U.S. retail sales and industrial production also also scheduled for Wednesday.
• Bank of Indonesia holds an interest rate meeting on Thursday.
• Australian unemployment is out on Thursday.

Market Moves

Stocks

• The U.K.’s FTSE 100 gained 0.4%, the largest climb in three weeks.
• Germany’s DAX climbed 0.5%.
• The MSCI Emerging Market Index slid 0.7%, the lowest in almost four months.
• The MSCI Asia Pacific Index fell 1%, the lowest in almost 16 weeks.

Currencies

• The Dollar Index rose 0.05%, the first advance, so far, in a five-day period.
• The euro climbed 0.1% to $1.1237, the strongest in more than three weeks.
• The British pound slipped 0.1% to $1.294, the weakest in more than two weeks.
• The Japanese yen lost 0.4% to 109.74 per dollar, the biggest dip in more than a month.

Bonds

• The yield on 10-year Treasurys increased one basis point to 2.42%.
• Germany’s 10-year yield gained one basis point to -0.06%, the biggest climb in more than a week.
• Britain’s 10-year yield climbed two basis points to 1.119%, the largest advance in more than a week.
• Italy’s 10-year yield dropped one basis point to 2.695%, the biggest dip in two weeks.