Opening Bell: USD, Stocks Climb In Unison, CAD Slips, Ripple Jumps

Key Events

Yesterday, in a rare alignment, US equities climbed alongside the dollar and Treasury yields – relieved by reports that President Donald Trump’s aggressive tariff rhetoric would not follow through into equally aggressive actions.

The S&P 500 opened 0.8 percent lower and extended the decline to 1.1 percent in the first 15 minutes. However, it closed 1.10 percent higher, extending its rebound to a second day for a total of 1.6 percent. Internally, all sectors were in the green.

The decisive leader was Utilities (+2.04 percent), coming in more than 0.5 percent ahead of the second biggest gainers of the day: Financials and Real Estate, which both climbed 1.41 percent, showing that investors are still on the defensive. However, yesterday's two laggards – Consumer Staples (+0.87 percent) and Health Care (0.91 percent) – were also defensive sectors, which reveals a lack of market leadership.

The Dow Jones also opened 0.8 percent lower and extended its decline further down to 1.4 percent in the first 15 minutes. It also took the mega-cap index twice as long as the SPX to rebound—two hours—as it slipped further to 1.5 percent before the bounce back. Still, at the end of the session, the Dow outperformed the S&P 500, with investors helping the former to make up for last week's losses—the heaviest among all the main benchmarks. It closed 1.4 percent higher, in beautiful symmetry to its intraday loss. Unlike the S&P, which was extending a rebound to its second day this was the first day of rebound for the Dow.

The NASDAQ Composite opened 1.14 percent lower and extended the drop to 1.26 percent in the first 15 minutes. It beat both the S&P 500 and the Dow Jones in picking itself up, rebounding shortly after the market open. It underperformed for the day, closing "only" 1 percent higher, but still managed to outperform its two peers on the overall two-day gains, as it surged 2.1 percent.

The Russell 2000 opened 0.83 percent lower and extended losses to 1 percent. Like the NASDAQ, it rebounded right away, closing almost 0.9 percent higher for the day and over 2.4 percent for the two days, thereby outstripping the NASDAQ.

Stocks opened lower, sliding for the fourth time in five days, after a string of tweets from President Donald Trump reiterated that he wouldn't back down form his trade tariff plans. Trump revamped trade levies last week as he vowed to impose a 25 percent and 10 percent tax on steel and aluminium imports respectively, to protect national security. Asian and European countries responded with threats in kind, led by China’s dire warning that the move would slow down global growth.

However, the forceful rebound shown in all four major US indices underscores the conviction that the US president’s rhetoric would not translate into actual policy.

Ray Dalio, founding manager of the world’s largest hedge fund, Bridgewater Associates, called the trade war risk a “political show,” adding it would be a “tragedy.” House Speaker Paul Ryan engaged in a rare public dispute with the president, rebuffing his tariff scheme and asking him to backtrack. It’s noteworthy that this is the same US official who staunchly supported Trump in some of the most controversial moves of his presidency. While Ryan's comments may have reassured investors, the president confirmed he would stick with his plans.

Ultimately, stocks gained based on the soothing effect of words by big names such as Dalio and Ryan, who signaled that things won’t be as bad as they could have sounded based on Trump's speech.

In an unusual combination, 10-year Treasury yields climbed toward 2.9 percent and the dollar edged higher, in parallel with stocks. This is considered an exceptionally bullish occurrence for stocks, because a strengthening currency hurts exports and makes equity prices more expensive for foreign investors.

The dollar strengthened against most of its peers, with the loonie taking the biggest hit. Canada’s already shaky economy has suffered another blow as consumer confidence fell back below average, after it had recently reached near record highs.

The Canadian dollar has been weakening to its lowest levels since July 2017, on upward risks of a trade war, with protectionist rhetoric dampening renegotiations of the North American Free Trade Agreement (NAFTA) signed in 1994 between the US, Mexico and Canada itself. The Canadian dollar has been on the decline even as the Bank of Canada has been hiking rates 3 times during the same period. Finally, despite a weaker currency—normally a boost to stock prices, as mentioned above—Canadian stock prices have been experiencing sharp declines.

The fact that even rising oil prices – on the risk that Libya’s El Sharara, its largest oil field, will be shut down due to protests against pollution – fail to boost the petrocurrency shows how weak demand is.

Technically, USD/CAD registered a higher peak than the October 1.2918 high, completing a reversal to an uptrend in the medium term, since September, while its long-term trend since late July, when it registered the 1.2414 trough, is in a downtrend.

Global Financial Affairs

This morning, the market narrative persists in deflating trade war chatters' adverse effect on stock prices, as traders realized the president doesn’t have consensus support, and even more notably he doesn't have the backing of Ryan. Moreover, White House economic adviser Gary Cohn is said to be summoning executives from US companies that depend on metal imports for a meeting with Trump this week, in a last-ditch attempt to halt the tariff order.

European shares followed their Asian counterparts higher. The STOXX Europe 600 Index climbed for a second day, tracking advances across Asia indexes, as shares from Hong Kong’s Hang Seng to Seoul’s KOSPI pared losses incurred since Trump laid out his planned tariffs on Thursday. German bund yields and the euro held steady as the European Commission proposed retaliatory measures on imports of US steel, apparel, textile and footwear, and selected industrial goods.

The Australian dollar pared gains even as export data beat forecasts and the central bank gave an upbeat assessment of the economy, leaving interest rates unchanged and giving no indication that a rate hike is coming anytime soon.

Technically, the AUD/USD pair is finding overwhelming supply, which is resisting the price from climbing at the level of its former trough. On Thursday, the price formed a hammer, which nevertheless registered a second lower trough, completing a downtrend in the short term.

The greenback has received a buy signal when the RSI provided a positive divergence, when its troughs since February have been rising, in contrast to the declining price troughs, suggesting the price may follow suit.

Harvard economist Kenneth Rogoff said that, a decade from now, Bitcoin is more likely to drop to $100 than to climb to $100,000. Rogoff, a former chief economist of the International Monetary Fund, is considered an authority on the subject. He elaborated:

Basically, if you take away the possibility of money laundering and tax evasion, its actual uses as a transaction vehicle are very small.

Yesterday, the price provided a double bearish signal. It closed lower than the previous day’s hanging man’s real body, confirming that supply is overcoming demand, while forming a shooting star, a bearish candle, demonstrating the bears’ pushback to the bulls’ advance.

Ripple jumped 20 percent intraday on Monday in response to its rumored national rollout with Japan Bank Consortium. However, profit taking pushed it back down. The digital token is now gaining ground again, above $0.97.

Up Ahead

• The Chinese People’s Political Consultative Conference runs through March 15 and overlaps with the National People’s Congress meetings in Beijing, through March 20.

• Australia GDP data is due Wednesday.

• The ECB isn’t expected to change policy on Thursday, but the Governing Council may discuss a change to pave the way for the end of quantitative easing.

• BoJ monetary policy decision and briefing on Friday.

• US monthly payrolls data come Friday.

Market Moves

Stocks

• The STOXX Europe 600 Index climbed 0.8 percent.

• Futures on the S&P 500 Index rose 0.2 percent to the highest in a week.

• The MSCI AC Asia Pacific Index rose 1.3 percent and the largest advance in almost three weeks.

• The UK’s FTSE 100 Index increased 1 percent, the biggest climb in more than three weeks.

• The MSCI Emerging Market Index rose 1.4 percent in the largest advance in almost three weeks.

Currencies

• The Dollar Index fell is little changed.

• The euro climbed less than 0.05 percent to $1.2341, the strongest level in more than two weeks.

• The British pound declined 0.1 percent to $1.3832.

• The Japanese yen jumped 0.1 percent to 106.05 per dollar.

• South Africa’s rand dipped less than 0.05 percent to 11.8364 per dollar.

• The MSCI Emerging Markets Currency Index rose 0.2 percent to the highest level in a week.

Bonds

• The yield on 10-year Treasuries decreased one basis point to 2.87 percent.

• Germany’s 10-year yield rose less than one basis point to 0.65 percent.

• Britain’s 10-year yield increased one basis point to 1.495 percent, the highest in a week.

Commodities

• WTI crude fell less than 0.05 percent to $62.54 a barrel.

• Gold climbed 0.2 percent to $1,322.93 an ounce, the highest in more than a week.