Opening Bell: Futures, Stocks Fall On U.S. Political Uncertainty; Dollar Up

Key Events

The chaotic US presidential debate on Tuesday has put a disorderly transition of power centerstage, denting US futures on Wednesday, including the Dow, S&P, NASDAQ and Russell 2000, and European stocks. Still, Treasuries and gold fell, and the dollar gained.

Global Financial Affairs

All four major US contracts were down at the time of writing, paring as much as a 1.3% decline after the acrimonious dual between President Donald Trump and former Vice President and Democratic candidate Joe Biden, in which Trump warned of widespread voter fraud, albeit without any real proof, especially with mail-in ballots. 

Shares in Europe fell, with the Stoxx Europe 600 Index opening lower, as the continuing spread of COVID-19 and the ugly display of American politics came on the heels of months of paralysis in Congress on attempts to launch a second economic stimulus package to offset the damage that the coronavirus pandemic has ravaged on US economic growth. 

In a mixed Asian session earlier today, Indian indices, the Nifty and Sensex 30, as well as the South Korea's KOSPI and Hong Kong's Hang Seng were bright green regional lights. However, it’s impossible to miss the obvious setup for a plunge of the India benchmarks, as both indices are forming tops.

The Sensex is forming a H&S top, with the 200DMA shaping a natural neckline and the 50DMA pressuring the price toward a downside breakout.

The global equity rebound that found momentum toward the end of September fizzled yesterday, ahead of the US presidential debate.

During Tuesday's Wall Street trade the S&P 500 fell, dragged down by more than two thirds of the index's listed stocks.

The benchmark slipped after finding resistance by the 50 DMA for the second day. That moving average realigned with the bottom of a rising flag, suggesting the preceding three-day rally was a return move that may have ended, sending prices back toward the 100 DMA and the September lows.

Yields, including for the 10-year Treasury note, have fallen—demonstrating a bullish view by investors who sold Treasuries.

However, rates remains below the 50 DMA—having formed a natural neckline for a H&S top—for the second straight day. The last time that happened, yields fell within an inch of 0.5%, testing the March record low.

The dollar rose with yields, attempting to render the preceding two-day selloff a completed return-move to the bottom.

The greenback has been taking on the falling channel since the March top. Indicators suggest enough juice for a topside breakout.

The strengthening dollar weighed on gold.

It is also raising the odds of a completed corrective rally—represented by the 100 DMA—after the symmetrical triangle’s downside breakout—represented by the 50 DMA. The 200 DMA support the long-term uptrend. The momentum-based ROC and RSI demonstrate the struggles between the short-term downtrend and long-term uptrend.

Along with Tuesday's US equity selloff, oil edged lower, closing below $40 for the first time in over a week. The weakness comes ahead of US inventory reports later today.

Technically, the contract may have blown a bullish pennant or is still developing a bullish flag. Bulls hold on to hope, as the price found support from the 200 DMA. Our bet, however, is with the much larger, preceding bearish rising wedge.

Up Ahead

• The EIA crude oil inventory report comes out Wednesday.
• The September U.S. nonfarm payrolls report on Friday will be the last before the November election.

Market Moves

Stocks

• The Stoxx Europe 600 Index fell 0.3%.
• Futures on the S&P 500 Index dropped 0.6%.
• NASDAQ 100 Index futures declined 0.8%.
• The MSCI Asia Pacific Index decreased 0.6%.

Currencies

• The Dollar Index added 0.1% to 93.97.
• Sterling weakened 0.1% to 0.9143 per euro.
• The Japanese yen was little changed at 105.61 per dollar.
• The Mexican peso strengthened 0.4% to 22.3792 per dollar.

Bonds

• The yield on 10-year Treasuries climbed less than one basis point to 0.65%.
• Germany’s 10-year yield jumped one basis point to -0.54%.
• Britain’s 10-year yield increased one basis point to 0.192%.
• New Zealand’s 10-year yield climbed five basis points to 0.519%.

Commodities

• West Texas Intermediate crude fell 0.5% to $39.09 a barrel.
• Gold dipped 0.5% to $1,888.28 an ounce.
• Silver weakened 2.3% to $23.87 per ounce.
• Iron ore surged 3% to $120.28 per metric ton.