Opening Bell: USD, European Stocks Rise; Oil Falls On EIA Report

by Pinchas Cohen

Key Events

Today, global trading opened in Asia, where prices were depressed by uncertainty. After almost two weeks of geopolitical upheaval, reports that President Donald Trump and Republicans are making headway with tax reform infused investors with a willingness for risk. The S&P 500 jumped one whole percent and the Dow Jones jumped almost 200 points, or 0.9 percent.

However, Trump’s threats to abolish NAFTA and shutdown the government over funding for the border wall with Mexico caused investors to reel in their appetite for risk. Traders have begun buying up safe haven assets, while dumping any extra risky investments in an effort to stay afloat.

Global Affairs

Yesterday, concern was surrounding Trump’s unpredictability and impulsive rhetoric. Investors feared he would revert to attacking Japan and China over trade. However, today market narrative thickened, and investors are now seeing his latest rhetoric as further evidence of his inability to execute his pro-business agenda.

Nonetheless, by the time European markets opened, concerns about Trump’s ability to bring his fiscal agenda to fruition was placed on hold, as focus shifted to the annual summit of central bankers in Jackson Hole, Wyoming.

Investors are attempting to shake off the prolonged and volatile period of uncertainty, and are looking ahead optimistically while hoping for unwinding stimulus, caught up with the dollar—a risk asset.

Even as the STOXX Europe 600 Index advanced, the euro and most G-10 peers edged lower against the greenback.

Oil fell after surging yesterday but held its support above $48, after US crude inventory report showed supply diminishing. The argument between the bulls pushing it back from $46, and the bears keeping it below $50, is whether the seasonally strong demand will end with the summer or if it will continue.

While investors may have lost their naivete with raising expectations for unexpected news from the Jackson Hole main pundits, Federal Reserve Chair Yellen and European Central Bank President Draghi, there is nothing else to hold on to. The human nature of investors instills the need to believe in something. It’s surprising to learn that with each new scandal, there are still investors who expect Trump to deliver on his campaign promises. The latest market narrative is that the most recent scandal hampered the President’s ability to enact his pro-growth agenda.

If nothing else, the Jackson Hole event provides investors with a much welcome distraction from US politics, including Trump’s latest threats to abolish NAFTA and shut down the government over funding for the wall on the Mexican border.

Upcoming Events

8:30: US - Initial Jobless Claims (w/e 19 August): expected to rise to 236K from 232K, which would be the 129th week that the number has been below 300K.

• Markets to watch: S&P 500, Dow Jones Industrial Average, NASDAQ, USD crosses

10:00: US - Existing Home Sales (July): expected to fall to an annual rate of 5.4 million.

• Market to watch: USD crosses

The three-day annual summit in Jackson Hole, Wyoming begins.

19:30: Japan - CPI (July): price growth expected to be 0.4% YoY and 0% MoM, in line with June.

• Markets to watch: Nikkei, TOPIX, JPY crosses

Friday, 10:00 - Yellen will talk about financial stability. Draghi speaks at 15:00. The dollar and the euro have the potential to get a one-two punch. The question is which.

Market Moves

Stocks

• The S&P 500 Futures climbed less than 0.05 percent.
• Japan’s TOPIX fell 0.5 percent.
• South Korea’s KOSPI increased 0.4 percent.
• Australia’s S&P/ASX 200 Index added 0.1 percent.
• Hong Kong’s Hang Seng rose 0.5 percent as the market reopened after being shut on Wednesday.
• The MSCI Asia Pacific Index edged lower, erasing a gain of as much as 0.3 percent.
• The STOXX Europe 600 Index gained 0.2 percent as of 8:40 in London (3:30 EDT).
• The UK’s FTSE 100 Index rose 0.3 percent to its highest in more than a week.
• Germany’s DAX increased 0.1 percent.

Currencies

• The Dollar Index gained 0.2 percent.
• The euro dipped 0.1 percent to $1.1794.
• The Japanese yen fell 0.2 percent to 109.30 per dollar.
• The British pound decreased less than 0.05 percent to $1.2797, its weakest in almost two months on a closing basis.

Commodities

• West Texas Intermediate crude decreased 0.3 percent to $48.30 a barrel.
• Gold fell 0.3 percent to $1,286.85 an ounce.

Bonds

• The yield on 10-year Treasuries gained one basis point to 2.18 percent.
• Germany’s 10-year yield fell less than one basis point to 0.38 percent, its sixth consecutive decline.
• Britain’s 10-year yield increased less than one basis point to 1.062 percent.