U.S. Opening Bell: Dollar, Oil Jump; Gold, Yen Fall; Yields Break 3% (Again)

Key Events

The STOXX Europe 600 inched higher this morning, countering the pessimism that weighed on investors during the Asian session. US futures on the S&P 500, the Dow and the NASDAQ 100 suggest the underlying indices might open stronger as well, suggesting that US President Donald Trump's decision to withdraw from the Iran deal was already priced into US equities.

Crude oil returned to the upside of $70 a barrel after Trump announced he will not sign the waiver for sanctions against Iran. The dollar extended its advance to a fourth straight day, hitting its highest level since December, as 10-year Treasury yields climbed back toward the 3 percent psychological level.

Asian indices were mixed, with stocks listed on Japan's TOPIX trimming losses from 0.65 percent to 0.4 percent. Chinese equities listed on the Shanghai Composite slid and shares on Hong Kong's Hang Seng settled at +0.4 percent, after they fluctuated between a 0.17 percent loss and a 0.65 percent gain.

Down under, the S&P/ASX 200 gained 0.25 percent after the Australian government announced new tax cuts that are expected to translate into AUD $530 ($393) yearly savings for 10 million of Australians.

Global Financial Affairs

The price of WTI crude ended higher after swinging wildly between gains and losses. Traders are considering the ramifications of renewed Iran sanctions, for energy prices. Our expectation earlier this week that oil was bound to climb further was confirmed by its fresh 5 percent leap from yesterday's $67.64 low. Technically, this unique event caused the WTI price to dip deeply into the Falling Flag—as part of a return-move to the Ascending Triangle. However, it then found demand and closed well above the flag top.

The dollar advanced for a fourth straight session, in line with our forecast last week on the likely effects a US withdrawal from the Iran deal would have on different asset classes. The greenback was able to advance even as other safe haven assets such as gold and the yen retreated.

Even more noteworthy, the dollar ascent didn't stop investors from bidding up oil, which in turn underscores the extent of market worries over supply glitches. Technically, the dollar is extending the upside breakout of its downtrend line since the beginning of January 2017. The 200 DMA, aligned with the downtrend line, attests to its significance.

It seems that the fresh breach of the key 3 percent mark by 10-year yields—and the heightened expectations it underscores for a faster winding down of the Fed's accommodative monetary policy stance, which had allowed equity markets to enjoy their second longest bull run on record—is now overshadowing the bigger and more tangible headwinds stemming from the Middle East, the most combustible region on the planet. This seems to confirm the tendency, among investors, to pay more attention to direct short-term profits versus geopolitical risk, an offshoot of market attitude since the dreaded ramifications of the 2016 Brexit vote didn't materialize.

With a $25 billion auction of 10-year US notes scheduled for today, investors will soon find out whether new Treasury bonds will carry a 3 percent coupon—for the first time in almost seven years.

We were wrong in our prediction that gold would jump on a US withdrawal from the Iran deal. Dollar strength, alongside yields moving back above the 3 percent key level, are overshadowing geopolitical risk. As a result gold has been pushed gold 0.75 percent lower. Technically, gold is set to complete a top, should the price close below $1,300.

Emerging markets equities and currencies, alongside most metals, were weighed down by the USD. The Indonesian rupiah extended its decline to a 29-month low on worries concerning capital outflows from emerging markets in favor of higher US yields.

To reinforce the point that higher yields are attracting more attention than the reversal of the Iranian nuclear deal, the muted reaction seen across US equities following Trump's announcement demonstrates that this particular headwind had already been priced in.

Financials, up +0.69 percent, were the second-best performing sector, though the Energy sector led all gainers, moving higher by 0.80 percent, outperforming on the expected supply interruption. Still, the primary US equity benchmark, the S&P 500, slipped, albeit by a mere 0.03 percent. The Dow Jones Industrial Average, NASDAQ Composite and Russell 2000 ended flat.

Oil stocks listed on the London exchange saw gains as a result of higher oil prices. Royal Dutch Shell (LON:RDSa) was up 2.46% and BP (LON:BP) shares increased by 2.31%.

Vodafone (LON:VOD) shares increased 1.09% on Wednesday following the announcement of a deal to buy Liberty Global (NASDAQ:LBTYA) assets in Czech Republic, Germany, Hungary and Romania for £16.1bn. The deal will see the world’s second biggest mobile operator challenge the dominance of Germany’s Deutsche Telekom (LON:0MPH).

Tobacco company Imperial Brands (LON:IMB) released first-half earnings on Wednesday showing sales and profits came in ahead of estimates. On the London index, the share price was up 4.95% on the day.

Shares in British bakery firm Greggs (LON:GRG) dropped 14.32% after it said on Wednesday that 2018’s underlying profits would be a similar level to the previous year citing “uncertainties over market footfall”.

Compass Group (LON:CPG) shares were down 5.88% following a disappointing earnings report on Wednesday. The catering firm said lower than expected first-half earnings were in part due to adverse weather in Europe and inflation concerns in the UK.

UK-based Burberry (LON:BRBY) suffered losses on the news that shareholder Belgian billionaire Albert Frere was planning to sell his 6.6% stake in the fashion brand. Shares were down 5.44% on Wednesday, following reaching 2018 highs on Tuesday. Burberry is set to release full year results next Wednesday.

Will Trump's latest move, which threatens to complicate the US relationship with key European allies such as Germany and France, also fuel investor fears that the US will continue down the isolationist route?

Up Ahead

• Japanese Prime Minister Shinzo Abe hosts South Korean President Moon Jae-in and Chinese Premier Li Keqiang on Wednesday.
• The Bank of England decides on policy on Thursday.

• UK manufacturing production data for March is released on Thursday. Analysts predict a drop in growth of 0.2%, unchanged from the previous month’s figure.

• US inflation data for April is due on Thursday as well.
• Canadian employment numbers will be released on Friday.

Market Moves

Stocks

• The UK’s FTSE 100 gained 0.4 percent to the highest level in more than 14 weeks.

• The STOXX Europe 600 rose 0.1, the highest level in almost 14 weeks.
• Futures on the S&P 500 climbed 0.1 percent, reaching the highest level in almost two weeks on its fifth consecutive advance.
• The MSCI All-Country World Index declined 0.1 percent.
• Germany’s DAX slid 0.1 percent.
• The MSCI Emerging Market Index slipped 0.2 percent.
• The MSCI Asia Pacific Index fell 0.4 percent, the largest drop in two weeks.

Currencies

• The British pound dipped 0.3 percent to $1.3507, the weakest in more than four months.

• The Dollar Index climbed 0.3 percent to the highest in 19 weeks.
• The euro declined 0.3 percent to $1.1828, the weakest in more than 20 weeks.
• The Japanese yen declined 0.5 percent to 109.73 per dollar, the weakest in a week on the largest drop in two weeks.

Bonds

• Britain’s 10-year yield increased two basis points to 1.444 percent, the highest in almost two weeks.

• The yield on 10-year Treasuries climbed three basis points to 3.00 percent, the highest in two weeks on the biggest increase in almost three weeks.
• Germany’s 10-year yield climbed one basis point to 0.58 percent, the highest in a week.

Commodities

• WTI jumped 2.9 percent to $71.06 a barrel, the highest in more than three years on the largest surge in three weeks.

• Copper decreased 0.5 percent to $3.04 a pound, the lowest in more than a week.

• Gold fell 0.7 percent to $1,305.72 an ounce, the weakest in a week on the largest fall in more than a week.