U.S. Opening Bell: Dollar Rallies Weighing On Oil; Commodities Fall

Key Events

The dollar rallied against most other currencies this morning after a five-day selloff. The global reserve currency was boosted by yesterday's release of the Fed's FOMC Minutes which revealed that US economic policymakers remain on track for another rate hike next month, provided economic growth persists.

Treasuries are holding steady. However, the stronger dollar has weighed on crude oil and other commodities.

US futures for the S&P 500, Dow and the NASDAQ 100 are, at time of writing, all flat as investors appear to be undecided regarding the impact of President Donald Trump's most recent round of legal woes. The pan-European STOXX 600 Index advance this morning; Asia was mixed.

Global Financial Affairs

Though the US imposed a fresh round of tariffs on $16 billion of Chinese imports, followed by China’s vow to retaliate, China’s Shanghai Composite still outperformed regional peers this morning, rising 0.37 percent. Japan’s Nikkei 225 was also up, gaining 0.25 percent. However, Hong Kong’s Hang Seng underperformed, dropping 0.54 percent, after a 4-percent bounce from last week’s low.

The UK's FTSE was trading flat on Thursday with higher oil prices pushing oil majors BP (LON:BP) and Shell (LON:RDSa) higher but lower copper prices pulling mining stocks BHP Billiton (LON:BLT) and Rio Tinto (LON:RIO) lower on the day. A weaker pound helped keep the FTSE out of the red.

During yesterday's US session the S&P 500 and Dow indices retreated, as a selloff in Industrial stocks offset a rally in Technology shares.

The S&P 500 Index finished flat, dropping less than a point, or 0.04 percent. Industrials (-0.97 percent) weighed on the benchmark, while the Energy (+1.2 percent) and Technology (+0.3 percent) sectors halted the benchmark's decline. Traders cashing out of winning positions spurred yesterday's underperformance of Industrials, after the sector advanced 3.3 percent in the previous rally.

Technically, the SPX met with resistance, after Tuesday’s shooting star with a pronounced upper wick confirmed and presumably reinforced selling pressure at the levels of the August peak and the January record.

The Dow fell 0.34 percent, as the firms listed on the 30-component index were primarily part of yesterday's biggest sector underperformer. Technically, the decline wiped out nearly two days' worth of gains, following yesterday’s shooting star, after the mega cap index posted its highest peak since the January correction.

The tech-heavy NASDAQ Composite outperformed, rallying 0.38 percent, but remained below the preceding day's shooting star. The small cap Russell 2000 advanced 0.28 percent, revealing where the profits from the Industrials sector selloff went.

All eyes now turn to the Jackson Hole, Wyoming symposium, which begins this evening. It's a meeting of global economic policymakers. This already significant summit may fuel markets, generating more volatility than usual, following Trump's attacks against his pick for Fed Chair.

Though Trump may remain more subdued than usual as he tries to contain the fallout from his personal lawyer Michael Cohen's guilty plea, which implicates the president in campaign funding violations, as well as the 8-count fraud conviction of Trump's former campaign manager Paul Manafort, the president might instead opt to focus all his firepower on the Fed's determination to end cheap money, something Trump has gone on record as being against.

The latter scenario would almost certainly drive intraday market swings.Traders and investors should keep their eyes on the ball. Trump's political problems are mainly noise at this point, but economic data thus far supports the Fed's trajectory for hiking rates.

However, market participants should take note of the yield curve. If the difference between the 2-year and 10-year yields flattens, it's often a leading indicator of upcoming economic reversal. Investors must want to pay attention to any developments regarding the US-Sino trade talks, on the heels of the most recent US tariffs on China goods.

In commodity markets, the price of WTI, which is generally denominated in USD, has been hit by the reserve currency's fluctuations. Crude's technicals also show the price under pressure as it reached the top of a falling channel. A variety of regional fundamental developments could also drive the price of oil as the early November deadline for US sanctions against Iran looms.

The South African rand plunged 1.47 percent this morning, after a Trump tweet suggested the US would consider sanctions against the country, in response to a Fox News segment on the African nation's land seizure debate.

The Aussie dollar fell 0.55 percent, amid political instability, as Prime Minister Malcolm Turnbull faces the possibility of stepping down if his center-right party calls a leadership vote. Technically, the AUDUSD pair has resumed trading within a descending channel.

Traders are selling the euro ahead of the release of minutes from the ECB's Meeting Minutes. Technically, the price of the single currency wiped out yesterday’s unsustainable, volatile gains, as it approached the top of a falling channel.

Up Ahead

• Euro area preliminary PMI data for August was released this morning; the EZ's Manufacturing PMI disappointed, coming in at 54.6, versus an expected 55.1.
• US New Home Sales are due at 10:00 EDT, expected to rise to 643K from 631K for July.
• Fed Chief Powell speaks Friday at the Jackson Hole central bank summit.

Market Moves

All information provided is accurate as of time of writing

Stocks

• The U.K.’s FTSE 100 edged up 0.05 percent.
• The Stoxx Europe 600 gained 0.1 percent to the highest in more than a week.
• Futures on the S&P 500 Index decreased less than 0.05 percent.
• Germany’s DAX dipped less than 0.05 percent.
• The MSCI Emerging Markets Index gained 0.1 percent, hitting the highest in almost two weeks with its fifth straight advance.
• The MSCI Asia Pacific Index fell 0.3 percent, its first retreat in a week.

Currencies

• The British pound dipped 0.3 percent to $1.2878, the first decline in more than a week.
• The Bloomberg Dollar Spot Index jumped 0.3 percent, the first advance in more than a week and the most significant climb in almost two weeks.
• The euro decreased 0.2 percent to $1.1569, the first retreat in more than a week.
• The Japanese yen fell 0.2 percent to 110.81 per dollar, the weakest in a week.

Bonds

• Britain’s 10-year yield dipped one basis point to 1.272 percent.
• The yield on 10-year Treasuries decreased one basis point to 2.81 percent, the lowest in more than 12 weeks.
• Germany’s 10-year yield fell less than one basis point to 0.34 percent.
• Italy’s 10-year yield declined four basis points to 3.026 percent.

Commodities

• West Texas Intermediate crude fell 0.2 percent to $67.74 a barrel, the first retreat in more than a week.
• Gold dipped 0.7 percent to $1,187.76 an ounce, the most significant decrease in more than a week.