U.S. Opening Bell: Futures, EU Shares Climb; UK Assets Drop On Political Risk

Key Events

European shares and futures on the S&P 500, Dow and NASDAQ 100 edged higher this morning, helped by positive reports from both the People's Bank of China (PBoC) and the European Central Bank (ECB). Chinese policymakers injected record sums into the country's financial system on Wednesday, in line with Tuesday's pledge to stimulate the country's economy in the face of the recent trade war fueled slowdown. ECB president Mario Draghi reassured European markets by posting a positive outlook for the eurozone, whose economy, he said, will head off a full-fledged recession.

However, positive signals regarding the broader economic backdrop failed to reach UK markets, where shares lagged and pound sterling whipsawed ahead of a no confidence vote on Prime Minister Theresa May's leadership. The British PM suffered an historic 432-203 parliamentary defeat on Tuesday, reflecting the widely unpopular Brexit deal she brokered with EU officials.

Cable took a wild ride yesterday, with prices ranging almost 2 percentage points between the intraday high and low, though it finished the day higher. The bounce from the extreme bottom to the final gain suggests that the pronounced parliamentary defeat for May's Brexit proposal was priced in, and perhaps even hoped for. Technically, sterling faces the resistance line of its short-term rising channel within a long-term falling channel.

Heightened political instability in the UK meant that, while the STOXX Europe 600 gained ground for a second day this morning, with banks and miners in the lead, the FTSE 100 bucked the trend and turned lower. Technically, the UK benchmark index found resistance at the top of its trading path since early November.

In the earlier Asian session, most regional benchmarks advanced, shrugging off UK political jitters. Japan’s Nikkei 225 underperformed, slipping 0.55 percent. South Korea’s KOSPI outperformed, gaining 0.43 percent.

Meanwhile, investors sold off bonds to increase stock holdings, pushing 10-year Treasury yields to 2.750, above the January 10 high, though they eased back later in the session.

Conversely, the Japanese yen and gold inched higher, mainly on dollar weakness rather than because of a broader risk-off shift. This is also confirmed by the fact that stocks are on the rise, alongside bond yields. However, gold retreated slightly and the USD re-gained some ground in the late European morning.

Global Financial Affairs

In the U.S. session, technology shares led a rally fueled by Chinese plans for additional stimulus. The S&P 500 jumped 1.07 percent—the most in over a week. Health Care (+1.8%) outperformed, likely helped by the news that Microsoft (NASDAQ:MSFT) and Walgreens (NASDAQ:WBA) will join forces to streamline services in the health care market. Materials (-0.66%) and Industrials (-0.31%), the two most sensitive sectors to trade jitters, were the only sectors closing in the red. We’d expect the 'trade-resolution proxy' shares to outperform, amid what could be seen as the most promising phase of negotiations yet since the tariff tit-for-tat erupted in March last year.

Besides, we have already shown how the normal market structure—via sector causations and correlations—has broken down, which is typical before a top amid a lack of leadership. Is this more of the same? Or, perhaps, yesterday glitches in trade-sensitive stocks were driven by reports that U.S. Trade Representative Robert Lighthizer sees no headway on the “structural issues” in the U.S.-China negotiations?

Up Ahead

• A confidence motion vote will take place after 7 p.m. in London as the opposition Labour Party tries to force a general election.

Earnings

• Bank of America (NYSE:BAC), scheduled to post corporate results today before market open, with an EPS forecast of $0.63, up from last year’s $0.47 for the same quarter.
• Goldman Sachs (NYSE:GS) is due to report Wednesday before market open an EPS of $5.5, slightly lower than the same quarter last year, when it posted $5.68.
• Alcoa (NYSE:AA), will announce earnings Wednesday after market close, with an expected $0.44 EPS, from last year's corresponding quarter of $1.04
• Morgan Stanley (NYSE:MS) is due to post earnings Thursday before market open. EPS is seen at $0.90, from $0.84 for the corresponding quarter last year.
• Netflix (NASDAQ:NFLX), expected to report earnings Thursday after market close, with a $0.25 EPS, lower than the $0.41 posted for the same quarter last year.
• American Express (NYSE:AXP) is scheduled to release results Thursday after market close, showing a $1.79 EPS, to follow the $1.58 of the same quarter last year.
• BlackRock (NYSE:BLK) is scheduled to report corporate earnings Wednesday before market open, with a $6.53 EPS, slightly higher than the $6.24 posted for the same quarter last year.

Market Moves

Stocks

• The UK’s FTSE 100 rose 0.1 percent.
• The STOXX Europe 600 rose 0.5 percent, the highest in six weeks.
• Futures on the S&P 500 increased 0.3 percent.
• The MSCI All-Country World Index gained less than 0.05 percent.
• The MSCI Emerging Market Index climbed 0.1 percent to the highest in six weeks.

Currencies

• The British pound increased 0.2 percent to $1.2885, the strongest in two months.
• The Dollar Index dropped 0.08 percent, to 95.88t.
• The euro fell 0.1 percent to $1.1405, heading for its fifth consecutive decline.
• The Japanese yen climbed 0.1 percent to 108.60 per dollar.

Bonds

• Britain’s 10-year yield gained three basis points to 1.289 percent.
• The yield on 10-year Treasuries climbed one basis point to 2.73 percent.
• Germany’s 10-year yield rose one basis point to 0.22 percent, the first advance in a week.
• Japan’s 10-year yield declined less than one basis point to 0.01 percent.

Commodities

• West Texas Intermediate crude fell less than 0.05 percent to $52.09 a barrel.
• Gold rose 0.1 percent to $1,290.23 an ounce.