- All four major US contracts along with global stocks up, though China lags
- Gold falls together with dollar, bolstering equities
- USD's decline confirms continued downtrend
- Earnings reports this week include releases from Salesforce.com (NYSE:CRM) on Tuesday after the close of the US session; Royal Bank of Canada (NYSE:RY) on Wednesday; HP (NYSE:HPQ) and Dollar General (NYSE:DG) on Thursday.
- The US Republican National Convention continues through the week.
- Fed Chair Powell speaks at a virtual event on Thursday.
- Futures on the S&P 500 Index gained 0.3%.
- The Stoxx Europe 600 Index advanced 0.48%.
- The MSCI Asia Pacific Index increased 0.4%.
- The MSCI Emerging Markets Index climbed 0.2%.
- The Dollar Index declined 0.1%.
- The euro advanced 0.2% to $1.1817.
- The British pound jumped 0.3% to $1.3108.
- The onshore yuan strengthened 0.1% to 6.912 per dollar.
- The Japanese yen weakened 0.1% to 106.10 per dollar.
- The yield on 10-year Treasuries jumped one basis point to 0.67%.
- The yield on two-year Treasuries increased one basis point to 0.16%.
- Germany’s 10-year yield advanced one basis point to -0.48%.
- Britain’s 10-year yield gained one basis point to 0.22%.
- Japan’s 10-year yield gained less than one basis point to 0.031%.
- West Texas Intermediate crude was unchanged at $42.62 a barrel.
- Brent crude gained 0.4% to $45.31 a barrel.
- Gold strengthened 0.3% to $1,933.75 an ounce.
Key Events
US futures for the S&P 500, Dow Jones, NASDAQ and Russell 2000, as well as global stocks all pushed higher on Tuesday, propelled by news from China's commerce ministry that there had been "constructive dialogue" between the US and the Asian nation on trade. This helped build on existing gains spurred by signs of thawing US-Sino relations, apparent stability in the pandemic's spread and a faster track to a virus treatment—as all the signals seem to be lining up for a continued rally.
The dollar fell along with Treasuries and gold.
Global Financial Affairs
The world’s two largest economies have managed to reaffirm their joint commitment to the Phase 1 of what is hoped will ultimately culminate in a broader, satisfactory trade deal between Washington and Beijing, to be reviewed twice-yearly. As market participants know, this is not a forgone conclusion given the array of tensions over a broad spectrum of disagreements starting with data security and ending with democracy in Hong Kong.
On the other hand, considering this is just the first segment of what's hoped will be a larger deal—the same Phase 1 accord signed by President Donald Trump and China’s Vice Premier Liu He on January 15, 2020, after months of breakups and makeups between the two economic powers—the notion of a consumation remains impossible to predict in this universe.
Put more bluntly, that signature was nothing more than a public relations stunt, and the biannual review now being heralded as a breakthrough is akin to hitting the snooze button, while investors go back to sleep to dream about riches provided by infinite QE producing unending equity rallies.
Contracts on the SPX and Dow this morning suggest the underlying benchmarks will climb for a fourth day, while NASDAQ futures point to a fifth day advances. US Russell futures are signaling a second day rally for the small cap index.
The Stoxx Europe 600 advanced with airline shares. Germany's DAX jumped at the open building on gains which took it over the 13,000 level on Monday. However, the benchmark retreated earlier and is well off its highs, though it has remained above the 13,000 mark.
The pan-European index was also pushed off its highs, to fall below the 200 DMA.
Most of Asia was in the green this morning, with South Korea’s KOSPI outperforming, (+1.6%), seeing the biggest gains in a month on the positive trade news from the US and China. As well, the Bank of Korea is expected to keep interest rates on hold on Thursday as it weighs concerns about rising household debt and property prices.
Japan’s Nikkei followed, (+1.35%), boosted by Paper and Pulp stocks, Railway and Bus shares and Real Estate sector equities.
As we've often point out, Chinese stocks were the surprising contrarians. Despite the biggest positive theme in the news cycle centering on China’s trade with the US, the Shanghai Composite was one of the few major Asian benchmarks in the red, (-0.4%), though Hong Kong’s Hang Seng and India’s Nifty 50 were both down as well, though the Indian index eked out a marginal gain. It's possible fears of another 2015-like Chinese stock bubble could be weighing on mainland shares.
On Monday, during the New York session, US stocks climbed to yet another all-time high amid COVID-19 treatment hopes. The S&P 500 notched another record, while the NASDAQ Composite garnered a second consecutive all-time high.
With the Dow having completed a bullish pattern, the Russell 2000 is set to provide an upside breakout of its own falling flag.
The return of risk-on sentiment prompted investors to route capital out of Treasuries and into stocks once again.
As a result, yields, including for the 10-year benchmark note, rose for the second session. Technically, rates bounced off the 50 DMA and a broken downtrend line since March 20, the equities bottom, and cut through the 100 DMA—a bullish indicator for the stock market.
The Treasury selloff weighed on the dollar, potentially confirming yesterday’s hanging man, which itself confirmed the resistance below a bearish pennant.
The USD seems to be developing a secondary bearish pattern...a rising flag.
Gold fell, despite a weakening dollar.
This bolstered the bearishness of the rising flag, in opposition to the rising channel.
Oil edged lower as traders eyed Tropical Storm Laura, which is expected to strengthen into a hurricane before making landfall later this week.
US natural gas futures rose to their highest levels since before the pandemic on concern over production declines ahead of two tropical storm systems moving through the Gulf of Mexico.
Technically, the weekly candle, after gapping higher, is developing a high-wave candle that connotes a loss of direction, at the resistance of a 3-year support from June 2016-19. Note, that in the first week of November 2019, there was also a rising gap followed by a high-wave candle, before prices plunged as much as 48%. In December 2016, the same pattern developed, followed by a 32% decline.