U.S. Opening Bell: Futures Ignore Trade, Tech Jitters; WTI Surges; USD Drops

Key Events

European shares rebounded from a five-day stock rout and futures on the S&P 500, Dow and NASDAQ 100 climbed higher this morning, making up for a mixed Asian session that felt the pinch of re-ignited trade tensions. The STOXX Europe 600 advanced with technology firms and automobile makers.

Banking shares helped the London markets break three days of losses. The FTSE 100 lifted back over 7000 and was up over 1 percent mid-session, while the FTSE 250 increased by 0.7 percent.

Earlier, Asian shares sold off as preliminary talks for a trade resolution ahead of the G20 meeting on November 30 fell through, quashing hopes that US and Chinese leaders would be able to make some headway anytime soon. Chinese stocks on the Shanghai Composite closed higher after erasing early losses, as a rebound in property and healthcare stocks offset losses in energy shares sparked by Wall Street selloffs and a plunge in oil prices.

Global Financial Affairs

Yesterday, US shares tumbled for a second day, with price slumps in energy stocks magnifying the broader selling. Apple (NASDAQ:AAPL) spearheaded a continued rout in tech hardware firms. Retailers were also dumped by investors despite strong sales results, amid worries that new online customers would entail additional heavy investment costs.

The S&P 500 briefly slid 10 percent below its September record close before clawing back just above the threshold and closing 1.82 percent in the red. The NASDAQ Composite slid 1.7 percent, almost 14 percent below the closing high it reached in August. The Dow Jones Industrial Average shed more than 500 points, or 2.21 percent, as angst spread across global equity markets.

Considering the Russell 2000, with its listed domestic, non-export reliant companies, failed to substantially outperform peers (-1.65 percent), we don't believe the current stock rout is trade-related. Rather, it seems driven by the ongoing slide in energy prices. This would also explain the underperformance of the Dow, which features a high concentration of energy companies.

The Dow's decline was also aggravated by the Apple selloff. The tech behemoth makes up about 5% of the index's weight. At the end of October We forecast the stock may top out even amid stellar earnings; it comfortably reached our target. Technically, the price found support above its long-term uptrend line. After a 24 percent correction from its record peak, dip buyers may be happy to pick up such a palatable discount.

Overseas trading seemed more heavily impacted by trade headwinds than the US market—though the Technology sector, whose continued growth is dependent on the smooth functioning of supply chains, represents an obvious exception to this trend. We believe that the Fed’s continued hawkish rhetoric and outlook for higher rates is currently having a much greater impact on US stocks than the trade risk, even when benchmarked against the softer guidance posted by US company executives due to higher trade tariffs.

Moreover, the early signs of a slowdown in global growth, and its impact on US growth—recently highlighted by Fed speakers—also weighs on US market sentiment.

The dollar is paring yesterday’s risk-off gains, as investors rotate back into equities, confirming our recent bullish call.

Oil’s plunge paused on a surprise reduction in US inventories. Technically, the WTI price provided a decisive downside breakout to a bearish flag, as we predicted, with a high potential for a much sharper selloff.

Up Ahead

• October figures on US existing home sales will come out on Wednesday.
• Core durable goods orders data for October is due on Wednesday.
• Natural gas storage data, out later today, may post the first seasonal draw of the year, driving the commodity higher.
• US markets will see a holiday-shortened week, with Black Friday kicking off the holiday shopping season after Thanksgiving break.

Market Moves

Stocks

• The FTSE 100 was increased by 1.1 percent mid-session.
• The Stoxx Europe 600 gained 0.4 percent.
• Futures on the S&P 500 rose 0.5 percent.
• The MSCI All-Country World Index dropped less than 0.05 percent to the lowest level in more than three weeks.
• The MSCI Emerging Market Index climbed less than 0.05 percent.

Currencies

• The British pound rose 0.1 percent to $1.2804.
• The Dollar Index lost 0.14 percent.
• The euro gained 0.2 percent to $1.1393.
• The Japanese yen slid 0.1 percent to 112.85 per dollar.
• The MSCI Emerging Markets Currency Index slipped less than 0.05 percent.

Bonds

• Britain’s 10-year yield increased two basis points to 1.401 percent.
• The yield on 10-year Treasuries climbed one basis point to 3.08 percent, the biggest advance in more than two weeks.
• Germany’s 10-year yield gained two basis points to 0.37 percent, the largest rise in almost three weeks.
• The spread of Italy’s 10-year bonds over Germany’s fell 10 basis points to 3.1615 percentage points.

Commodites

• The Bloomberg Commodity Index gained 1.1 percent.
• West Texas Intermediate crude increased 1.4 percent to $54.20 a barrel, the largest climb in seven weeks.
• LME copper edged 0.6 percent higher to $6,220.00 per metric ton.
• Gold climbed 0.1 percent to $1,223.42 an ounce.