U.S. Opening Bell: Stocks Slump On Lockdowns, Afghanistan; Gold, USD Rally

Key Events

US futures contracts on the Dow, S&P, NASDAQ and Russell 2000 tracked a global selloff on Tuesday, as increased lockdowns across the world continue to test the global economic recovery and the crisis in Afghanistan adds to risk-off sentiment. This follows the Dow and S&P posting new record closes yesterday during the US session.

Gold jumped as traders pivoted into safe havens.

Global Financial Affairs

While all four US futures were in the red, there was an obvious loser—the Russell 2000, which tumbled 1.2% this morning, tripling the 0.4% decline of the NASDAQ 100, illustrating a clear reversal for the Reflation Trade.

Growth stocks appear to be back in vogue, predominantly in the technology sector. Tech stocks have already benefited significantly from the global pandemic as lockdowns forced people to move much of their activity including work, socializing and shopping, online. This recent rally in tech stocks, whose valuations were already stretched, demonstrates that many investors think the economic rebound will not continue.

In Europe, shares opened lower, extending yesterday's selloff. The STOXX 600 index declined for the second day and if it continues sliding may post its sharpest two-day slump in four weeks, after the pan-European benchmark posted a 10-day streak of records earlier this month, in its longest advance in history.

Matching the paradigm in US futures, in European trade, economically sensitive sectors suffered the biggest losses. Travel stocks, automakers, real estate shares, and retail equities were leading decliners.

Earlier, Asian markets continued to suffer from ongoing Chinese regulatory tightening in the tech sector, which dented the sector in regional trade. In a recent development, officials have restricted companies’ handling of user data which has led to selloffs among Sino internet mammoths including Tencent (HK:0700) and Alibaba (HK:9988). The tech sector in Hong Kong, where a number of major Chinese internet companies are listed, slumped 2.6%, underperforming the broader benchmark, the Hang Seng Index, which dropped 'only' 1.7%, slightly less than the slump in China’s Shanghai Composite.

US stocks rebounded on Monday, with the S&P 500 Index and the Dow Jones Industrial Average gaining about 0.3%, as both notched new all-time highs.

The S&P 500 Index has jumped 104% from the March 2020 bottom. The Dow Jones Industrial Average has rallied 95% while the NASDAQ 100 and NASDAQ Composite 123% and 122% respectively. But the biggest surprise is the 128% surge of the Russell 2000, and that’s after recent declines. By March of this year, the small cap gauge had added 144% since the March low of 2020.

The S&P 500 posted its 49th record for this year. However, note that defensive utilities and healthcare outperformed. We have been pointing out recently that it doesn’t bode well for the broader market when defensive stocks lead the rallies.

In stock news, Apple (NASDAQ:AAPL) climbed to an all-time high, while Tesla (NASDAQ:TSLA) stumbled after US auto safety regulators opened an investigation on the electric vehicle’s autopilot system.

Investors are eagerly awaiting any indication from Federal Reserve Chair Jerome Powell at today's town hall of what may be revealed at the Jackson Hole symposium later this month, when traders expect to hear what the Fed has planned regarding its QE program. Markets are trying to figure out whether we will see a repeat of the 2013 so-called taper tantrum.

Meanwhile, investors are continuing to move into haven positions, increasing their holdings in 10-year Treasury notes, pushing yields toward recent lows.

After rates upended a potential double bottom, upside risk remains with a possible H&S bottom, whose neckline is reinforced by a Death Cross.

Despite the falling yields, the dollar managed a small rise, even if it gave up earlier gains.

A recent bullish moving average formation is providing support for the USD, as the greenback attempts to complete a massive double-bottom, whose completion could catapult the global reserve currency significantly higher.

Gold moved higher for a third day, as investors increase safe haven positions; the yelow metal was further boosted by a weak dollar.

We consider the current gold rally a corrective move, within a downtrend, that's inside a falling channel, whose top is guarded by a bearish moving average formation.

Oil prices continued to be pressured by the demand outlook, as COVID cases rise and social restrictions are increasing across the globe, diminishing demand during the normally busy summer travel season. A single case reported in Auckland, New Zealand has seen the country introduce strict lockdown restrictions.

WTI fell for the fourth day, slipping below its 100 DMA for the second day in a row, for the second time this month and for the first time this year. The price is edging closer to the bottom of a Descending Triangle. If breached, it will signal a reversal, setting a trajectory toward $55.

Up Ahead

• The FOMC minutes are released on Wednesday.
• On Wednesday, UK and European CPI figures are published.
• US retailer, Target (NYSE:TGT), reports results on Wednesday.
• On Thursday initial jobless claims are published in the US.

Market Moves

Stocks

• The FTSE 100 was unchanged
• The STOXX 600 fell 0.3%
• Futures on the S&P 500 fell 0.5%
• Futures on the NASDAQ 100 fell 0.4%
• Futures on the Dow Jones Industrial Average fell 0.5%
• The MSCI Asia Pacific Index fell 1.1%
• The MSCI Emerging Markets Index fell 1.3%

Currencies

• The Dollar Index rose 0.2%
• The British pound fell 0.3% to $1.3811
• The euro was little changed at $1.1770
• The Japanese yen was unchanged at 109.24 per dollar
• The offshore yuan fell 0.2% to 6.4860 per dollar

Bonds

• The yield on 10-year Treasuries declined four basis points to 1.23%
• Britain’s 10-year yield declined two basis points to 0.56%
• Germany’s 10-year yield declined two basis points to -0.49%

Commodities

• Brent crude fell 0.7% to $69.01 a barrel
• Spot gold rose 0.4% to $1,793.86 an ounce