U.S. Opening Bell: Global Stocks Drop As Rate Cut Hopes Falter; Turkish Lira Slips

Key Events

Futures on the S&P 500, Dow and NASDAQ 100 slid this morning but mostly managed to avert the steeper declines seen across Asia after strong job figures form the U.S. dampened expectations of a Fed rate cut on Friday.

The STOXX 600 fluctuated around neutral levels, with Deutsche Bank (DE:DBKGn) stock reversing a 2.7% surge that had been prompted by the announcement, from the German investment bank, of extensive cost-cutting plans, including a 25% staff cut.

STOXX 600 Daily Chart

Technically, the price of the pan-European index is at a precarious level, evidenced by Friday’s completion of an Evening Star, which confirmed the April highs. If prices fall below the 365.00 level—below the 200 DMA, underlining the importance of those prices as a supply-demand pressure-point—they would have completed a double top. A drop below the RSI uptrend line may lead to the same outcome.

EUR/USD Daily Chart

The euro looked relatively steady, ticking mildly higher after German industrial production data just missed expectations. From a technical perspective, the single currency slipped below the short-term uptrend line on Friday, after dropping below the 200, 100 and 50 DMA since the beginning if the month. Also, the RSI completed a double top.

In the earlier Asian session, regional shares tumbled across the board as traders raced to take advantage of a sudden imbalance between overpriced stocks and reduced bets for interest rate cuts.

Investors also dialed down their risk positions after Morgan Stanley trimmed exposure to global stocks, unconvinced that monetary easing would make up for weakening economic activity.

Despite the immediate benefit of easing trade relations with the U.S., for Chinese equities, the Shanghai Composite (-2.58%) underperformed, almost hitting a three-week low, with the RSI completing a double top. South Korea’s KOSPI (-2.2%) ranked as the day’s second worst performer, even as the won weakened by almost 1% as the dollar strengthened on investors' rate outlook shift.

Technology stocks in particular underperformed on the fallout of Japan’s export controls on South Korean semiconductor materials, vital for tech companies. Technically, the drop confirmed a January-May double-top, after the 200 DMA forced prices down. The RSI provided a negative divergence, establishing a descending series of peak and troughs, before the price does.

USD/TRY Daily Chart

In other news, the Turkish lira's two-month rally was dealt a heavy blow after President Recep Tayyip Erdogan unexpectedly fired of the country's central bank governor on Saturday, reawakening investor worries around a lack of independence in the Middle Eastern country. Despite initially sinking near 3% in the Asian session, the USD/TRY later found support by the 200 DMA, from where it leaped above the 100 DMA, where it is now finding further support. The 50 DMA is “guarding” the downtrend line since May. The RSI is creeping back up from an oversold condition to potentially complete a double bottom, suggesting the lira’s rally will reverse.

In commodities markets, WTI crude fluctuated, caught in between a myriad of catalysts, including Iran’s threat to breach levels of uranium enrichment established by the 2015 nuclear accord unless the U.S. drops economic sanctions. A meaty Fed speakers line up could also represent a key driver this week.

Overall, investors will be tuning into the upcoming batch of Fed speeches—first and foremost by Fed Chairman Jerome Powell, who testifies on the state of the U.S. economy on Wednesday and Thursday—and into the minutes from June's monetary policy meeting hoping to gain more insight into the twists and turns of the Fed's interest rates path since January. Friday’s nonfarm payroll data threw them off course, sparking fears of a U-turn on the central bank's recent policy dovishness. Once again, good economic data disappoints—counterintuitively—equity investors, who have grown dependant on policy easing.

Up Ahead

• UK GDP will be released by the Office of National Statistics on Wednesday, along with manufacturing data. The Bank of England also releases its Financial Stability Report.
• Federal Reserve Chairman Jerome Powell testifies before Congress on monetary policy and the state of the U.S. economy on Wednesday and Thursday.
• Fed minutes are due on Wednesday, ECB minutes on Thursday.
• The core consumer price index, a key measure of U.S. inflation coming out on Thursday, is expected to have increased 0.2% in June from the prior month, while the broader CPI is forecast to remain unchanged.
• U.S. producer prices are due on Friday.

Market Moves

Stocks

• The U.K.’s FTSE 100 gained 0.1%.
• The MSCI Asia Pacific Index fell 1.2% to the lowest in more than a week.

Currencies

• The British pound declined 0.1% to $1.2513, the weakest in seven months.

• The Dollar Index fell 0.05%.
• The euro slid less than 0.05% to $1.1224, the weakest in almost three weeks.
• The Japanese yen advanced 0.1% to 108.36 per dollar.

Bonds

• Britain’s 10-year yield declined three basis points to 0.707%.

• The yield on 10-year Treasurys dropped one basis point to 2.02%.
• Germany’s 10-year yield slid two basis points to -0.38%.

Commodities

• Gold increased 0.5% to $1,406.58 an ounce.
• West Texas Intermediate crude climbed 0.3% to $57.71 a barrel, the highest in a week.