U.S. Opening Bell: Oil Falls Below $70; U.S. Yields Inch Higher; Futures Mixed

Key Events

Equities in Europe opened slightly higher, while futures on the S&P 500, Dow and NASDAQ 100 were mixed ahead of key earnings reports and after disappointing economic data in China weighed on all major Asian indices.

The lackluster equity performance this morning in Asia begs the question of whether investors were concerned with China's ability to withstand the ramifications of a trade war with the US, or rather whether they were spooked by the weak GDP and industrial output figures released earlier from the world's second-largest economy.

Which perhaps raises the even larger questions of whether the US can continue fueling economic expansion on its own. For now, China’s Shanghai Composite is in a bear market, and both fundamental and technical signs are pointing to further losses. The Chinese yuan is now at a low for the year. Conversely, US stocks are eyeing all-time highs and the dollar is just one percent below its one-year high.

For the time being, we believe this market dynamic will make US assets even more attractive to global investors, especially if the US economy confirms its steady growth pace and corporate earnings meet expectations.

Global Financial Affairs

The pan-European STOXX 600 was pushed higher by media company stocks this morning, offsetting losses in the automotive sector, most likely sparked by ongoing trade uncertainty.

The FTSE fell more than 1 percent mid-session on Monday as the pound pushed higher against most currency majors. Mining stocks were hit by weaker China data and falling copper prices, while oil majors were also hit by lower oil prices.

During Asian trading, equities slumped on lower volumes, as Japanese markets were closed for holidays. Local trading wiped out gains from the previous North American session that had propelled US majors towards technical milestones while pushing them closer to all-time highs.

China’s mainland Shanghai Composite fell as much as 0.9 percent but then trimmed losses to 0.6 percent. The 50 DMA (green) is threatening to cross below the 200 DMA (red), executing a Death Cross. That negative sentiment may be what’s needed to push prices below the January 2016 low and below 2600, which would form a new, lower trough.

While China’s second-quarter GDP growth slowed to 6.7 percent, down from 6.8 percent in the previous quarter, it was in line with expectations. Year-on-year industrial output undershot forecasts of 6.5 percent, falling instead to 6 percent.

This comes on the heels of a trifecta of poor economic data in June, when China's May retail sales, industrial production and infrastructure investment each came in significantly lower than expected, hitting multi-year to all-time lows.

On the other hand, retail sales in China increased 9 percent in June, beating the 8.8 percent expectation; fixed-asset investments advanced 6 percent in the first six months of the year, in line with expectations, and exports jumped to the record high of $29 billion, potentially suggesting that, for now, overall momentum for global demand remains on course.

However, Chinese exports may soon take a hit from trade tariff headwinds, as Washington has recently upped the stakes by threatening to slap 10 percent levies on an extra $200 billion of Chinese goods.

Hong Kong’s Hang Seng rebounded from a 0.8 percent drop to eke a gain, as the utilities sector offset slumping property and materials stocks.

South Korea’s KOSPI slipped 0.4 percent, led by losses in bank shares. Automakers outperformed, in stark contrast to their European counterparts as China’s economic data reminded investors of the potential impact of trade jitters on economic growth. Hyundai Motor (KS:005380) gained 2.86 percent.

Meanwhile, the yen slid near its weakest levels since January, resuming last week’s 1.75 percent drop, which had marked its biggest weekly loss in 10 months. Why is Japan's currency losing ground even against a weakening dollar? Is it an indicator that investors have overcome their worries of global trade glitches, or is the interest-rate differential favoring the greenback against the yen, whose non-existent yield risks overshadowing its haven status? Some are going as far as to question whether the yen's safe haven status will soon be a thing of the past.

The pound was higher ahead of a debate in parliament on the government's White Paper on the UK's future relationship with the European Union. Prime Minister Theresa May will try to push through the bill which will lead to a 'softer' Brexit, despite factions within the Conservative party remaining bitterly opposed to May's desired Brexit.

Technically, the dollar broke a falling trendline since June 2015.

Meanwhile, the yield on 10-year US Treasurys is inching higher, an encouraging sign for equities, as investor demand shifts away from secure assets.

WTI oil fell below the key $70 level, amid speculation that the Trump administration is considering tapping into emergency crude supplies. Technically, the price drop is a correction within a rising channel. For now, prices found support by the 50 DMA, and the 100 DMA (blue) is “guarding” the channel bottom from above, as the 200 DMA (red) is “protecting” the channel bottom from below.

Up Ahead

• Earnings season continues on Monday with reports due from:

  • Bank of America Corp (NYSE:BAC) is set to report earnings before market open, with an EPS forecast of $0.63, from $0.46 in the same quarter last year.

  • BlackRock Inc (NYSE:BLK) is scheduled to release earnings before market open, with a $6.6 EPS forecast, vs $5.24 for the same quarter last year.

  • Netflix (NASDAQ:NFLX) reports this afternoon, after the close. Though the stock fell about 4% on Friday, it could be seen as a buying opportunity. The stock hit its all-time high on July 11.

• US President Donald Trump and Russian President Vladimir Putin hold their first summit in Helsinki later today.

• It is a big week for UK data: the last jobs and inflation figures before the Bank of England rate setting meeting in August. Average earnings and unemployment rate will be released on Tuesday, while CPI will be released on Wednesday. Retail sales for June is set to be released on Thursday.

• Fed Chairman Jerome Powell delivers his semi-annual Monetary Policy Report to the Senate Banking Committee on Tuesday, and answers lawmakers’ questions.

Market Moves

Stocks

• The FTSE dropped 1 percent.

• The STOXX Europe 600 climbed less than 0.05 percent.

• Futures on the S&P 500 gained 0.1 percent to the highest level in more than five months.

• The MSCI All-Country World Index gained less than 0.05 percent.

• The MSCI Emerging Market Index dipped 0.4 percent.

Currencies

• The British pound edged 0.2 percent higher to $1.3252, the largest rise in more than a week.

• The Dollar Index pared a 0.2 percent drop to 0.1 percent.

• The Japanese yen lost less than 0.05 percent to 112.39 per dollar.

Bonds

• Britain’s 10-year yield climbed less than one basis point to 1.273 percent.

• The yield on 10-year Treasurys rose one basis point to 2.84 percent, the biggest advance in a week.

• Germany’s 10-year yield gained one basis point to 0.35 percent.

Commodities

• The Bloomberg Commodity Index fell 0.2 percent.

• West Texas Intermediate crude lost 0.9 percent to $70.39 a barrel.

• LME copper slipped 0.6 percent to $6,198.50 per metric ton.

• Gold slid less than 0.05 percent to $1,243.72 an ounce.