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U.S. Opening Bell: Oil, USD Slip; U.S. Futures Rise On Easing Trade Tensions

Published 14/05/2018, 12:01
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  • European energy and health care shares follow US counterparts higher

  • Malaysian markets reopen after post-election volatility surge

  • Emerging Markets FX rebound as dollar continues to retreat

  • Trump switches to more conciliatory tone on trade issues with China

  • Asian stocks post upbeat performance but technicals suggest more pressure ahead

  • Crude slips toward $70 from near $72 last Thursday, after UAE says OPEC can cover Iranian supply glitches

  • Key Events

    Equities in Europe drifted lower on Monday, after failing to pick up the momentum seen during the Asian session. Despite positive geopolitical developments today, optimism was spoiled by the declines posted by the energy sector, which tends to underperform when global tensions ease.

    The STOXX Europe 600 opened flat, with oil shares losing ground, while health care shares followed their US counterparts higher. However, US futures on the S&P 500, the Dow and the NASDAQ 100 seem to be taking their cue from Asian indices, which closed mostly higher.

    Malaysian equities rebounded from an earlier decline after Mahathir Mohamad ousted Najib Razak’s coalition after six decades of ruling—an historic political shift that sparked the highest level of stock market volatility in almost three years. The FTSE Bursa Malaysia KLCI Index bounced off a 2.7 percent slump to climb 0.5 percent as of 12:26 p.m. in Kuala Lumpur. That’s the biggest intraday swing since early September 2015 for the Malaysian index, which breached through its 50- and 100-day moving averages. The ringgit also rebounded from a 0.95 percent plunge to a tiny 0.5 percent loss.

    DXY vs Emerging Markets Daily Chart

    Emerging markets equities, which took a hit from the stronger dollar, are building on their first weekly advance in four weeks, just as the dollar continues to slide for a fourth straight day.

    Other Asian equity benchmarks climbed to a near two-month high on optimism that trade tensions between the US and China are finally easing, after US President Donald Trump said on Sunday that he’s working with Chinese President Xi Jinping to help Chinese telecom company ZTE (HK:0763) get back on track. The group was heavily impacted by restrictions by the US Commerce Department on US companies selling supplies to ZTE.

    Trump’s announcement comes as a good will gesture ahead of a second round of talks, after Chinese officials reiterated last week that their trade position hadn't changed.

    Global Financial Affairs

    Trump’s newfound spirit of compromise may be related to his upcoming meeting with North Korea’s Supreme Leader Kim Jong-un on June 12. Until that date, the White House will likely steer clear of any protectionist rhetoric against China, given that country's leverage over North Korea and its nuclear program. Trump probably needs a geopolitical breakthrough to counterbalance the recent flood of negative headlines, after he withdrew from the Iran deal against the pleas of key European allies and signed off on a controversial decision to move the US embassy in Israel from Tel Aviv to Jerusalem—which takes place today. A more accommodative tone on trade matters and progress on North Korea’s denuclearization would help keep further criticism at bay, as well as boost both US and global stocks.

    Japan’s TOPIX gained 0.6 percent, for a total of 1.85 percent on a three-straight day advance. China’s Shanghai Composite also climbed, by 0.3 percent. However, the index is currently posting three consecutive bearish signals as it is in the process of forming a Shooting Star after a Bearish Engulfing Pattern, which in turn had confirmed a previous Hanging Man.

    Hong Kong’s Hang Seng is up 1.1 percent, making for a 5 percent five-day advance, but is also fluctuating between two bearish patterns: a Shooting Star and a High Wave Candle. Australia’s S&P/ASX 200 is up 0.3 percent but remains below the two consecutive Shooting Stars it posted in the two previous sessions. South Korea's KOSPI ignored positive political headlines and closed 0.1 lower, weighed down by tech and telecom shares.

    Shares in serviced office provider IWG (LON:IWG), which includes the Regus brand, were up 22.18% on Monday on reports of a three way bidding war for the UK-listed company. The company announced on Friday that it had interest from 3 separate companies for a possible takeover. Private equity firms Starwood Capital, TDR Capital and Lonestar have all shown an interest in IWG.

    Utility company Centrica (LON:CNA), owners of British Gas, announced on Monday it was on track for 2018 targets following the cold snap in February and March. Shares were up 0.24% on Monday.

    Marks & Spencer (LON:MKS) shares were in the red on Monday after HSBC lowered its rating from ‘buy’ to ‘hold’. Shares in the UK high street shop were down 2.01%.

    Shares in high street retailer Mothercare (LON:MTC) were down 4.86% on Monday following reports that the maternity and baby products firm would raise money from investors as part of a restructuring process. More details of the restructuring programme will be released on Thursday alongside 2017/8 trading results.

    Today’s session follows a complex US close on Friday. The S&P 500 managed to end in positive territory (+0.17 percent) only thanks to shares in Health Care, which jumped 1.49 percent. The second-best performers, Consumer Staples and Industrials, came in far behind, with a 0.21 percent gain.

    Health care stocks initially plunged on Friday, but then leaped almost 1.5 percent after Trump unveiled his long-awaited plan to lower prices on prescription drugs. Shares of Express Scripts (NASDAQ:ESRX) and CVS (NYSE:CVS) surged 2.6 percent and 3.2 percent respectively, bouncing off session lows after Trump's speech.

    Drug companies and investors were bracing for Trump's words after he recently attack unreasonable pharmaceutical prices. However, what the president didn't say rang loudest: he seemed to scrap his previous plans to let Medicare directly set drug prices—a proposals loathed by the biopharma industry.

    Health Care Select Sector SPDR Daily Chart

    The jump last Friday for health care shares extends a breakout from a bullish Falling Wedge, which may be followed by a Double-Bottom upside breakout, after the price neared the 84.0000 neckline. The sector also closed above the 200 DMA for the first time since April 26. A Double-Bottom upside breakout would suggest a return to the upside of the most followed moving-average, after it's been there for a full year, from February 2017 to February 2018.

    WTI Crude slipped lower for a second day, faliing below $71—a decline that would seem unusual considering that a weaker dollar typically favors oil demand. However, WTI prices benefited from statements by the United Arab Emirates that OPEC members would be able to offset any possible drop in supply stemming from the reinstatement of sanctions against Iran.

    Up Ahead

    • China plans to send Vice Premier Liu He to Washington for more trade talks on Tuesday.

    • EU chief Brexit negotiator Michel Barnier will brief European affairs ministers today on the status of talks with the UK.

    • China releases data on industrial production and retail sales on Tuesday.

    • UK Prime Minister Theresa May meets with her Brexit cabinet on Tuesday to discuss plans for a post-withdrawal customs union.

    • UK jobs data will also be released on Tuesday, followed by the Bank of England's inflation report hearings.
    • US retail sales and industrial production figures are due on Tuesday and Wednesday respectively.

    • Home Depot (NYSE:HD) is scheduled to release corporate results tomorrow before market open, for the fiscal quarter ending April, with the EPS forecast of $2.07, versus $1.67 for the same quarter last year.

    • Cisco (NASDAQ:CSCO) is due to report earnings on Wednesday after market close, for the fiscal quarter ending April. Consensus EPS is $0.59, after the company reported $0.54 EPS for the same quarter last year.

    • Walmart (NYSE:WMT) is set to release its results on Thursday before market open, for the quarter ending April. The EPS estimate is $1.13, after last year’s $1.00 for the same quarter.

    • Campbell Soup (NYSE:CPB) is expected to release corporate earnings Friday before market open, for the fiscal quarter ending April, with an EPS consensus of $0.61, versus $0.59 for the same quarter last year.

    Market Moves

    Stocks

    • The UK’s FTSE 100 fell 0.1 percent, the biggest fall in more than a week.

    • The STOXX Europe 600 slid less than 0.05.

    • Germany’s DAX gained less than 0.05 percent to 13,005.21.

    Currencies

    • The British pound gained 0.3 percent to $1.3578, the strongest level in almost two weeks on the biggest climb in almost three weeks.

    • The Dollar Index fell 0.2 percent to 92.37, its fourth consecutive decline, totaling a 0.8 percent drop to the lowest level in more than a week.

    • The euro gained 0.2 percent to $1.1968, the strongest level in more than a week.

    • The Swiss franc advanced 0.1 percent to $0.999, the strongest level in more than a week.

    Bonds

    • Britain’s 10-year yield advanced two basis points to 1.467 percent, the highest level in more than two weeks.

    • The yield on 2-year Treasurys dipped less than one basis point to 2.53 percent, the first retreat in more than a week.

    • The yield on 10-year Treasurys climbed less than one basis point to 2.97 percent.

    • Germany’s 10-year yield gained two basis points to 0.58 percent, the highest level in more than a week.

    Commodities

    • Gold climbed 0.2 percent to $1,320.90 an ounce.

    • WTI crude slid 0.5 percent to $70.37 a barrel.

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Latest comments

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