- Dollar declines for the fifth straight month, nearing a 2 ½ year-low
- Yields rise again on Fed's new inflation policy
- US futures gain after Friday’s setback
Key Events
Without question, Tuesday's primary market mover has been the US dollar, which neared a two-and-a-half month low this morning, and is heading for what looks like a 6-year nadir. The slumping greenback boosted US futures for the Dow Jones, S&P 500, NASDAQ and Russell 2000.
Better than expected Chinese manufacturing data, signaling a recovery is underway, also boosted US contracts along with European stocks. Asian stocks were mixed.
Yields bounced, oil gained and gold headed back toward $2,000.
Global Financial Affairs
The e-mini S&P fell for the first time in five hours, at 4:04 EDT.
The price may have thus completed the second right shoulder of an hourly H&S top. Stochastics triggered a sell signal, after reaching overbought levels.
The Stoxx Europe 600 Index opened higher, after China's manufacturing data buoyed optimism ahead of August eurozone manufacturing and inflation numbers, released this week. Standing estimates call for a slight decline relative to July.
The pan-European benchmark, while still in the green, gave up most of this morning's advance. Perhaps this was driven by European equity investors pushing through the weaker dollar headwind which renders European stocks more expensive for non-residents since the euro was the primary beneficiary of the USD weakness. This could also hurt EU exports.
Technically, the benchmark may be developing a pennant, bearish after the preceding plunge. A downside breakout—which would complete the pattern as supply drowns out demand, thereby lowering prices—would only penetrate a trend-crossroad, the bottom of its falling channel since last Tuesday’s high and the rising trend line since the July 31 low.
The single currency climbed for the third straight day, upending a reversal pattern.
The euro pushed above the Aug. 18 high, dispelling the potential for a H&S top. It may have completed an ascending triangle.
During the Asian session most regional indices edged higher after the upside surprise China manufacturing, offsetting Monday' weakness on Wall Street. The {Caixin Manufacturing PMI release revealed that Chinese factory activity grew at the fastest rate in almost a decade in August, due to the first increase in new export orders this year.
The apparent economic rebound of the world’s second-largest economy buttresses the argument that the Asian giant is recovering after the country's coronavirus enforced lockdowns.
South Korea’s KOSPI outperformed, (+1%), even against a strengthening won, as the government announced aggressive spending measures to stimulate the economy after the pandemic hit.
Most American shares retreated during the New York session on Monday, after China introduced a series of rules that could complicate or even prevent the sale of TikTok to an American company. The announcement ratched up Sino-US tensions once again, something we weren't expecting ahead of US elections in November.
Nonetheless, Apple (NASDAQ:AAPL) led the Nasdaq higher, even though its supply chain significantly relies on China
Thursday’s virtual Jackson Hole address by Fed Chair Jerome Powell, revealing that the central bank would allow inflation to run higher, eroding future yields, thereby created new demand for current yields, including for the US 10-year benchmark Treasury note.
Yields bounced after a two-day drop, after nearing the bottom of a rising channel.
The dollar fell for the third straight day and for the fifth straight month.
The global reserve currency dropped to its lowest level since Apr. 30, 2018, confirming the July 28-Aug. 17 bearish pennant that helped supply break the floor of a falling channel to steepen the downturn.
This morning, the price fell below the uptrend lines since May 2011. If the price continues to dip another 3.6%, as technical signals suggest, the greenback would reach the lowest point since Dec. 21, 2004.
Dollar weakness boosted gold to its highest point in two weeks.
The yellow metal completed an hourly rounding bottom and a daily bullish pennant, extending the rising channel with a view to retesting the Aug. 7 $2,089.20 all-time high.
Oil also gained on the weak dollar, compounding falling US stockpiles.
Up Ahead
- US ISM manufacturing data is due later Tuesday.
- Australia GDP figures are released Wednesday.
- Initial US jobless claims for the week ended Aug. 29 are published on Thursday.
- US August Nonfarm Payrolls prints on Friday. It's forecast to show a continued to rebound from COVID-19 lows.
Market Moves
Stocks
- Futures on the S&P 500 Index gained 0.4%.
- The Stoxx Europe 600 Index climbed 0.2%.
- The MSCI Asia Pacific Index increased 0.3%.
- The MSCI Emerging Markets Index gained 0.8%.
Currencies
- The Dollar Index sank 0.3%.
- The euro gained 0.3% to $1.1966.
- The British pound climbed 0.2% to $1.3395.
- The Japanese yen strengthened 0.2% to 105.71 per dollar.
- The offshore yuan rose 0.3% to 6.825 per dollar.
Bonds
- The yield on 10-year Treasuries increased less than one basis point to 0.71%.
- The yield on two-year Treasuries decreased less than one basis point to 0.13%.
- Germany’s 10-year yield declined one basis point to -0.41%.
- Britain’s 10-year yield declined one basis point to 0.306%.
- Japan’s 10-year yield dipped one basis point to 0.043%.
Commodities
- West Texas Intermediate crude rose 0.6% to $43.09 a barrel.
- Brent crude climbed 0.4% to $45.77 a barrel.
- Gold strengthened 1% to $1,987.39 an ounce.