U.S. Opening Bell: Trade Jitters Quash Wall Street Rally; Yuan Slumps; USD Flies

Key Events

European equities and futures on the S&P 500, Dow and NASDAQ 100 were struggling on Thursday, after renewed trade tensions rattled Asian shares and currency markets. Fresh diplomatic blows from the US and China threat to quash the impact of bullish earnings results from Wall Street heavyweights, which sent S&P 500 only 2 percent from its all-time high yesterday.

The US dollar, meanwhile, is on track for its highest close in a year as it gains ground for a third consecutive day, pushing emerging markets assets further down. In early European trade, it stood only 0.07 percent away from its June 28, 95.39 close.

At the opposite side of the spectrum, the Chinese yuan is heading for its lowest close since July 26 2017, after the People's Bank of China weakened its currency fixing for the first time since it started plunging in June, thereby singling it may let it slide further.

The pan-European STOXX 600 opened slightly lower, then briefly crawled higher, only to slide back into the red as mixed corporate reports failed to provide traders with a clear indicator.

Earlier, Asian markets suffered another volatile session and closed broadly in the red, unable to maintain early gains.

Japan’s TOPIX closed at the very lowest point of the session ( -0.1 percent), halting a four-day winning streak on a sour note as it failed to hold on to early 0.5 percent gains.

China’s Shanghai Composite echoed yesterday's performance as it gained 0.64 percent, then ran out of steam and ended 0.49 percent in negative territory, capping a five-day losing streak of 2.25 percent. Technically, it closed slightly below Tuesday’s hammer’s support.

Hong Kong’s Hang Seng also started on a strong foot, but then turned a 0.65 percent gain into a 0.2 percent loss toward the end of the morning session and posted a deeper 0.38 percent slide by the close, for an aggregate three-day slide of 1.7 percent. Technically, the price slightly extended a downside breakout of a bearish pennant, at the 28,000-support level since October 2017.

South Korea’s KOSPI opened 0.4 percent in the green but by the closing bell it had slipped 0.34 percent lower, suffering an aggregate four-day decline of 1.27 percent.

Australia’s S&P/ASX 200 yet again bucked the trend as it sealed a 0.28 percent gain, though giving up a stronger 0.47 percent climb. Technically, the index is developing a second back-to-back continuation pattern. The supply-demand balance formed a continuation pennant, June 25 to July 5, complete with an upside breakout on July 6. Afterward, a second bear vs bull struggle developed in the form of a falling flag, July 10 till now. An upside breakout above the 6,280 level will complete it, completing the second half of a double bullish signal.

Global Financial Affairs

On Wednesday, the SPX was surged to 2 percent below its January, all-time high after the top six US banks topped a record $29 billion in net income for the second straight quarter.

Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) outperformed, easily beating estimates thanks to their investment banking and consumer divisions.

Wells Fargo (NYSE:WFC) was the only one among the six biggest US banks to disappoint expectations, hit by a decline in both loans and deposits

Overall, the upbeat set of data was favored by a jump in advisory and underwriting fees, to a total of $8.54 billion, better-than-expected trading gains and the lowest level of bad loans in nearly a decade.

This last indicator, broadly identified as the very first trigger of both the 2007 financial crash and the 1929 Great Recession, deserves special attention as it goes counter to mounting trade-war jitters on one side and warnings that the current US equity bull market–—the second-longest in history—is stumbling into an ageing business cycle on the other hand.

However, while yesterday's earnings results were mostly a resounding success, the current earnings season has so far painted a mixed picture, leaving traders guessing whether they should focus squarely on company profits or continue to pay attention to the global geopolitical uncertainty looming in the background.

Elsewhere, US President Donald Trump said yesterday that the US and Mexico are "getting closer" to reaching a trade deal and that the administration may start separate talks with Canada.

While the dollar has been gaining ground against other currencies, it has been falling or flat against the Mexican peso. Technically, the USD/MXN pair is trading within a bearish pennant, after having crossed below the 200 DMA.

The pound fell to fresh ten month lows on Thursday following the release of lower than expected retail sales growth. The third consecutive day of softer than forecast data from the UK has decreased the probability of a Bank of England rate rise in August. Inflation data missed forecasts and remained at the May level of 2.4 percent, while wage growth for June remained stagnant.

Gold slipped lower for a fifth straight session, to the lowest level since July 17, 2017. Technically, it fell below its uptrend line since November 2015, the 200-week MA and the December $1,236.59 trough this week.

Oil retraced some of Wednesday’s gains as investors assessed conflicting supply-and-demand signals from the US.

Up Ahead

• Earnings season continues with Microsoft (NASDAQ:MSFT) report due after market close, with a $1.07 EPS forecast vs $0.98 for the same quarter last year.

• Also coming up on Thursday: initial US jobless claims for the week ended July 14, the Philadelphia Fed Business Outlook Survey and the Conference Board Leading Index

Market Moves

Stocks

• The UK’s FTSE 100 advanced 0.6 percent.

• The STOXX Europe 600 climbed 0.1 percent.

• Futures on the S&P 500 slipped 0.1 percent.

• Germany’s DAX declined 0.1 percent.

• The MSCI Emerging Market Index lost 0.4 percent to the lowest level in more than a week.

• The MSCI Asia Pacific Index slipped 0.2 percent to the lowest level in a week.

Currencies

• The British pound slipped 0.5 percent to below the 1.3000 level, the weakest level in more than ten months.

• The Dollar Index gained 0.32 percent, but still below yesterday’s shooting star’s intraday high, while only 0.03 percent below the June 28, 95.39 close, the highest level in a year.

• The euro slid 0.2 percent to $1.1614, the weakest in three weeks.

• The japanese yen lost 0.1 percent to 112.94 per dollar, the weakest level in more than six months.

Bonds

• Britain's 10-year yield gained two basis points to 1.226 percent, the most substantial rise in more than a week.

• The yield on 10-year Treasuries gained two basis points to 2.89 percent, the highest level in almost four weeks.

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

• Italy’s 10-year yield gave up two basis points to 2.486 percent.

Commodities

• West Texas Intermediate crude fell 0.3 percent to $68.54 a barrel.

• Gold dropped 0.5 percent to $1,221.79 an ounce, reaching the weakest level in about a year on its fifth consecutive decline.