U.S. Opening Bell: U.S. Futures Pop, Dollar Drops On Midterm Election Shift

Key Events

The dollar fell in tandem with US Treasurys, which took a temporary beating on Wednesday as investors pondered the potential repercussions of the US midterm election results. Futures on the S&P 500, Dow and NASDAQ 100, along with European shares climbed higher, shaking off weakness from the Asian session.

Investors initially rotated out of Treasurys, pushing yields on 10-year notes higher, after US Republicans lost control of the House of Representatives, making it more difficult for the Trump Administration to enact business-friendly fiscal measures. While the outcome of the US election was partly priced in by traders, the result has introduced uncertainty into markets that have benefited from the prospect business focused fiscal policies that might have also triggered higher yields. US yields eased by the European morning session.

The greenback also took a hit from falling demand from foreign investors for USD-denominated Treasurys. The currency's slide continued even as Treasury demand regained some ground.

The STOXX Europe 600 reached a three-day high, helped by some positive earnings reports as well as soaring Spanish bank stocks, after the Southern European country's Supreme Court ruled that lending institutions will not be required to pay stamp duty on mortgages, thereby boosting prospects for profits.

Asian indices gave up early gains and closed mostly lower. Australia’s S&P/ASX 200 finished in positive territory, outperforming with a 0.37 percent gain, while China’s Shanghai Composite underperformed, losing 0.68 percent.

Global Financial Affairs

US investors took a wait-and-see approach yesterday, bracing for an adverse market reaction to a shift in the political equilibrium. Shares in both the Materials and Industrials sectors—the most sensitive to trade risk due to companies' reliance on exports—outperformed.

The Dow Jones Industrial Average, whose listed multinational firms also rely on overseas markets, outperformed as well, ticking 0.68 percent higher. From a technical perspective, the megacap index reached the highest level in almost three weeks and closed very near the height of the session in a sign of bullish dominance. It also climbed back above the 100 DMA, after crossing above the uptrend line since the previous correction in early 2016. It earlier also crossed back above the 200 DMA.

The S&P 500 gained 0.63 percent, with all sectors comfortably in positive territory. Energy shares lagged (+0.47 percent), following oil's seventh straight daily slide yesterday on the improved global supply outlook—though the price of WTI was seen rebounding this morning. Materials outperformed (+1.64 percent) and Industrials came in second (+1.05 percent). Technically, while the SPX reached the highest level in over two weeks on a closing basis—very near the top of the session in a sign that bulls found little resistance—unlike the Dow, it failed to cross back above the uptrend line since the February 2016 bottom and the 200 DMA and even fell short of closing above Friday’s intraday high.

The NASDAQ Composite inched 0.64 percent higher. From a technical standpoint, the tech-heavy index may be even weaker than the S&P 500, as it slipped off the highs of the session. Also, not only it failed to return above the 200 DMA, but its 50 DMA fell below its 100 DMA—a bearish technical signal. As well, its gains remained within a two-day climb.

The Russell 2000 underperformed, ending 0.47 percent in the green. Technically, it gave up from its intraday high but closed at the highest in almost three weeks. On the other hand, it is about 4 percent below its uptrend line since the end of the January-2016 correction and the 200 DMA. As well, the 50 DMA crossed below the 100 DMA, and is falling toward the 200 DMA.

Up Ahead

• Chipmaker Qualcomm (NASDAQ:QCOM) reports Q4 2018 earnings today, after the market close. After a string of high profile failures, will the company deliver on its financial goals?
• Initial Jobless Claims, released tomorrow, are expected to remain flat at 214K
• US EIA Crude Inventories, out on Wednesday, are expected to show a drop to 2.433 million barrels from 3.217 millions a week earlier.
• The Federal Reserve holds its last policy meeting of the year on Thursday.
• US PPI data for October comes out on Friday, with analysts forecasting a 0.3 percent increase from 0.2 percent a month earlier.

Market Moves

Stocks

• Futures on the S&P 500 gained 0.4 percent, to the highest level in almost three weeks.
• The STOXX Europe 600 rose 0.7 percent to the highest level in more than three weeks on the biggest advance in a week.
• Tokyo’s Topix dropped 0.4 percent after a gain of as much as 1.2 percent.
• Hong Kong’s Hang Seng climbed 0.1 percent.
• South Korea’s KOSPI fell 0.5 percent.

Currencies

• The Dollar Index fell 0.43 percent for a combined three-day loss of 0.71 percent to the lowest level in more than two weeks.
• The yen fell 0.23 percent giving up an earlier 0.42 percent gain.
• The euro advanced 0.34 percent and trading at the high of the session. It is the third straight advance and a total of 0.83 percent and the highest since in over two weeks.

Bonds

• German 10-year bond yields fell 1.5 bps to 0.42 percent, holding above seven-week lows hit last month at around 0.34 percent.

Commodities

• The price of gold has advanced 0.39 percent to $1,228.60, in line with its negative correlation to the dollar.