U.S. Opening Bell: U.S. Stocks Roar Back; Futures Jump; Sterling Rebounds

Key Events

Global stocks are mixed this morning, with US futures—including for the S&P 500, Dow and NASDAQ 100—all heading higher, after yesterday’s roller coaster session on Wall Street. While headlines keep blaming the botched US-Sino trade talks, inter-market analysis doesn’t support that narrative.

The STOXX Europe 600 opened 0.53 percent higher today, extending the advance to 1.1 percent at one point, though sellers have pushed gains down a bit, at time of writing +0.95%. The advance erases most of yesterday’s losses, which pulled down the pan-European index to its lowest level since December 2, 2016. Miners and technology shares led the gains, despite their sensitivity to tariffs.

The UK’s FTSE 100 rebounded from yesterday's slump, along with sterling, after UK Prime Minister Theresa May delayed a critical vote on Brexit.

Technically, the pound bounced back from yesterday’s slide, which took the currency down to its lowest levels since April 14, 2017. The move is considered a corrective return after the currency yesterday completed a symmetrical triangle, bearish in a downtrend.

Global Financial Affairs

Reports that Chinese Vice Premier Liu and US Treasury Secretary Steven Mnuchin discussed a timetable for trade talks, appear to have buoyed market sentiment this morning. That claim, however, isn't completely convincing. As long as the chief financial officer of Huawei (SZ:002502) remains in Canadian custody even as the US continues to seek her extradition on multiple criminal charges, casting a shadow on any hope for a trade agreement in our view.

In Asia, China’s Shanghai Composite gained 0.37 percent, allowing Australia’s S&P/ASX 200 to outperform with 0.42% due to its reliance on Chinese demand. On the other hand, Japan’s Nikkei 225 slumped 0.31 percent. This counterintuitive move, Chinese investor resilience when their markets are in the crosshairs of the trade war with the US, may be attributed to how low the mainland benchmark's share values have become. The regional benchmark is down about 21 percent YTD. Conversely, Japan’s index is only 7 percent lower for the year.

During yesterday's US session, the heart-stopping volatility ended in a bear trap for day traders, as we warned. Shares posted a lower trough in the medium-term decline, only to recover and finish the day higher.

The S&P 500 gained 0.18 percent, significantly trimming the earlier 2.07 percent plunge, the index's lowest level since April 4. Technically, the highly followed benchmark posted a new trough in the medium-term downtrend, but closed as a hammer, with an exceptionally long lower shadow, demonstrating bullish resolve. A close beneath the hammer’s low would suggest continued selloffs, while a close above 2,660 increases the likelihood of retesting the 2,800 consolidation high.

Technology shares (+1.38 percent) clearly outperformed, trailed by Communication Services (+0.76 percent) and the non tech-related Health Care sector (+0.39 percent) following. The tech sector received a boost after Facebook (NASDAQ:FB) announced a $9 billion buyback.

Additionally, it didn’t hurt that Deutsche Bank named the social media behemoth the top large internet stock with an “extremely attractive” valuation . FB's stock price jumped 3.22 percent on the news. Technically, however, the price closed below its December peak and is trading within a descending channel since August, whose resistance is confirmed with the 50 DMA. The 100 DMA crossed below its 200 DMA and is struggling against the bottom of a massive bearish pattern.

Another tech sector stalwart, Microsoft (NASDAQ:MSFT) also jumped, up $2.77.

The Dow Jones Industrial Average climbed 0.14 percent, rebounding from a 508-point, or 1.91 percent intraday decline to its lowest level since May 4. Technically, the intraday low registered a new trough in the medium-term, but the higher close both formed a bullish hammer with a very bullish lower shadow, which pushed the price back into the consolidation to boot, making a retest of the 25,500 level plausible.

The tech-heavy NASDAQ Composite pushed higher, +0.74 percent, rallying from a 1.16% decline, making it the best performer among the US major indices. It rebounded from its October 29 low.

This paints a picture of a potential H&S bottom reversal, whose neckline is “guarded” by a Death Cross. The dichotomy of a potentially bullish pattern after a bearish event clearly reflects the current investor ambivalence about the market, in which a single event, such as a US-Sino agreement—or the lack thereof—can turn markets around.

Small caps were the only index to lock in losses, but even those were well off the day's lows.The Russell 2000 was the only US benchmark to end with a loss, (-0.26%), underscoring our oft-repeated point that the facts on the ground are at odds with the market narrative, which keeps assigning the blame for losses to the trade dispute.

If yesterday’s selloff was the result of concerns about higher tariffs, small caps should have outperformed, since those companies tend not to international markets for growth. Conversely, technology businesses, which are highly dependent on cheap and safe exports, should have languished.

Up Ahead

• UK Prime Minister Theresa May will meet with President of the European Commission Jean-Claude Juncker at 18:15 GMT on Tuesday evening to seek assurances that the Irish backstop, if enacted, would be temporary. The backstop makes up part of the UK's Withdrawal Agreement with the European Union.
• The European Central Bank is set to cap asset purchases at its final policy meeting of 2018 which takes place on Thursday.
• Data on China's Industrial Production and Retail Sales for November are due late Thursday evening EST.

Market Moves

All numbers were correct as of time of writing

Stocks

• Futures on the S&P 500 Index are up 0.44%.
• The MSCI All-Country World Equity Index climbed 0.1 percent, its first advance in more than a week.
• The MSCI Emerging Markets Index increased 0.1 percent.

Currencies

• The British pound rose 0.2 percent to $1.2585.

• The Dollar Spot Index declined 0.32 percent, after paring a much steeper 0.93 percent decline.
• The euro gained 0.1 percent, to $1.1373.
• The Japanese yen jumped 0.2 percent to 113.08 per dollar.
• The MSCI Emerging Markets Currency Index decreased less than 0.05 percent to the lowest in almost four weeks.

Bonds

• Britain’s 10-year yield fell seven basis points to 1.199 percent, the lowest in almost 21 weeks.

• The yield on 10-year Treasuries increased one basis point to 2.86 percent.
• Germany’s 10-year yield gained one basis point to 0.26 percent.
• The Italy 10 Year vs Germany 10 Year Spread increased one basis point to 2.8707 percentage points.

Commodities

• The Bloomberg Commodity Index decreased less than 0.05 percent.
• West Texas Intermediate crude gained 0.39 percent to $51.39 a barrel, the lowest in almost two weeks.
• LME copper rose 0.4 percent to $6,113.50 per metric ton.
• Gold gained 0.3 percent to $1,247.75 an ounce.