U.S. Opening Bell: Dollar Drops; Stocks Rebound On Trade Talk Hopes

Key Events

Global selling eased in the European session, as investors turned more optimistic on a possible de-escalation of the US-China trade war, sending US futures on the S&P 500, Dow and NASDAQ 100 higher. The pan-European STOXX Europe 600 edged higher as well, with some sectors in green territory helping the index pare some of yesterday’s 1.36 percent losses.

Earlier this morning, during Asian trade, disappointing earnings reports pressured most Asian indices. Hong Kong-listed Tencent (HK:0700) tumbled 3 percent after earnings missed expectations. Profits for the Chinese tech giant slipped 2 percent to $2.59 billion for the time first in 13 years. The company recently stopped selling the video game "Monster Hunter: World" on regulatory concerns, but analysts remain broadly positive on Tencent's outlook, viewing the current decline as short-lived.

The tech giant's falling shares deepened the stock's bear market since June 27, when the price per share dipped below the 20 percent threshold from the January 29, 476.60 top. The stock is now down 32 percent since the peak. Technically, between November 2017 and July 2018 it completed a massive H&S top.

Global Financial Affairs

Overall, sentiment across equity markets was boosted by reports that China's vice commerce minister will visit the US in late August. The Chinese yuan climbed higher on the news, which in turn should help ease recent accusations by the Trump administration that its main trade opponent is manipulating its currency.

The {{|Turkish lira}} continued to strengthen for a third day after the country moved to curb short-selling, while Qatar pledged $15 billion to the country’s battered economy. Still, it seemed that the damage has already been done, as emerging market shares slipped, flirting with a bear market. This may deal a fatal blow to EM assets, already vexed by recent US dollar strength.

The USD ticked lower on Thursday, alongside US Treasurys, as investors shifted to risk-on sentiment. Technically, the decline confirms yesterday’s shooting star, a candle that projects a failed bullish advance.

During yesterday's US session, equity bulls faced the worst US stock selloff in seven weeks as Tencent's earnings miss weighed on technology shares. At the same time, copper entered a bear market, which dragged down commodities overall.

The red metal is now more than 20 percent below the June 7, 3.297 peak. However, it is re-gaining ground today, helping other metals rebound as well.

The S&P 500 dropped 0.76 percent, pressured by Energy stocks, which lost 3.54 percent on oil's lowest price in 10 weeks.

WTI crude lost more than 3 percent, crossing below the $65 threshold on the US inventories weekly release, which showed the most significant supply rise since March 2017. Stockpiles increased by 6.81 million barrels last week, against expectations for a 2.5 million barrel drawdown. Technically, for the first time since November 14, the price fell decisively below the commodity's uptrend line.

Higher inventory numbers stoked fears that the Turkish crisis is adding to the US-Sino trade dispute, squeezing oil demand.

The SPX's second worst performer yesterday was Materials, which slid 1.59 percent as trade-sensitive sectors led the selloff.

The Dow Jones Industrial Average gave up 0.54 percent. The NASDAQ Composite slipped 1.23 percent, and the Russell 2000 edged 1.27 percent lower. The underperformance of small-cap stocks versus larger-cap shares listed on the Dow can be explained by a sentiment-led selloff driven by ongoing Turkish contagion fears.

In FX markets, Hong Kong policymakers intervened to support the Hong Kong dollar after the currency fell to the lower boundary of its trading band. Technically, this is the fifth time that the HKD threatened to drop below the 7.85 percent level since April.

Up Ahead

• Building permits for July are expected to have surged 7.4 percent from a negative 12.3 percent for the previous month.

• Philadelphia Fed Manufacturing are expected to post a 21.9 increase in August, after July’s 25.7 read.

• Brexit talks between the EU and the UK resume in Brussels Thursday.

• Chipmaker Nvidia (NASDAQ:NVDA) reports Q2 2018 earnings later today, after US markets close. The stock, already up 50% over the past year, could rally further on another blowout quarter. The company has beaten expectations on profit and sales for 11-straight quarters.

Market Moves

Stocks

• The UK’s FTSE 100 gained 0.2 percent.

• Germany’s DAX climbed 0.3 percent, the biggest gain in a week.

• The MSCI Emerging Market Index slipped 0.2 percent, hitting the lowest in about 13 months with its seventh straight decline.

• The MSCI Asia Pacific Index fell 0.5 percent to the lowest in almost 11 months.

Currencies

• The euro gained 0.2 percent to $1.1373, the biggest increase in more than a week.

• The British pound climbed 0.1 percent to $1.2713, the most substantial climb in more than two weeks.

• The Japanese yen fell 0.1 percent to 110.85 per dollar.

Bonds

• The yield on 10-year Treasurys climbed one basis point to 2.88 percent.

• Germany’s 10-year yield advanced one basis point to 0.31 percent.

• Britain’s 10-year yield increased one basis point to 1.225 percent, the largest increase in more than a week.

• Italy’s 10-year yield declined two basis points to 3.151 percent.

Commodities

• Gold gained 0.1 percent to $1,175.64 an ounce, the most significant rise in more than a week.