U.S. Opening Bell: USD Slips; Oil Sags; Global Growth Spurs Equity Rally

Key Events

Global equities and US futures for the S&P 500, Dow and NASDAQ 100 posted a strong performance on Monday, mirroring the US stock gains spurred by Friday's upbeat employment data.

As well on Friday, the S&P 500 confirmed the upside breakout after bouncing off the top of the symmetrical triangle, returning above the 100 DMA. The next test is the 2,742.10 level, the May 14 peak of the breakout.

Confirmations that the world’s largest economy is still expanding helped shift the market focus away from ongoing trade war headwinds, prompting traders to take on more risk and shed safe haven assets such as gold and the yen, which both edged lower.

The risk-on shift is also underscored by rising US Treasury yields, while a softer dollar may contribute to further gains by boosting commodities, thereby lifting commodity-related stocks.

This morning, the STOXX Europe 600 extended a rebound, ending last week’s consolidation with a decisive upside gap, as all sectors gained ground. This helped the continental benchmark index recover from its almost 4 percent late-May slide. The gains in the region were led by banking shares, after a Financial Times report of a possible merger/acquisition deal between Italy's second largest bank UniCredit (MI:CRDI) and France's third largest bank Société Générale (PA:SOGN) pushed the stocks of both the former and latter up 3.5 percent and 2.6 percent respectively.

The UK’s FTSE 100, boosted by talk of mergers and acquisitions, reflected the mood enjoyed by other European indices and was up 0.75% on Monday.

Clydesdale and Yorkshire Banking Group (CYBG) (LON:CYBGC) shares were up 1.23% after it was announced the group increased its offer to buy Virgin Money (LON:VM) by 7%. While shares in DS Smith (LON:SMDS) were up 2.98% following its offer to buy Spanish packaging competitor Europac (LON:0FR0mc) for 1.9 billion euros.

During the earlier Asian session, Japan’s TOPIX also gapped up, jumping 1.5 percent and bringing its three-day gains to a total of 3.1 percent. Hong Kong’s Hang Seng also secured a three-day boost of 3.1 percent, outperforming its regional peers on Monday with a 1.6 percent jump.

China’s Shanghai Composite climbed a more modest 0.5 percent, after China threatened to pull out of trade negotiations in response to Trump's administration move, announced last Thursday, to press ahead with tariffs of up to 25 percent on $50bn worth of Chinese imports.

China isn't the only country angered by US President Donald Trump’s restrictive trade policy. Trump's vexing plans to levy tariffs on allies as well as China are certain to be the source of heated debate at this week's G7 summit, after European and Canadian finance ministers issued a statement of "unanimous concern and disappointment" against the US on Saturday.

Trump didn't show any sign of backing down, reiterating in a tweet during the weekend that “the US has been ripped off by other countries for years on trade,” which he would no longer tolerate.

South Korea’s KOSPI gained 0.35 percent this morning, extending its three-day rally to 1.6 percent, and Australia’s S&P/ASX 200 also inched 0.6 percent higher. The Aussie benchmark index posted a nine-day pennant, which marks a continuation consolidation completed with a downside breakout.

Global Financial Affairs

Yields on 10-year Treasurys climbed back above 2.9 percent and are continuing to head north towards the key 3 percent psychological level in early European trade. The indicator is back above its uptrend line since September 7, 2017, but the decline nearing the April trough opens up the possibility of an H&S top. This which would be triggered by an investor rotation out of stocks and into bonds.

The dollar failed to channel the upward momentum spurred by Friday's strong employment data readings. The US jobs data highlighted a favorable combination of nonfarm payrolls that exceeded expectations, a low unemployment rate and a pick-up in wages that was gradual, supporting the narrative of sustainable economic growth, often dubbed a 'Goldilocks Economy' because it's not too hot, nor too cold. The release was a bright spot after a week clouded by the specter of a new European crisis, compounded by political turmoil in Italy and fears of a looming Italiexit.

Measured against the euro, the greenback is at a crossroads, as projected by the rising 100-week MA and the falling 200-week MA. Will the 1.1554 low of November 6, 2017, provide support, or will market psychology reverse and turn it into a resistance?

WTI crude gained 0.15 percent on the weaker dollar, after posting a second week of losses. The commodity dropped 3 percent last week, hit by a mix of record high figures on US production, the threat of Russia lifting supply limits and dollar gains on Friday. The WTI price fell below an uptrend line since August 31, 2017, but are still holding above the 100 DMA that guards it. Meanwhile, the 200 DMA advances to protect the longer uptrend line since June 21, 2017.

Up Ahead

• Executives from leading UK firms will meet UK Prime Minister in Downing Street on Monday to discuss the progress of Brexit talks. Bosses from Aston Martin, BT (LON:BT), GlaxoSmithKline (LON:GSK) and Tesco (LON:TSCO) are among some of the companies that will meet with Theresa May.

• Apple's (NASDAQ:AAPL) Worldwide Developers Conference in San Jose, California, kicks off on Monday. The company is expected to unveil new versions of iPhone and Mac operating systems.

• Negotiating teams from the UK and the European Union will meet in Brussels this week to discuss remaining issues from the Brexit Withdrawal Agreement, talks on Tuesday will focus on the Irish border, the UK’s only land border with the European Union.

• UK May services PMI will be released on Tuesday, the forecast figure is a reading of 53.0, a slight increase on April’s 52.8.

• The Reserve Bank of Australia monetary policy decision is released on Tuesday.

• Tesla (NASDAQ:TSLA) holds its annual shareholder meeting in Mountain View, CA on Tuesday.

• US ISM non-manufacturing PMI is out Tuesday. Growth at US service industries probably improved in May for the first time in four months, indicating the economy is strengthening after a first-quarter slowdown.

• Reserve Bank of India decides on interest rates on Wednesday.

• US trade balance and Australia GDP are also out on Wednesday.

• On Thursday, Japanese Prime Minister Shinzo Abe meets with US President Trump at the White House to discuss the planned US summit with North Korea’s Kim Jong Un.

• Also, on Thursday, eurozone QoQ GDP reading is released.

• Turkey's rate decision is due on Thursday.

• The G-7 Summit begins on Friday in Quebec, through to June 9.

Market Moves

Stocks

• The UK’s FTSE 100 increased 0.7 percent to the highest level in more than a week.

• The STOXX 600 gained 0.6 percent, the highest level in a week.

• The MSCI World Index of developed countries climbed 0.4 percent to the highest level in more than a week.

• The MSCI Asia Pacific Index increased 1.2 percent to the highest level in more than two weeks on the largest climb in 12 weeks.

• Japan’s Nikkei 225 gained 1.4 percent to the highest level in a week on the biggest rise in almost seven weeks.

• The MSCI Emerging Market Index rose 1 percent to the highest level in almost two weeks on the largest advance in more than three weeks.

• Futures on the S&P 500 rose 0.2 percent to the highest level in more than 11 weeks.

Currencies

• The British pound climbed 0.2 percent to $1.3378, the strongest level in more than a week.

• The Dollar Index slid 0.15 percent.

• The euro gained 0.2 percent to $1.1681.

• The Japanese yen fell 0.1 percent to 109.64 per dollar, the weakest level in more than a week.

Bonds

• Britain’s 10-year yield increased two basis points to 1.297 percent, the highest level in a week.

• The yield on 10-year Treasuries climbed two basis points to 2.92 percent, the highest level in a week.

• Germany’s 10-year yield gained one basis point to 0.39 percent, the highest level in more than a week.

Commodities

• West Texas Intermediate crude climbed 0.15 percent to $65.94 a barrel, still the lowest level in almost eight weeks.

• Gold dropped 0.2 percent to $1,291.04 an ounce, the weakest level in more than two weeks.