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Asia trade opens lower but stocks rally into gains
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China’s mainland stocks which bear brunt of trade war, manage to rebound from steeper losses
- US Futures recoup some of Friday's losses
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Materials and Industrials suggest trade risks are not fully priced in
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Copper falls to 15-week low; gold, bonds, yen all drop
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WTI falls from biggest weekly gain since July, failing to overcome January peak
Key Events
Investors were given a ray of hope during Monday's Asia session, as early losses transformed into gains and shares in Europe opened higher. The STOXX Europe 600 is advancing, mainly driven higher by telecommunications and auto manufacturers.
Perhaps even more hopeful, US futures recouped half of Friday’s steep losses.
Japanese equities listed on both the TOPIX and the Nikkei 225 came back from a slide of more than 1 percent to close 0.4 percent and 0.6 percent higher, respectively. Technically, however, the rebound is a return move to a Descending triangle, a bearish pattern.
South Korea’s KOSPI slid to an intraday loss of 0.6 percent, but still managed to close 0.9 percent higher. Technically, it confirmed a rising channel.
Shares listed on China's mainland Shanghai Composite, however, bore the brunt of last week's news regarding the US's imposition of $60bn-worth tariffs on Chinese exports. The index closed down 0.7 percent. Nevertheless, shares still bounced back from a much steeper 1.9 percent loss, which helped contribute to the overall market optimism.
Hong Kong’s Hang Seng also recovered from a 1 percent loss, climbing to 0.25 percent into positive territory. Technically, however, it is considered a return move to a bearish, Rising Wedge, echoing the one seen on the S&P 500 last week.
Australia's S&P/ASX 200 mirrored Asian trade: it trimmed an 0.8 percent drop, gaining 0.5 percent, though it still closed lower—down 0.52%. The Australian benchmark has become the world's first major index to reverse into an official downtrend, upon registering a trough lower than its previous, February 9 low.
Does this suggest that the rest of the global indices will shortly follow? Although the overall picture isn’t promising, it's not a given that prices will spiral in that direction.
Global Financial Affairs
The NASDAQ Composite for example broke a fresh record high on March 9, though it was the only US benchmark to do so at that time.
The Dow theory requires that another index confirm the trend, reasoning that strong fundamentals should be more broadly based. What followed instead was the biggest weekly loss for US stocks in two years. the lesson is clear: just because one index completed a reversal it doesn't necessarily mean that others will follow suit. Still, a major index's reversal into heighten trader fears, and rightly so.
Meanwhile, S&P 500 Futures and NASDAQ 100 Futures appear to be stabilizing, as they climbed 1 percent and 1.25 percent respectively, gaining back roughly half of Friday’s lost ground.
Are last week’s hefty dips—which saw the NASDAQ Composite dip 6.5 percent, the S&P 500 slide almost 6 percent and the Dow shed 5.6 percent—we continue to wonder is this a deep correction or are even bigger losses ahead?
Stocks in the Technology sector led last week's losses (-7.66 percent), followed by Financials (-7.1 percent), Health Care (-6.1) percent, Basic Materials (-5.29 percent) and Industrials (-5.01 percent). Technology shares took a beating on the heels of reports about Facebook's (NASDAQ:FB) extensive data breach and the possible longer-term regulatory implications, which could see big data technology's outsize earnings attract heightened scrutiny.
Financials stocks were dragged lower mainly by the ongoing outlook for higher interest rates, although the Fed's language from its latest policy meeting seemed to point to only three hikes this year, which should have reassured investors buying into bank shares.
Basic Materials and Industrials slipped lower on mounting expectations that China will carry out retaliatory measures against US President Donald Trump’s tariffs targeted at what he believes are imbalances in US-China trade. It's noteworthy, however, that despite the market chatter, the two sectors were only the fourth and fifth worst performers, respectively. This may confirm that investors haven't fully priced in a full-blown trade war yet.
While it’s difficult to predict how geopolitical jitters will affect global markets, the return to volatility is one certainty.
Up until now, money managers simply parked their capital and waited for profits to materialize. Now, however, they'll have to work for any gains. Market uncertainty breeds fear which leads to solid companies being dumped along with underperformers. For disciplined investors who can also keep their wits about them, good stocks that have been dumped amid the fear-led selloff can become savvy opportunities. But whipsaw trading often stops out those traders with a low pain threshold.
An additional, possible leading indicator about the effects of a trade war on the markets is copper, which fell today after base metals posted their biggest weekly decline since early February, to a 15-week low. Technically, the red metal may have completed a top.
In line with the stabilization of riskier assets, safe havens retreated. 10-year Treasury yields climbed three basis points, while government bonds in Germany and Italy declined. Brent crude held above $70 a barrel on lingering tension in Yemen. The yen slipped back from its strongest position against the dollar in more than 16 months, and gold trimmed some of Friday’s gains.
WTI dropped after its biggest weekly gain since July. China launched its first ever crude-futures contract, with yuan-denominated futures on the Shanghai International Energy Exchange trading at 432.2 yuan a barrel ($68.48) for September settlement at 9:45 a.m. local time. The move is meant to help the country gain some control over pricing, and also boost its domestic currency trade internationally—one of the China’s key long-term goals. Technically, the price attempted, but so far failed, to register a higher peak.
Up Ahead
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US personal income and spending data for February are due on Thursday.
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The four largest European economies (Germany, France, Italy and UK) are due to release March CPI readings.
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The US Treasury is poised to auction about $294 billion of bills and notes this week, its largest slate of supply ever.
Market Moves
Stocks
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The STOXX Europe 600 Index rose 0.2 percent.
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The MSCI All-Country World Index rose 0.1 percent, the largest advance in two weeks.
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Futures on the S&P 500 Index increased 1 percent, the biggest climb in more than two weeks.
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The MSCI Asia Pacific Index rose 0.2 percent, the largest advance in two weeks.
Currencies
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The Dollar Index declined 0.14 percent to the lowest in five weeks.
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The euro rose 0.1 percent to $1.2365, the strongest in more than a week.
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The British pound climbed 0.2 percent to $1.4166, the strongest in more than seven weeks.
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South Africa’s rand jumped 1 percent to 11.6319 per dollar, the strongest in four weeks.
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The Japanese yen dipped 0.3 percent to 105.03 per dollar.
Bonds
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The yield on 10-year Treasuries climbed three basis points to 2.84 percent.
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Germany’s 10-year yield gained one basis point to 0.53 percent.
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Britain’s 10-year yield rose two basis points to 1.462 percent.
Commodities
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Gold decreased 0.2 percent to $1,344.64 an ounce.
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Brent crude declined 0.1 percent to $70.36 a barrel.
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LME copper decreased 1.4 percent to $6,570.00 per metric ton, the lowest in more than 15 weeks.