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European indices pushed higher by miners and energy shares
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Asian markets post mixed, volatile performance, Chinese shares underperform on escalating trade spat
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Dollar falls after Trump accuses Russia and China of currency manipulation
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S&P 500 climbs back to positive territory YTD, completing a potential bottom
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Oil slips despite OPEC’s signal of supply cut extension and weak dollar
Key Events
European shares advanced on Tuesday, helping the STOXX Europe 600 rebound from Monday’s retreat, with miners and energy companies leading the climb. US futures—including for the S&P 500, NASDAQ—are currently all pointing higher, with the Dow Futures looking particularly robust, up 0.87% at time of writing, pointing to an upbeat US market open. Earlier, Asian shares seesawed between gains and losses, after China's GDP slightly beat expectations, confirming that the first synchronized global growth since the 2008 financial crisis is still on track.
Perhaps the lack of bullish leadership seen across Asian markets was caused by the macro headwinds lurking in the background. Economic and geopolitical tensions between the US and Russia could spill over to China, a political ally of Russia in recent times.
Japan’s TOPIX oscillated between a 0.1 percent gain and a 0.52 percent loss, to settle 0.36 percent in the red. Australia’s S&P/ASX 200 pared a 0.51 gain, to end up flat, at Monday’s close, forming a second consecutive shooting star and marking the 5,875.00 level, a March support, as bear territory. South Korea’s KOSPI climbed 0.33 percent intraday but later experienced an equal loss, to settle 0.15 percent in negative territory.
Tuesday's lackluster performance was even more surprising for Chinese shares, which were unable to hold on to earlier gains courtesy of China's upbeat GDP reading. Both the Shanghai Composite and Hong Kong’s Hang Seng plunged, 1.41 percent and 0.87 percent respectively, after Chinese investors were dealt a fresh blow from the ongoing trade dispute with the US. The US Commerce Department in fact moved to block domestic companies from carrying out business with Chinese telecom equipment maker ZTE (OTC:ZTCOY) on Monday. The Chinese company was found guilty of violating terms of a sanctions settlement from March 2017 after they were found guilty of illegally shipping telecom equipment to Iran and North Korea, then trying to cover up the activity.
Investors also weighed the ramifications of the Hong Kong dollar’s slide to the bottom of its targeted trading band. The weakness prompted intervention by the Hong Kong Monetary Authority last week. Since then, the monetary watchdog has sold $1.23 billion USD to bolster demand for the HKD.
The abundance of geopolitical worries that seem to weigh more heavily on some regional markets, raises questions over why Asian stocks posted a mixed performance despite their more sustainable valuations, while US equities remain decidedly bullish despite now being over valued.
Global Financial Affairs
Yesterday, all four US majors jumped, lead by a 0.85 percent surge in the Dow and a 0.81 percent leap in the S&P 500. The NASDAQ Composite also climbed, up 0.69 percent, although it formed a doji, bearish after the 5 percent advance since the April 2, 6,805.96 bottom. The Russell 2000 advanced 0.3 percent.
Monday's rally brought the SPX YTD gains to 0.16 percent, with all sectors in the green. However, despite all this appearing to be bullish, the sector that outperformed was Utilities, which jumped 1.37 percent, demonstrating a clear preference by investors for defensive stocks. Growth sectors underperformed: Financials pushed higher by 0.44 percent, Real Estate gained 0.46 percent, Consumer Discretionary rose 0.75 percent and Technology added 0.77 percent.
The S&P 500 completed a small, H&S, since March 22nd. However, the small, 0.27 percent penetration does not filter out bull-traps. SPX futures are currently suggesting that the benchmark is poised to extend yesterday's penetration.
The dollar slid after Trump accused China and Russia of devaluing their currencies. Some view these accusations as a calculated move by the US president and his administration, stemming from Trump's goal of keeping the USD weak. It's a hypothesis supported by the fact that a Treasury Department report recently ruled out China and Russia's manipulation of the value of the yuan and the ruble.
Technically, the Dollar Index has been trading within an Ascending Triangle, demonstrating buyers' eagerness, increasing the potential for a bottom.
The Australian dollar was able to ignore the Reserve Bank of Australia's bullish assessment of the country's economy revealed by the minutes of its April policy meeting, as the central bank also posted an optimistic inflation outlook. The RBA said the Australian economy is expected to grow faster than its speed limit this year, with inflation just above the bottom of its target.
Technically, the AUD/USD completed a falling, bullish wedge, confirming the uptrend within a rising channel since January 2016. However, investors should beware of resistance at the 0.7800 level, displayed by a shooting star, with a very long, bearish upper shadow.
Oil managed to eke out an intraday gain after yesterday’s losses, which marked the first decline in 7 sessions. The rebound was helped by signals that OPEC countries will extend production cuts, as well as by the weaker dollar, which increases demand for the USD-denominated oil, making it cheaper.
However, the WTI advance turned into a retreat to $66.33, as the commodity traded at the bottom of the session. Technically, WTI price dipped below the top of a bullish Ascending Triangle. A potential RSI double-top suggests oil may fall back into the pattern.
Up Ahead
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US housing starts are expected to climb 1.9 percent from the previous month, after a 7 percent plunge, and permits are seen to rise 1.33M from 1.32.1M
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Japan’s trade balance is expected to jump to 498B from 3B.
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Goldman Sachs (NYSE:GS) releases earnings today, before the open, for the fiscal quarter ending in March, with an EPS forecast of $5.67, versus last year's EPS of $5.15 for the same quarter. Morgan Stanley (NYSE:MS) also reports results on Wednesday before the market open, for the same fiscal quarter, with an EPS consensus of $1.28, versus $1.00 for the same quarter last year.
Market Moves
Stocks
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The STOXX Europe 600 gained 0.1 percent.
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Futures on the S&P 500 increased 0.4 percent to the highest level in almost four weeks.
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The MSCI All-Country World Index increased 0.1 percent to the highest level in almost four weeks.
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The UK’s FTSE 100 climbed less than 0.05 percent.
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Germany’s DAX jumped 0.4 percent.
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The MSCI Emerging Market Index fell 0.2 percent to the lowest level in almost two weeks.
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The MSCI Asia Pacific Index sank 0.2 percent to the lowest level in more than a week.
Currencies
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The Dollar Index decreased 0.17 percent to the lowest level in two weeks.
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The euro increased 0.2 percent to $1.2401, the strongest level in three weeks.
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The British pound rose 0.2 percent to $1.4372, reaching the strongest level in about 22 months on its eighth consecutive advance.
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The Japanese yen gained 0.2 percent to 106.92 per dollar.
Bonds
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The yield on 10-year Treasuries increased one basis point to 2.84 percent, the highest in more than three weeks.
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Germany’s 10-year yield climbed one basis point to 0.53 percent, the highest in almost four weeks.
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Britain’s 10-year yield gained one basis point to 1.463 percent, the highest in almost four weeks.
Commodities