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European indices, US futures inch higher after this morning's underwhelming open
- Asian markets slow down after US rally on Monday
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US stocks break consolidations on upside
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Russell 2000 posts fresh record, NASDAQ follows close behind
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US domestic, smaller-cap stocks listed on the Russell 2000 are losing steam after trade-dispute led outperformance
- Oil recoups some of the losses incurred after OPEC's signals of production increases
Key Events
US shares closed at a 12-week high on Monday, but will they be able to resume their rally for a third straight day after today's Wall Street open? While the US equity rally—which saw the the S&P 500 break out of its 14-session consolidation—showed that US traders were relatively unfazed by trade war threats, global indices today have been enduring a bumpier ride.
Does this mean that US stocks, unlike their global peers, will actually benefit from a hard line on trade? Or will we see US markets follow the lead of global peers and also take a hit today?
Possibly not. European shares have bounced back from a lower open, following a jittery Asian session. The STOXX Europe 600 is edging higher, on track for a three-day rally, as shares of automakers helped balance out losses in the telecom sector. The rebound in European trade appears to be buoying US futures: the SPX, Dow and NASDAQ 100 are all safely in positive territory at time of writing.
Earlier this morning, during the Asian session, Japan’s TOPIX ended flat, giving up a 0.35 percent gain at the open. Shares in China managed to shrug off heightened trade headwinds, with the Shanghai Composite gaining 0.75 percent—for a two day increase of 0.95 percent. The mainland index closed at the height of the session, in the absence of any bearish resistance.
From a technical perspective, however, the price stopped dead at the top of the May 30th falling gap, where sellers and speculators usually wait to push prices back down. The previous 5.5 percent drop from the May 21 high, followed by the upward consolidation from the May 30 low, developed a falling flag, posting a bearish signal with a downside breakout of the pattern.
If we focus on the upbeat performance posted by mainland Chinese and US shares, it's almost as if traders in the hottest part of the "trade-war zone" were actually encouraged by the ongoing diplomatic dispute.
Shares listed on Hong Kong’s Hang Seng closed 0.31 percent higher, which brings its two day advance to 2.01 percent. Technically, however, the index posted a High-Wave candle after swinging more than 1 percent between losses and gains, which highlights a lack of direction. Since the price move followed a 4 percent rise, it may be signalling a downward reversal.
South Korea’s KOSPI added 0.25 percent, for an aggregate three day gain of 1.25 percent. Australia’s S&P/ASX 200 slipped 0.5 percent, remained within a tight 1 percent range for the tenth day.
Global Financial Affairs
The tepid performance seen across Asian and European markets today follows yesterday's bullish US session, in which the S&P 500 climbed 0.45 percent, for an aggregate two day rally of 1.5 percent. The advance was led by Consumer Discretionary stocks (+1.14 percent), while Energy (-0.89 percent) underperformed, following oil prices lower. Interestingly, defensive Consumer Staples (+0.83 percent) was offset by another defensive sector, Utilities (-0.8 percent), in what appears to be investor indecision.
Technically, it provided an upside breakout to a consolidation, unclogging the supply-demand bottleneck, with a new high, extending the uptrend since the April 2 bottom.
While the Dow Jones Industrial Average posted a stronger performance, both over one day (+0.7 percent) and two days (+1.6), it remains weaker from a technical perspective, as it is still 1.1 percent below the May 21 peak.
The NASDAQ Composite tied with the Dow, also posting 0.7 percent one day advance, but beat the mega cap 30 index over the two-day timeframe. Its 2.2 percent two-day rally mades it yesterday's winner among US majors. After closing at the height of the session, the tech-heavy index is now also only 0.4 percent below its March 13 all-time-high, thereby showing bullish dominance.
At the same time, the Russell 2000 posted a fresh record—its fifth since it hit an all-time-high in late January. Domestic US firms listed on the small-cap index have enjoyed a competitive advantage over their larger-cap peers, benefiting from the ongoing trade war saga, attracting higher demand as investors fear the impact of heavy tariffs on the bottom line of more globally-focused stocks. This allowed the index to add 15 percent since the February low, outpacing the other US majors. The NASDAQ Composite comes in second, with a 14.7 percent climb over the same period, though it remains the best performer since the 2016 presidential election.
Underpinning a shift in investor demand over the US-China trade spat, the mega-cap firms listed on the Dow, which rely heavily on exports for growth, underperformed for the period, gaining only 6.15 percent. The S&P is up 8.4 percent over the same timeframe.
While the fact that domestic firms outperformed clearly points to trade uncertainties as the biggest headwind for stocks, yesterday's US trade demonstrates that the Russell is losing steam. It was the rally’s underperformer, rising a paltry 0.33 percent, or 1.2 percent for the last two sessions.
Absent any major geopolitical or economic event change, why wasn't the US rally echoed across the globe? Perhaps, the beneficial market impact spurred by Friday's upbeat employment report, which boosted confidence in the first synchronized global growth in a decade, has run its course and is now just priced in.
Does this mean that investors will now have time to begin thinking about all the monsters looming out there in the dark including an Italian coalition which may lead the European country on the path to an exit from the EU; and an ever-escalating trade war wherein G7 leaders meeting Friday in Quebec are threatening a counter-attack if President Donald Trump doesn’t repeal his new steel and aluminum levies?
Oil trimmed some of the losses it posted on Monday, after OPEC signaled it might lift production limits to meet growing demand. However, from a technical perspective, the commodity fell below its uptrend line since February 11, after completing a bearish rising flag, which suggests further declines.
Bitcoin failed to benefit from positive headlines on Monday, as Apple's (NASDAQ:AAPL) co-founder Steve Wozniak said he hopes the digital token will become the internet’s “native currency” and the City Court of St. Petersburg, Russia overturned a District Court’s ruling banning crypto media website Bitcoininfo.ru. BTH fell 0.9 percent, for an aggregate two day loss of 3.65 percent. Technically, a downside breakout of a rising flag suggests further declines will follow.
Up Ahead
- Tesla (NASDAQ:TSLA) holds its annual shareholder meeting in Mountain View, CA later today.
- 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.
- The Reserve Bank of India decides on interest rates on Wednesday.
- The US trade balance and Australia's 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, the eurozone's 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
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The STOXX Europe 600 slid 0.2 percent.
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Futures on the S&P 500 slipped 0.1 percent.
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The UK’s FTSE 100 fell 0.3 percent, the largest fall in a week.
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Germany’s DAX lost 0.1 percent.
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The MSCI Emerging Market Index climbed 0.1 percent to the highest level in almost three weeks.
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The MSCI Asia Pacific Index ticked less than 0.05 percent higher, to the highest level in almost three weeks.
Currencies
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The Dollar Index declined less than 0.05 percent, consolidating a fourth day.
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The euro advanced 0.1 percent to $1.1706, the strongest in more than a week.
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The British pound jumped 0.1 percent to $1.3329.
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The Japanese yen increased less than 0.05 percent to 109.80 per dollar.
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The Turkish lira decreased 0.1 percent to 4.5958 per dollar.
Bonds
- The yield on 10-year Treasurys fell two basis points to 2.92 percent, the first retreat in a week.
- Germany’s 10-year yield declined two basis points to 0.40 percent.
- Britain’s 10-year yield dipped one basis point to 1.297 percent.
- Italy’s 10-year yield climbed six basis points to 2.603 percent, the first advance in a week
Commodities
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West Texas Intermediate crude advanced 0.8 percent to $65.24 a barrel.
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Gold increased 0.1 percent to $1,292.77 an ounce.
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Brent crude gained 0.4 percent to $75.59 a barrel.