Opening Bell: U.S. Futures Flat Ahead Of Fed Policy Decision; Dollar Climbs

• U.S. futures flat after S&P 500, Nasdaq score all-time highs on Friday

• Gold climbs a second day even as the dollar rises

The S&P 500 was relatively flat while European shares were mixed ahead of the resumption of U.S.-Sino trade negotiations, expectations of a return to easing and the U.S. jobs report. Treasurys and the U.S. dollar extended an advance.

Futures for the three main U.S. equity gauges were treading water after the S&P 500 closed at a record high Friday.

The Stoxx Europe 600 Index rebounded from a lower open that erased half of Friday’s gains. The pan-European index has been struggling to extend the rally, with automakers showing the largest declines as major carmakers prepare to report earnings this week.

Asian stocks pared gains ahead of a much-anticipated Fed meeting, as hopes persist for continued easing. MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.6% amid thin trading. Hong Kong’s Hang Seng (-1.03%) slumped, as what began with aggressive protests in opposition to an extradition bill has developed into a push for full democracy. South Korea’s KOSPI (-1.78%) continued the underperformance that began with its tech trade dispute with Japan. Australia’s ASX 200 (+0.48%) rallied with technology stocks and was the only regional benchmark in green.

In Friday’s U.S. session, the S&P 500 Index and the Nasdaq Composite posted fresh records, following a better-than-expected Alphabet (NASDAQ:GOOGL) earnings report against the backdrop of a GDP beat that encouraged investors about economic growth, even as they maintained their outlook for Fed easing. Investors have held both ends of the stick, while counting on a strong economy, but concurrently believing the Fed will lower rates to support a slowing one.

Is this a Goldilocks economy, a rare, ideal condition in which growth is moderate and therefore sustainable, or are investors using rationalization to allow themselves to buy the most expensive stocks in history, despite risks?

The technicals provide bears with an argument, as indicators suggest the SPX and the Nasdaq – both at record highs – are overbought and provide negative divergences as prices hit the upper boundary of a bearish pattern.

UST Daily Chart

Treasurys rose for the third day ahead of the Fed meeting, which is expected to cut rates, rendering those last minute Treasury purchases a bargain. Yields have been trendless since July, when they dropped to the lowest since November 2016, before the Trump Trade effect. The holding pattern demonstrates the market’s indecision, as a potential H&S bottom develops.

An upside breakout would buoy up equity prices, as bond investors would finally support record equities. On the other hand, a resumed decline below 1.9% may leave stock market bulls second-guessing themselves. If some buckle under the pressure, it could start a snowball effect leading to an avalanche. One way or another, yields and equities must synchronize for a sustainable financial market.

DXY Daily Chart

The U.S. dollar climbed for the seventh day, the longest rally since February’s similar climb. Above 98.00, the greenback is a mere 0.13% from the highest levels in over two years. Meanwhile, U.S. President Donald Trump has traders guessing after boasting to aides that he could weaken the U.S. currency “in two seconds if he wanted to,” but that he won’t. Then, the president told reporters he might.

From a risk-reward ratio, traders would be going against the odds by going long after a seven-day climb. Contrarian traders might enter a short position as the greenback nears the highest levels since May.

XAU Daily Chart

Although paring most of its advance, gold is still up for the second day – even against a strengthening U.S. dollar. What’s more, it’s happening amid risk-on. So, the rise appears to be neither due to U.S. dollar weakness nor its haven status.

Turkey’s lira strengthened against the rising U.S. dollar for the fourth day, even after its central bank cut its key rate by the most on record. The dramatic cut comes after the country’s President Recep Tayyip Erdogan fired the former central bank chief for refusing a 300-point rate cut.

WTI Daily Chart

Oil fell below $56 a barrel on a pessimistic view of global growth and easing tensions with Iran. Technically, the price averages triggered a death cross amid a developing a rising flag, bearish in a downtrend.

Up Ahead

• Earnings include: Nintendo (OTC:NTDOY), Qualcomm (NASDAQ:QCOM), AMD (NASDAQ:AMD), Siemens (OTC:SIEGY), Sony (NYSE:SNE), Credit Suisse (SIX:CSGN), Nomura (NYSE:NMR), Toyota (NYSE:TM), Honda (NYSE:HMC), Ferrari (NYSE:RACE), General Motors (NYSE:GM), BMW (MI:BMW), Rio Tinto (LON:RIO), ConocoPhillips (NYSE:COP), BP (LON:BP), Shell (LON:RDSa), Vale (NYSE:VALE), Heineken (AS:HEIN), General Electric (NYSE:GE), Altria (NYSE:MO).
• Bank of Japan rate decision and Governor Haruhiko Kuroda’s briefing are due Tuesday.
• U.S. Trade Representative Robert Lighthizer and his team meet their Chinese counterparts in Shanghai Tuesday.
• Fed officials begin their two-day meeting on monetary policy in Washington Tuesday. Chairman Jerome Powell will hold a press conference following the FOMC’s decision Wednesday.
• The Bank of England policy decision is due Thursday.
• The U.S. July jobs report is due Friday.

Market Moves Stocks

• Futures on the S&P 500 Index fell 0.1%.
• The MSCI Asia Pacific Index dipped 0.4% to the lowest in more than a week.
• The Stoxx Europe 600 Index declined 0.1%.
• Germany’s DAX Index decreased 0.1%.
• The MSCI Emerging Market Index sank 0.4% to the lowest in almost three weeks.

Currencies

• The Dollar Index rose 0.2% for the seventh day, make a total advance of 1.35% to the highest in almost two months.
• The euro decreased 0.1% to $1.1119, the weakest in more than two years.
• The British pound dipped 0.4% to $1.234, the weakest in more than two years.
• The Japanese yen gained less than 0.05% to 108.65 per dollar.

Bonds

• The yield on 10-year Treasuries fell one basis point to 2.06%.
• Britain’s 10-year yield declined two basis points to 0.665%, the lowest in about three years on the largest fall in a week.
• Germany’s 10-year yield fell one basis point to -0.39%, the lowest in more than three weeks.

Commodities

• Gold declined less than 0.05% to $1,418.39 an ounce.
• West Texas Intermediate crude fell 0.4% to $56.00 a barrel.
• Iron ore decreased 0.6% to $114.27 per metric ton.