- Upbeat earnings prop up US futures, though European shares waver
- Oil fluctuates amid Saudi-US tensions
- Treasury yields climb, gold holds onto gains, yen drops
Upbeat earnings reports from some financials heavy weights including Morgan Stanley (NYSE:MS) and BlackRock propped up futures for the S&P 500, Dow and NASDAQ 100 this morning, outweighing ongoing geopolitical risks and boosting expectations on Netflix (NASDAQ:NFLX), which will be the first large technology firm to unveil its third quarter results after the close today.
As well, shares on the STOXX Europe 600 which earlier lost momentum and slipped to a 22-month low, have rebounded somewhat though the index remains in the red at time of writing, helped by defensive shares.
During earlier Asian trade, shares were mixed, with most regional benchmarks up on hopes that trade disputes between the US and China will reach a solution soon. However, Chinese equities underperformed, with the SZSE Component shedding 1.95 percent and hitting the lowest level since July 2014 and the Shanghai Composite slipping 0.85 percent, hitting the November 2014 low.
The lackluster performance comes after official figures showed an uptick in inflation for the fourth straight month, in line with expectations—which raises questions as to why investors were still downbeat. China’s consumer price index grew 2.5 percent year-on-year in September, from 2.3 percent a month earlier, mostly due to higher fresh food prices.
Nikkei 225 vs JPY/USD Daily Chart
On the other side of the spectrum, Japan’s Nikkei 225 outperformed, gaining 1.25 percent, helped by a weakening yen—whose strength yesterday had weighed on shares of companies reliant on exports.
Global Financial Affairs
On Monday, US stocks slid, dragged lower by the Technology sector. The tech-heavy NASDAQ Composite underperformed (-0.88 percent). The small cap Russell 2000 was the only major US benchmark that managed to close in the green.
Comments from US President Donald Trump, threatening China with further tariffs and accusing the Asian country of being a bigger meddler than Russia in the 2016 presidential elections, probably also weighed on the performance of US equities. Technically, the S&P 500 and the NASDAQ fell back below their 200 DMA and the Dow Jones Industrial Average re-crossed below the 100 DMA. Each of the indices has repositioned itself at last week’s levels, the level at which they stood before Friday’s rebound.
The Russell 2000 hasn’t recovered since crossing below the 200 DMA on Wednesday.
BAC Daily Chart
Bank of America (NYSE:BAC) dropped after reporting lower investing and banking fees due to the growing competition from so-called shadow banks. The bank also posted a 29 percent slump in debt-underwriting revenue, almost twice as bad as expected, driving overall revenue down 18 percent. The magnitude of the loss was amplified by the fact that rival JPMorgan Chase (NYSE:JPM) was only down 1 percent on underwriting and advising fees. BAC shares dropped 1.9 percent to $27.92 on a closing basis, after posting an intraday low of $27.64: a single cent above the July 6 low, the lowest level since December 1 and a long-term top reversal.
Harris Corp (NYSE:HRS) and L3 Technologies Inc (NYSE:LLL) surged on the announcement of a merger of equals which would make the new entity the sixth largest defense contractor in the US.
UST 10-Y Daily Chart
Meanwhile, yields on 10-year US Treasurys leaped. They look set for the highest close in almost a week, confirming the general risk-off mood.
Last week’s selloffs were driven by investors unwinding positions to recalibrate their portfolios, after 10-year yields hit 3.25 percent for the first time since mid-2011, prompting a surge in volatility. Even though US indices fell below some key moving averages—which certainly warrants heightened alertness, in our view—we maintain our outlook for upward equity prices, based on the fact that uptrend lines remain intact.
WTI Daily Chart
In commodity markets, oil is retesting an uptrend line since mid-August amid persistent tensions between Saudi Arabia and the US over the disappearance and apparent death of Washington Post journalist Jamal Khashoggi.
XAU/USD Daily Chart
Gold is holding onto gains and crawling back above the 100 DMA, taking on yesterday’s intraday high and the $1,230 psychological round number.
In FX news, the New Zealand dollar jumped after the country’s inflation rate beat economist estimates. The pound held steady after UK Prime Minister Theresa May struck a conciliatory tone after Brexit talks with EU counterparts stalled over the weekend. The Turkish lira retreated after seven straight days of gains, spurred by a Turkish court releasing US pastor Andrew Brunson on Friday, after two years of detention.
- APEC finance ministers meet in Port Moresby, Papua New Guinea.
- China’s third-quarter GDP comes out on Friday, with headline growth forecast to slow to 6.6 percent year on year from 6.7 percent, in addition to last month’s retail sales and factory output.
- Minutes from the Federal Reserve’s latest policy meeting are due on Wednesday, with investors focused on projections for further interest rate rises.
- Futures on the S&P 500 climbed 0.3 percent.
- The UK’s FTSE 100 dropped 0.1 percent.
- Germany’s DAX gained less than 0.05 percent.
- The MSCI Emerging Market Index gained 0.1 percent.
- The MSCI Asia Pacific Index ticked 0.3 percent higher.
- The Dollar Index fell almost 0.1 percent, set to the lowest close in nearly three weeks.
- The euro slipped 0.1 percent to $1.1573.
- The British pound rose less than 0.05 percent to $1.3158.
- The Japanese yen fell 0.3 percent to 112.08 per dollar, the biggest fall in almost two weeks.
- The yield on 10-year Treasuries gained one basis point to 3.17 percent, the highest level in a week.
- Germany’s 10-year yield fell less than one basis point to 0.50 percent.
- Britain’s 10-year yield slid one basis point to 1.603 percent, the lowest level in almost two weeks.
- Italy’s 10-year yield declined two basis points to 3.522 percent.
- West Texas Intermediate crude fell 0.4 percent to $71.49 a barrel.
- Gold climbed 0.1 percent to $1,228.09 an ounce, the highest level in almost 12 weeks.