Opening Bell: Stocks Fall On China Trade Data; Yen, Gold Climb; WTI Drops

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  • Global stocks, U.S. futures fall after China’s trade data miss
  • Treasuries, yen, gold gain; WTI drops on risk-off shift
  • GBP wavers ahead of key Brexit vote

Key Events

Global equities and futures on the S&P 500, Dow and NASDAQ 100 dropped this morning, reinforcing the outlook that Friday’s equity slip on Wall Street may be the end of a corrective rally within a downtrend. This would in turn push the market inches away from a bear market, as seen during Christmas Eve’s stock rout.

Chinese trade data posted the worst performance since 2016, with imports falling 7.6 percent and exports sliding 4.4 percent lower, seen as a direct result of the country’s trade war with the U.S. While the reading exacerbated preexisting fears of an economic slowdown, some investors may hope it sways U.S.-Sino trade talks toward a compromise. This could turn weak Chinese data into a bullish trigger.

Meanwhile, however, trade-sensitive sectors such as miners and tech firms drove Europe’s STOXX 600 lower.

In the earlier Asian open, Hong Kong’s Hang Seng (-1.38%) took the hardest hit from China’s trade data miss. Australia’s ASX 200 was unscathed, edging only 0.02 percent lower. However, the Aussie dollar was sold off, as its fate is tied to China, Australia’s largest trading partner. Japan’s shares were spared, as local markets were closed for a holiday.

Opening Bell: Stocks Fall On China Trade Data; Yen, Gold Climb; WTI Drops

USD/CNY Daily Chart

The dollar kept falling against the Chinese yuan after Goldman Sachs upgraded its outlook for the currency. Technically, the USD/CNY may have topped out. However, investors should brace for a pullback, as the 50 DMA approaches the support of the 100 DMA, the price drop stalls above the 200 DMA and the RSI is the most oversold since February.

The pound wavered as UK Prime Minister Theresa May struggles to garner support around her Brexit proposal ahead of a critical vote in the House of Commons on Tuesday.

Global Financial Affairs

U.S. equities retreated slightly on Friday, stalling the post-Christmas rally. Small-cap stocks were the exception, outperforming when they should have lagged as the anti-trade resolution proxy. In another unusual occurrence, market structure was all over the place, with sector performance going off the rails. It’s interesting to note the renminbi bottomed with the start of trade talks.

Opening Bell: Stocks Fall On China Trade Data; Yen, Gold Climb; WTI Drops

UST 10-Year Daily Chart

Treasurys climbed for a second day, as traders shifted from risk to safety. Technically, the yield on 10-year bonds tested the downtrend line since November 7—for the third time in as many sessions—when it had reached 3.25 percent, the highest rate since May 2011. After the recent Death Cross, it seems that bears are not giving up. Yields have reached their lowest levels in a week.

Slipping yields also dragged the dollar lower, ending a two-day rally. Technically, the greenback completed a return move after topping out, as Friday’s price peaked over the neckline but closed below it. Today, again, it attempted to rise but was pushed back below the neckline.

The next test for the downtrend is the 200 DMA, just below the psychological 95.00 level. Overall, the DXY might be forming a rising flag, bearish in a downtrend, which could could be just what it needs to overcome the support of the 200 DMA.

Opening Bell: Stocks Fall On China Trade Data; Yen, Gold Climb; WTI Drops

XAU/USD Daily Chart

The yen and gold, two key safe haven assets, gained ground. The latter reached near a two-week high as it tested the top of a continuation pennant pattern.

Opening Bell: Stocks Fall On China Trade Data; Yen, Gold Climb; WTI Drops

WTI daily Chart

By spurring classic risk-off sentiment, China’s disappointing trade data also pushed oil prices lower. Technically, the price confirmed the resistance level at the $54 level, with some seeing the path of least resistance higher, aided by the 50 DMA, where bears and bulls have remained since mid November. However, WTI’s recent 9-day winning streak—the longest in 9 years—is the classic setup for a falling flag, which it appears to be developing, bullish in an uptrend. Should it complete it with an upside breakout, it might also complete an H&S bottom.

Overall, the post-Christmas exuberance brought on by the upbeat U.S. jobs report, a dovish turn by the Fed and a surprisingly quiet U.S. President amid U.S.-Sino negotiations, is showing signs of ebbing. China’s weak trade data isn’t helping ease investor worries, nor is the ongoing deadlock between Donald Trump and Democrats over what is now the longest U.S. government shutdown in history. Perhaps, however, this rally was just the last flicker of a candle that is about to die out, as argued above.

Up Ahead

  • Some of the world’s biggest banks announce earnings, including Citigroup (NYSE:C), JPMorgan (NYSE:JPM), Bank of America (NYSE:BAC), Wells Fargo (NYSE:WFC), Morgan Stanley (NYSE:MS) and Goldman Sachs (NYSE:GS).
  • Delta Air Lines Inc (NYSE:DAL) also reports its fourth quarter results on Tuesday, with downward expectations after the company cut its revenue forecasts for the second time in two months on January 3.

Market Moves

Stocks

  • Futures on the S&P 500 declined 0.8 percent, the first retreat in more than a week.
  • The Stoxx Europe 600 fell 0.5 percent, the first retreat in a week and the biggest fall in more than a week.
  • The MSCI All-Country World Index dropped 0.2 percent, the first retreat in more than a week.
  • The MSCI Emerging Market Index slipped 1.1 percent, the biggest fall in a month.

Currencies

  • The Dollar Index slid 0.05 percent, to 95.62, capping a two-day gain.
  • The euro gained 0.1 percent to $1.1478.
  • The Japanese yen climbed 0.4 percent to 108.10 per dollar, the strongest level in more than a week.
  • The British pound decreased 0.1 percent to $1.2837.
  • The MSCI Emerging Markets Currency Index fell 0.3 percent.

Bonds

  • The yield on 10-year Treasuries sank three basis points to 2.67 percent, the lowest in more than a week.
  • Germany’s 10-year yield slipped one basis point to 0.23 percent, the lowest in a week.
  • Britain’s 10-year yield climbed one basis point to 1.281 percent, the highest in more than two weeks.
  • The spread of Italy’s 10-year bonds over Germany’s rose three basis points to 2.6438 percentage points.

Commodities

  • The Bloomberg Commodity Index fell by less than 0.05 percent.
  • West Texas Intermediate crude dropped 1.3 percent to $50.91 a barrel.
  • LME copper slid 0.8 percent to $5,891.50 per metric ton, the lowest in more than a week on the biggest fall in more than a week.
  • Gold increased 0.2 percent to $1,293.00 an ounce.

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