Opening Bell: Stocks Rebound On Italian ‘Budget’; Euro Recovers

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  • European stocks, US futures surge as Italy pledges to reign in spending

  • Euro rebounds from six-week low, Italian yields ease from 15 year-highs

  • Sterling climbs ahead of key May speech
  • Dow Jones hits new record high on USMCA deal, bucking US equity declines

Key Events

European shares as well as futures on the S&P 500, Dow and NASDAQ 100 bounced back this morning, despite a mixed session in Asia, following news reports that Italy will keep its spending plans in check. The Southern European country’s lawmakers are said to be targeting a deficit reduction to 2 percent by 2021, thereby revising their initial proposal—which has sparked fears of an exit from the euro-bloc—and allowing both the euro and Italian bonds to also rebound from yesterday’s selloff.

Opening Bell: Stocks Rebound On Italian 'Budget'; Euro Recovers

EUR/USD Daily Chart

The single currency climbed higher after touching the lowest level in six weeks. Technically, it is forming a potential H&S bottom, with an upside breakout of the 1.1800 level.

Opening Bell: Stocks Rebound On Italian 'Budget'; Euro Recovers

10-Year Italian Yield Daily Chart

Yields on Italy’s 10-year bonds finally eased after a four-day surge that brought them to their highest level since 2003.

Opening Bell: Stocks Rebound On Italian 'Budget'; Euro Recovers

STOXX 600 Daily Chart

Gains in bank shares helped the STOXX 600 push higher after Tuesday’s selloff. Technically, the pan-European benchmark has been falling after reaching the resistance of the August peak and the downtrend line since May 22.

Earlier, during the Asian session, regional equities posted mixed results, with the MSCI Asia Pacific Index slipping 0.76 percent lower for a third day. South Korea’s KOSPI led the declines, losing 1.25 percent, while China’s Shanghai Composite outperformed with a 1.06 percent gain.

Global Financial Affairs

Yesterday, all major US indices except for the Dow Jones Industrial Average ended lower after a volatile trading session.The S&P 500 edged 0.04 percent lower, with shares of retailers leading declines after Amazon (NASDAQ:AMZN) raised the minimum wage for its employees, pressuring competitors to do the same.

The Dow climbed 0.46 per percent, hitting a new all-time high as well as a record close, helped by gains in multinational companies such as Boeing (NYSE:BA) and Caterpillar (NYSE:CAT), which benefited from the new NAFTA deal—renamed USMCA.

The NASDAQ Composite slid 0.47 percent while the Russell 2000 underperformed, giving up 1.01 percent. The USMCA deal means that fewer investors will feel under pressure to shelter their money via domestic stocks.

Overall, traders remain on the defensive amid multiple political risks from both sides of the pond, including US President Donald Trump’s nomination of Brett Kavanaugh for the open Supreme Court seat, uncertainty over the looming US mid-term elections and ongoing tensions between the US and China. Against this market narrative, dominated by potential macro headwinds, the upbeat comments aired by Fed Chair Jerome Powell on the country’s growth path fell short of driving stocks higher.

In FX news, the pound sterling gained ground ahead of a key speech from UK PM Theresa May at the Conservative party conference.

Opening Bell: Stocks Rebound On Italian 'Budget'; Euro Recovers

WTI Daily Chart

Meanwhile, crude oil trimmed most of yesterday’s setback, edging toward the midway point to $76 in early trade, though it was seen edging lower by late European morning.

Up Ahead

  • UK prime minister May speaks at her party’s annual conference today

  • The US employment report for September is due on Friday.

  • Also on Friday, the Reserve Bank of India’s monetary policy decision is coming out.

Market Moves

All prices correct at time of writing

Stocks

  • Futures on the S&P 500 advanced 0.2 percent, the highest level in almost two weeks.

  • Germany’s DAX Index gave up 0.4 percent.

  • The MSCI Asia Pacific Index slipped 0.6 percent to the lowest level in more than two weeks.

  • The MSCI Emerging Markets Index slid 0.1 percent to the lowest level in two weeks.

Currencies

  • The Dollar Index lost 0.1 percent, the first retreat in a week and the most substantial decrease in almost two weeks.

  • The euro gained 0.3 percent to $1.1579, the first advance in more than a week and the most significant climb in almost two weeks.

  • The British pound climbed 0.2 percent to $1.3001, the largest gain in more than a week.

  • The Japanese yen fell 0.1 percent to 113.79 per dollar.

Bonds

  • The yield on 10-year Treasuries gained one basis point to 3.07 percent.

  • Germany’s 10-year yield gained three basis points to 0.45 percent, the largest gain in more than a week.

Commodities

  • Gold gained less than 0.05 percent to $1,203.67 an ounce, the highest in almost two weeks.

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