Opening Bell: European Stocks Sink, U.S. Futures Slip, Oil Gains

Key Events

This morning European equities resumed their selloff, picking up where they finished before the weekend. US futures for the S&P 500, Dow and NASDAQ 100 seesawed between gains and losses after a mostly positive Asian session kick-started the market week.

Investors are now hanging their hopes on the US Federal Reserve, ahead of the central bank's final interest rate decision this year. Traders, for their part, are approaching the end of a volatile year with some trepidation that softer corporate guidance for 2019, released during the most recent quarter, will become the reality along with a slowing global economy. Ahead of the Fed, yields steadied below 2.9 percent.

Global Financial Affairs

The Stoxx Europe 600 Index opened almost a quarter-percent lower and extended its slide, as of this writing, to just under a half-percent. Retailer shares drove the selloff, pressured down by ASOS (LON:ASOS), the British fashion and cosmetic website, which plunged 35% after the retailer reduced its outlook. Italy’s FTSE MIB edged lower, even after news broke that the government had reached an agreement on trimming its budget deficit.

Earlier today Asian stocks generally pushed higher, with Japan’s Nikkei 225 (+0.62%) leading regional benchmarks ahead of China's annual Central Economic Work Conference which starts Tuesday, and where government officials usually hammer out that country's economic policies for the coming year. This week's policy decisions in the US also buoyed regional traders, who allowed themselves a measure of risk.

Ironically, while the trade war was raging, US markets far outperformed Chinese counterparts. Now however, during trade talks, China’s markets are taking the lead. On Friday, US stocks closed at their lowest levels since at least March, as the Dow Jones Industrial Average joined peer indices in correction territory, despite the more positive trade developments.

In stark contrast to US investor sentiment just a few months ago, when bad news had no affect on market exuberance, currently it seems even good news hasn't helped shake off the pessimism. Last week's better-than-expected retail sales release, along with strong consumer confidence figures, rising wages and low unemployment haven't helped.

Investors appear to be weighed down by growing signs of a Chinese economic slowdown, including a softening auto industry, whose sales are on the verge of their first contraction since 1990.

The US 10-year Treasury rose this morning. Its yield was pushed down below 2.9%, entering a short-term downtrend.

At the same time, the dollar fell toward the bottom of its short-term rising channel. Ironically, however, it held steady versus the safe-haven Japanese yen. It’s become challenging for FX traders to correlate the lack of yen rallies as a diverging indicator to risk-off or to determine with certainty if the US dollar is taking its place as the safe haven proxy.

The dollar is near a 19-month high, with the outlook just ahead for a fourth Fed rate hike this year. Naturally, the devil is in the details. As such, Chair Jerome Powell’s language during Wednesday's FOMC Press Conference will be closely scrutinized for any clues on policy outlook.

Global forecasts for next year have already been downgraded on the heels of both softening data and cautionary messages from major central banks such as the BoJ and ECB, which cut its outlook for growth. Add to that political uncertainty in the US and the endless lack of clarity surrounding Brexit, and investors may need some time to figure out their next moves. The year-end holidays may provide that time.

Oil prices were pressured by oversupply. Investors are afraid an economic slowdown would further reduce demand. Technically, a downside breakout of the pennant, bearish in a downtrend, would signal the resumption of the recent decline. On the other hand, an upside breakout, or even continued range trading through the apex, would nullify the bearish bias.

Up Ahead

• Canadian Foreign Securities Purchases for October are released Monday.

• Foreign Securities Purchases by Canadians in October are released Monday.

• Canadian Manufacturing Sales for October are released Tuesday.

• Canadian CPI and Core CPI for November are released Wednesday.

• Chinese President Xi Jinping marks the 40th anniversary of Deng Xiaoping’s opening of the nation’s economy to the world with a keynote speech at a conference scheduled for Tuesday.
• The Federal Reserve holds its final policy meeting of 2018 on Tuesday and Wednesday. The rate decision will be followed by a press conference with Chairman Jerome Powell.
• The Bank of Japan’s monetary policy decision is due Thursday (late Wednesday in the US), followed by a briefing from Governor Haruhiko Kuroda.
• A partial US government shutdown could begin later this week if lawmakers and President Donald Trump fail to resolve their differences including Trump’s demand for $5 billion in funding for a Mexican border wall.

Market Moves

All numbers accurate at time of writing

Stocks

• Canada’s S&P/TSX Composite closed down 1.05 percent last Friday.

• The STOXX Europe 600 fell 0.60 percent.
• S&P 500 were down 0.07 percent.
• The MSCI All-Country World Equity Index increased less than 0.05 percent.
• The MSCI Emerging Markets Index climbed less than 0.05 percent.

Currencies

• The Canadian loonie was down 0.07 percent against the U.S. greenback early Monday, trading at 0.7466.

• The Bloomberg Dollar Spot Index sank 0.1 percent.
• The euro rose 0.36 percent to $1.1347.
• The Japanese yen slipped by less than 0.11 percent to 113.26 per dollar.
• The British pound increased 0.38 percent to $1.2634.
• The MSCI Emerging Market Currency Index Index gained 0.1 percent.

Bonds

• Canada’s Canada 10-Year was down early Monday at 2.094, a 0.33-percent decrease.

• The yield on 10-year Treasuries decreased less than one basis point to 2.89 percent.
• Germany’s 10-year yield increased one basis point to 0.26 percent.
• Britain’s 10-year yield gained two basis points to 1.256 percent.
• The spread of Italy’s 10-year bonds over Germany’s fell three basis points to 2.6588 percentage points to the narrowest in more than 11 weeks.

Commodities

• The Bloomberg Commodity Index sank 0.5 percent to the lowest in almost 18 months.
• Brent crude gained 0.90 percent to $61.17 a barrel.
• LME copper dipped 0.92 percent to $6,122.50 per metric ton, the lowest in a week.
• Gold gained than 0.15 percent to $1,243.25 an ounce.