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Opening Bell: Oil Breaks $70; USD Advances; U.S. Futures Point Higher

Published 2018-05-07, 07:20 a/m
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  • Geopolitics dominate global markets as ahead of Trump's Saturday Iran sanctions decision

  • US futures point to a higher open

  • Oil spikes over $70 for the first time in almost four years
  • US dollar attempts a second rally
  • Bitcoin continues to pull back from $10K
  • Key Events

    Futures on the S&P 500, NASDAQ 100 and Dow are pointing to a positive US open later on Monday, following a subdued Asian session and indecisive early trade in Europe. Shares listed on the STOXX Europe 600 meandered aimlessly and volume was lighter than usual, the result of a UK bank holiday.

    Earlier this morning Asian indices were taking stock of the underwhelming picture from Friday's US nonfarm payrolls release—though unemployment hit an18-year low. Wage growth remaining muted. Nevertheless, equities in Japan managed to rebound from an earlier loss, sparked by a stronger yen. Shares listed on the Nikkei 225 bounced from a 0.5 percent retreat to close up 0.3 percent into positive territory and the broader TOPIX turned a 0.35 percent loss into a 0.1 percent gain.

    Global Financial Affairs

    JPY Hourly Chart

    The yen strengthened after minutes from the BoJ monetary policy meeting revealed that Japanese policymakers expect the local economy will continue its upward trend. Technically, the USD/JPY pair has formed an extremely bullish hammer (very long lower shadow, no upper shadow), rallying for 6 straight hours. The advance reached the neckline of an hourly H&S bottom in the 7th hour and is pressured below it, producing a bearish shooting star (extremely long upper shadow, no lower shadow).

    While a country's strong economic growth generally increases demand for its domestic currency, when it comes to Japan, a healthy economic trend generally prompts a rotation out of the safe-haven yen and into risk assets. Thus, Japanese stocks were hurt by a stronger yen. The Nikkei fell 0.1% as the market reopened after a four-day weekend.

    Despite the ongoing trade stalemate between China and the US, Chinese equities led gains on Monday, surging 1 percent. Prices benefited from the release, on Friday, of draft rules for depository receipts, which paves the way for Chinese tech firms listed overseas to trade on mainland exchanges. The current scarcity of IPOs is also encouraging investors to keep their cash invested, therefore propping up prices.

    Small cap stocks listed on the startup-heavy ChiNext outperformed, leaping 1.7 percent, thanks in part to these more localized equities being less dependent on foreign sales for growth. Small cap US companies listed on the Russell 2000 are also currently outperforming for the same reason, second only to shares listed on the NASDAQ Composite.

    China’s advance drove shares on Hong Kong’s Hang Seng 0.5 percent higher, boosting the index's performance after its having underperformed for six out of the past seven negative weeks. The Hang Seng has recently taken a hit from heightened worries that the Hong Kong Monetary Authority will hike rates following the Hong Kong dollar's plunge to the bottom of its targeted trading band on April 12, when the HKD hit that key level for the first time since the range was set by the monetary watchdog in 2005.

    WTI Daily Chart

    Overall, commodities stocks are driving a reversal of Friday’s financials-led selloff, after WTI crude leaped 1 percent this morning, breaching the key $70 level for the first time since November 2014, as traders upped their bets over US President Donald Trump’s upcoming decision on whether or not to sign the waiver for sanctions against Iran.

    Saturday's upcoming deadline is especially critical after Trump mentioned, on January 12, he wouldn't confirm the waiver 'next time' unless the US Congress and European politicians came up with a better deal. Complicating the picture: Saudi Arabian pressure for a harder stance against Iran and Israeli Prime Minister Benjamin Netanyahu's recent accusations that Iran's nuclear agenda has been percolating despite the Obama deal.

    The event is so charged that markets are all but guaranteed to react strongly no matter what the outcome. Equities are expected to react favorably to an extension of the deal and to sell off if Trump decides not to waive sanctions.

    Oil is likely to enter a correction if the US president confirms the waiver and to spike further if he doesn't. Gold, the yen and Treasury yields are forecast to fall in the former case and surge in the latter. As for the dollar, it will probably be considered a safe haven during a global crisis, as investors put their faith in the US's political stability and military clout.

    Technically, WTI's price extended the penetration of the bullish Falling Flag breakout that itself was the breakout breach of a bullish Ascending triangle since late January.

    XAU/USD Hourly Chart

    At the same time the yen was been retreating (above), gold and Treasurys were falling, supporting risk-on sentiment. Technically, the price of gold has failed to meaningfully advance above the previous peak and has instead been falling back to retest the uptrend line since May 1. A close below it may signal a double top.

    Should Middle East tensions escalate, the price of gold is expected to jump, along with prices of other safe haven assets, while equities will contract.

    The dollar is advancing for a second day, in attempt to retest the resistance of Fridays shooting star. A close above would suggest a second leg in the rally following the breakout of an Ascending Triangle bottom, while a close below 92.20 would suggest a return move to retest the bottom at 91.00.

    BTCUSD Daily

    Bitcoin continued to pull back from its latest attempt to hit $10,000, for the first time in two months. Technically, it has failed, so far, to complete a double-bottom, which requires a penetration of the neckline at $11,667.

    Up Ahead

    • Bank of Canada’s deputy governor Timothy Lane speaks Monday at 4 p.m. EST.

    • NAFTA talks resume in Washington on Monday. US Commerce Secretary Wilbur Ross said negotiations could go on for months.

    • On Tuesday, the Canadian Mortgage and Housing Corp. releases Canadian Housing Starts for April.

    • Chinese trade data is due on Tuesday.

    • Australia's annual federal budget is released on Tuesday.

    • Japanese Prime Minister Shinzo Abe meets South Korean President Moon Jae-in and Chinese Premier Li Keqiang on Wednesday.

    • The Bank of England's policy decision is due on Thursday.

    • US inflation data for April comes out on Thursday.

    Earnings Reports This Week

    • Tyson Foods (NYSE:TSN) publishes earnings results today before the US market opens, for the fiscal quarter ending March, with a $1.37 EPS consensus, after reporting $1.01 for the same quarter last year.

    • Sysco (NYSE:SYY) reports results today before the market open, for the fiscal quarter ending March, with a $0.64 EPS consensus, after producing $0.51 per share in the same quarter a year earlier.

    • Disney (NYSE:DIS) is expected to report earnings tomorrow after the market close, for the fiscal quarter ending March, with a $1.68 EPS vs $1.5 for the same quarter last year.

    • Marriott (NASDAQ:MAR) is scheduled to report its corporate results tomorrow after market close, for the fiscal quarter ending March, with an EPS forecast of $1.25 after reporting $1.01 for the same quarter last year.

    • Twenty-First Century Fox (NASDAQ:FOX) is scheduled to report earnings on Wednesday after the market close, for the fiscal quarter ending March, with an expected EPS of $0.52, almost as the $0.54 reported for the corresponding quarter last year.

    • NVIDIA (NASDAQ:NVDA) is set to publish its quarterly earnings on Thursday after market close, for the fiscal quarter ending April, with a $1.47 EPS, versus $0.82 for the same quarter last year.

    • Thomson Reuters (NYSE:TRI) is due to report earnings on Friday before the market open, for the fiscal quarter ending March, with a $0.05 EPS, versus $0.63 for the same quarter in the previous year.

    Market Moves

    Stocks

    • Canada’s S&P/TSX Composite closed up 0.69 percent Friday.

    • The STOXX 600 Europe 600 Index gained less than 0.1 percent.

    • The MSCI World Index fell less than 0.05 percent.

    • The MSCI Asia Pacific Index slid less than 0.05 percent, hitting the lowest level in more than a week with a fifth straight decline.

    • Japan’s Nikkei 225 Stock Average dipped less than 0.05 percent to the lowest level in more than a week.

    • The MSCI Emerging Market Index jumped 0.1 percent, the first advance in a week.

    • The UK’s FTSE 100 climbed 0.9 percent on Friday to the highest level in almost 14 weeks on the biggest climb in more than a week.

    • Futures on the S&P 500 climbed 0.2 percent to the highest in more than a week.

    Currencies

    • The Canadian loonie was trading down 0.28%, or at 0.7761, against the US dollar early Monday.

    • The US Dollar Index climbed 0.23 percent to the highest closing price since December 27.

    • The euro declined 0.3 percent to $1.1926, the weakest in almost 19 weeks.

    • The British pound rose less than 0.05 percent to $1.3534, the first advance in almost two weeks.

    • The Japanese yen dipped 0.2 percent to 109.29 per dollar.

    Bonds

    • Canada’s 10-year yield moved up Monday to 2.334, a 0.26-percent increase.

    • The yield on 10-year US Treasuries rose one basis point to 2.96 percent.

    • Germany’s 10-year yield dipped one basis point to 0.53 percent.

    • Britain’s 10-year yield climbed one basis point to 1.4 percent.

    Commodities

    • WTI crude increased 0.8 percent to $70.27 a barrel, the highest in more than three years.

    • Gold fell 0.2 percent to $1,312.30 an ounce.

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