Opening Bell: Trump Comments Pummel USD; Treasury Yields Rebound

Key Events

Stocks in Europe opened lower, after US President Donald Trump said he didn’t expect much from trade talks, but have managed to scale higher, tracking Asian counterparts. US futures for the Dow, S&P 500 and NASDAQ 100 are also trading marginally higher at time of writing. Still, thus far today, the STOXX Europe 600 Index has failed to overcome yesterday's high, suggesting resistance.

The dollar selloff, however, has extended for a fourth day after Trump said, in an interview with Reuters, that "he was not thrilled" with his Fed Chair Jerome Powell raising interest rates. Yields rebounded ahead of this week's monetary policy meeting minutes on Wednesday.

Global Financial Affairs

The Dollar Index dipped to 95.45 after Trump said he expected his Fed pick to be a cheap money Fed Chairman. These remarks came after the US president earlier reiterated his accusation that China and Europe are manipulating their currencies. The US rebounded slightly, to 95.57, finding demand where supply reigned between late June and early August.

The supply-demand balance formed an ascending triangle, demonstrating that demand was outpacing supply. Should the price close above 95.60 it would create a hammer, completing the return move to the pattern, confirming its veracity.

In a mirror image, the euro, the most heavily weighted counter currency in the Dollar Index basket, is flirting with the 1.1500 psychological level, a presumed selling point, after bulls failed to hold the line a week and a half ago, in place since late May. After an initial push to 1.1541 where resistance kicked in, the single currency has been pushed back down to 1.1528 as of time of writing. Should the price close below the round number it would suggest a robust bearish presence, as would be reflected in a potential shooting star.

Treasury yields, including for the benchmark 10-year note, rebounded from yesterday's selloff, in advance of the symposium of central bankers in Jackson Hole.

This suggests investors are relying on the Fed's steadfastness in raising rates, despite market turmoil. However, Trump's criticism may have influenced the rate hike outlook, leading to a demand for current-yield Treasurys. Technically, yields bounced off an uptrend line since April 1. Should the uptrend line break, it would become the neckline of an H&S top since February.

This morning, most Asian benchmarks rose, even after Trump made clear his low expectations for a settlement on tariffs. Perhaps regional traders found solace in the fact that talks were still ongoing. There is also the lingering market narrative among some that all the noise since March when all this began is nothing more than negotiation tactics, which, after a drawn-out, dramatic affair would end in an agreement.

China's Shanghai Composite rose 1.31 percent, continuing Monday’s rebound when state-backed funds were seen buying stocks to stabilize the market. The country’s central bank strengthened the yuan’s reference rate for a fourth day.

Yesterday, US traders took advantage of thin volume to push stock prices higher on hopes negotiations would finally put an end to the trade war. However, shares trimmed gains in the final fourteen minutes of the session after Reuters published a report in which Trump accused China and Europe of currency manipulation. The accusation against China had a particularly strong impact as optimism over the success of trade talks is the current central market driver, demonstrated by sector rotation.

The S&P 500 advanced 0.24 percent, for a combined gain of 1.37 percent over three straight days. Nevertheless, most growth stocks led advances, while defensive sectors underperformed. The best performers were sectors that had been hit hardest by investor fears that an outright trade war would end the first synchronized economic growth since the financial crisis. Materials (+0.7 percent) outperformed, followed closely by Industrials (0.67 percent) and Consumer Discretionary (0.71 percent).

Energy (+0.65) jumped, even as WTI crude finished the day flat, following its rebound from earlier lows. Utilities (-0.35 percent) underperformed and Technology (-0.15 percent) bucked the upward trend for growth stocks, as investors worry about high valuations for the sector.

Technically, the S&P 500 closed yesterday just 1.4 points, or 0.05 percent shy of its preceding, August 7 peak and 13.11 points, or 0.46 percent from its late January record.

Up Ahead

• Canadian Wholesale Sales for June are released Tuesday.

• Canadian Retail Sales and Core Retail Sales for June are released Wednesday.

• Chinese internet commerce giant Alibaba (NYSE:BABA) is scheduled to report quarterly results on Thursday before the market open.
• Central bankers gather Friday at the Kansas City Fed’s annual Jackson Hole symposium, where Federal Reserve Chairman Jerome Powell will speak. The ECB's Mario Draghi is also expected to address the group.

Market Moves

Stocks

• Canada’s S&P/TSX Composite closed up a slight 0.04 percent Monday.

• Futures on the S&P 500 Index rose less than 0.05 percent, the highest point in two weeks.
• The STOXX Europe 600 Index declined less than 0.05 percent.
• The U.K.’s FTSE 100 dipped less than 0.05 percent.
• Germany’s DAX climbed 0.2 percent to the highest level in a week.
• The MSCI Asia Pacific Index jumped 0.4 percent to the highest in more than a week.
• The MSCI Emerging Markets Index increased 0.9 percent to the highest in more than a week.

Currencies

• The Canadian loonie was up 0.18 per cent against the U.S. greenback early Tuesday, trading at 0.7683.

• The Dollar Index declined 0.13 percent to the lowest point in 11 days.
• The euro jumped 0.3 percent to $1.1519, its strongest performance in more than a week on its fifth straight advance.
• The British pound rose 0.3 percent to $1.2833, the strongest in almost two weeks.
• The Japanese yen dipped less than 0.05 percent to 110.09 per dollar.
• The MSCI Emerging Markets Currency Index climbed 0.3 percent to the highest in more than a week.

Bonds

• Canada’s 10-year yield was up early Tuesday at 2.276, a 1,07-percent decrease.

• The yield on 10-year Treasuries rose one basis point to 2.83 percent, the most significant advance in a week.
• The yield on 2-year Treasuries gained one basis point to 2.60 percent, the most substantial advance in a week.
• Germany’s 10-year yield rose one basis point to 0.31 percent.
• Britain’s 10-year yield increased one basis point to 1.223 percent.

Commodities

• West Texas Intermediate crude gained 0.4 percent to $66.70 a barrel, the highest in a week.
• Gold increased 0.3 percent to $1,194.58 an ounce, the highest in more than a week.
• Copper rose 0.4 percent to $2.70 a pound, the highest in a week.