Opening Bell: U.S. Futures Slide On New Trump Trade Threats; Yields Plummet

Key Events

European stocks and futures on the S&P 500, Dow and NASDAQ 100 halted Asian gains this morning after U.S. President Donald Trump said that his administration is not ready to seal a deal with China—which he blamed for failing to honor its previous negotiation pledges—and that tariffs on Chinese goods could increase "very, very substantially, very easily."

The STOXX 600 opened higher thanks to a rally in miners shares, but then fluctuated wildly in the first hour of trade. The pan-European benchmark then resumed its climb, only to stumble upon resistance, which forced it lower, below the opening price and subsequently below yesterday’s closing price. If the opening shot is an indication of what’s in store today, investors should expect prices to continue to swing.

Earlier, in Asian trading, investors didn’t seem to respond to Trump’s trade rhetoric during his visit to Japan, and risked a tepid advance on thin volume.

China’s Shanghai Composite outperformed, jumping 0.61%. The Chinese benchmark has the most to gain after falling as much as 13% since late April—technically, however, it is trading within a pennant, expected to break to the downside after failing the previous uptrend line.

Japan’s Nikkei edged 0.37% higher even as Trump complained over the “unbelievably large” trade imbalance with the country. Perhaps, investors decided to focus on the U.S. president's remarks that a trade deal with their country was coming later this year.

Meanwhile, the yield on 10-year Treasurys resumed a freefall to below 2.3, hitting the lowest level since mid October 2017 overnight, as demand for safety continued to surge.

The yuan continued to weaken at the expense of the dollar, consolidating for the seventh session within 1% from the October highs—before the recent round of talks began—within a bullish, falling flag. An upside breakout would suggest prices would more than overcome those levels, into the 7.0000 levels, further provoking the U.S. president, who has blamed China for currency manipulation. The battle between the two economic powers seems to be shifting to the currency front, with mounting speculation that China is allowing its currency to depreciate in compensation for U.S. tariffs.

The pound extended losses and U.K. stocks inched lower as traders watched the race for the next Prime Minister, which will determine the course of Brexit after Theresa May failed to garner lawmakers' support around her draft proposal. Technically, cable may have completed a pennant, bearish after the plunge this month, which was s downside breakout of a H&S top. However, there is still a potential for a turnaround and a massive H&S bottom.

Oil prices fell back and struggled on the $59.00 line, partly reversing early gains that had been favored by OPEC cuts and sanctions on Iran and Venezuela, which seemed to outweigh economic concerns. The WTI price is caught in between the 100 and 200 DMA, reflecting the fundamental conflicts in the outlook. However, the projected trajectory, as can be seen on the chart, is downward. Besides, some analysts pointed out that a strong rebound for oil this week would hinge on the market overcoming growing concerns about the U.S.-China trade war, which is far from being a certain outcome.

All eyes will be on what direction U.S. stocks take later today, as they resume trading after the Memorial Day holiday break amid heightened trade negotiations uncertainty. On Friday, all U.S. indices eked out paltry gains that failed to save yet another losing week. Thursday’s weak U.S. factory data exacerbated fears of slowing growth due to the protracted U.S.-China trade war. U.S. stocks adding another weekly decline suggests overall pessimism, pushing stocks to their first monthly drop of the year.

Up Ahead

• Executives from Facebook (NASDAQ:FB), Google (NASDAQ:GOOGL), Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN), Microsoft (NASDAQ:MSFT) and Twitter (NYSE:TWTR) are scheduled to speak before Canadian Parliament’s International Grand Committee on big data, fake news and privacy on Tuesday.

• Bank of Canada issues a decision on interest rates on Wednesday.

• China provides a first peek at its May economic performance on Friday, with economists anticipating the official manufacturing PMI will tick down to 49.9, sliding into contraction mode, amid the worsening trade war with the U.S.
• U.S. first-quarter revised GDP data is due Thursday.

Market Moves

Stocks

• Canada’s S&P/TSX Composite closed up 0.72 percent Monday.

• The MSCI Emerging Market Index declined 0.1%.
• The MSCI Asia Pacific Index climbed 0.3%.

Currencies

• The Canadian loonie was down 0.19 percent against the U.S. greenback early Tuesday, trading at 0.7424.

• The Dollar Index eked out a 0.02% gain, paring an earlier 0.1% advance.
• The euro dropped less than 0.05% to $1.1189.
• The British pound decreased 0.2% to $1.2659.
• The Japanese yen rose 0.2% to 109.34 per dollar.

Bonds

• Canada’s 10-year yield was down early Monday at 1.570, a 1.88-percent decrease.

• The yield on 10-year Treasurys slid four basis points to 2.28%, the lowest in more than 19 months.
• Britain’s 10-year yield declined three basis points to 0.956%, the lowest in more than two years.
• Germany’s 10-year yield ticked one basis point lower to -0.12%, the lowest in about three years.

Commodities

• Gold dropped 0.2% to $1,283.02 an ounce.
• West Texas Intermediate crude gained 0.6% to $58.98 a barrel.