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Opening Bell: US-EU Talks Freeze Stock Surge, FX Markets; Oil Climbs

By (Pinchas Cohen/ OverviewJul 25, 2018 06:30
Opening Bell: US-EU Talks Freeze Stock Surge, FX Markets; Oil Climbs
By (Pinchas Cohen/   |  Jul 25, 2018 06:30
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  • European stocks and US futures seesaw ahead of crucial US-EU meeting
  • Asian stocks benefit form China's stimulus plans
  • S&P 500 inches toward January record; NASDAQ Composite posts intraday record
  • Turkish central bank holds rates, pushing lira to lowest close on record

Key Events

European stocks and futures on the S&P 500, Dow and NASDAQ 100 are seesawing below neutral levels Wednesday, as investors find it increasingly challenging to disregard escalating global trade headwinds ahead of a meeting between President Donald Trump and European Commission President Jean-Claude Junker.

Markets are struggling to build on Tuesday's upbeat session and earning reports, with results from General Motors (NYSE:GM) and Facebook (NASDAQ:FB) expected to confirm the upward trend.

The dollar is inching lower and most Group of 10 currencies are showing little movement, as traders await developments from what promises to be a heated debate.

The pan-European STOXX 600 opened slightly higher as banks posted mixed financial results: Deutsche Bank (DE:DBKGn) reported a second-quarter $468 million net profit after completing half of its workforce cut target and Banco Santander (MC:SAN) unveiled a 3 percent decline in net profit after being hit by restructuring costs of EUR300 million ($350.3 million).

Earlier, during the Asian session, Japan’s TOPIX gained 0.38 percent, or 0.85 percent over two days, though it retraced from a 0.6 intraday high. China's stimulus plans infused local traders with hope, with the most prominent beneficiaries being those who took the biggest hit over the trade war peak: steelmakers, non-ferrous metal firms and machinery makers. Technically, the TOPIX's inability to maintain session highs formed a shooting star but after providing an upside breakout to a bullish, falling flag. This bull vs bear conflict is taking place below the downtrend line since May 21, drawing a red line for both supply and demand.

Conversely, China’s Shanghai Composite ended the three-day rally that had taken it to a monthly high. The mainland index closed 0.04 percent lower, rebounding from a 0.4 percent decline and forming a hanging man, bearish upon a lower close tomorrow, as this might stop out longs, removing demand and letting supply push prices lower.

However, that can be expected in the form of a correction after the completion of a Three White Soldiers pattern, which suggests an upward reversal of the trend.

Hong Kong’s Hang Seng climbed 0.9 percent, to close at the highest level since June 29, on the cusp of a double-bottom neckline.

South Korea’s KOSPI slipped 0.31 percent, as foreign investors sold on trade worries and a strengthening won weighed on stocks.

Australia’s S&P/ASX 200 was down 0.29 percent, dragged lower by consumer staples, healthcare and telecoms stocks.

Global Financial Affairs

In the previous US session, shares edged higher, as positive corporate results overshadowed trade anxieties. Google's parent company Alphabet (NASDAQ:GOOGL) anchored the market’s advance early in the session, after beating analyst estimates on Monday.

Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX) also gained ground as West Texas Intermediate crude pushed higher. The second-day oil climb also propped up broader commodities markets.

However, US majors retreated from their intraday highs, with the NASDAQ Composite pulling back from an earlier all-time high—closing 0.01 percent lower after giving up a 0.92 percent higher open.

SPX Daily Chart
SPX Daily Chart

The S&P 500 inched 0.48 percent higher, gaining 0.77 percent over two sessions, helped by Materials (+1.31 percent) stocks, which typically underperform amid trade uncertainty.

The leading US benchmark climbed to 1.5 percent away from its late-January record in its intraday high and closed 1.85 percent below its all-time high. Technically, while the price posted a higher peak in support of the uptrend since the February low, the price formed a high-wave candle. This pattern develops when prices swing wildly between losses and gains but close near the opening price, demonstrating a lack of market leadership. It is often seen before reversals, or at least before corrections. The pattern becomes clearer on the technical map, as the struggle between supply and demand escalates nearer the record high, highlighting a correction may be due after the price almost hit a 5 percent advance since the June 28 trough, at the 2,700 level.

The Dow Jones Industrial Average gained 0.8 percent, hitting its highest level since June 14, 0.63 percent from the June 11 peak.

The Russell 2000 underperformed, falling 1.08 percent, after having reached the 1,710 levels, where supply has been overcoming demand since June 21. As we pointing out before, small-cap stocks gained ground on trade anxieties and therefore possess a negative correlation with larger-cap stocks, which are more sensitive to exports dynmics. Therefore, a decline on this index is a bullish indicator for big caps.

USD/JPY Daily Chart
USD/JPY Daily Chart

In currency markets, the yen strengthened slightly, climbing for a sixth straight day, even after the Bank of Japan refrained from scaling back its bond purchases on Wednesday, quashing speculation that officials may consider tweaking their stimulus policy. Technically, the price is forming a Doji, a candle projecting indecision, after two consecutive bullish hammers, right on the uptrend line since March 23.

The Australian dollar slipped against most of its peers after inflation data missed estimates, backing the case for the country's central bank to keep interest rates at a record low.

Sterling held on to the gains that were triggered by Prime Minister Theresa May's decision to downgrade the role of the so-called Brexit Department and take on a more direct lead in the negotiations with EU counterparts.

The Turkish lira eased after closing at a record low on Tuesday, after the country's central bank held interest rates steady despite the higher inflation rate and the weaker currency. The move was seen as policymakers following President Recep Tayyip Erdogan, who has been amassing power and staunchly opposing rate hikes.

WTI Daily Chart
WTI Daily Chart

Oil ticked higher after US crude stocks shrank 3.16 million barrels last week, according to API. Technically, the price may be developing a bearish pennant, whose downside breakout might help bears break the bull’s uptrend line since February 9.

Up Ahead

  • Earnings season continues with:

    • Boeing (NYSE:BA), due Wednesday before market open, $3.48 EPS forecast, VS $2.55 same quarter last year

    • Visa Inc (NYSE:V), due Wednesday after market close, $1.08 EPS forecast, VS $0.86 same quarter last year

    • Facebook Inc (NASDAQ:FB), due Wednesday after market close, $1.75 EPS forecast VS $1.32 same quarter last year

    • Advanced Micro Devices (NASDAQ:AMD), due Wednesday after market close, $0.1 EPS predicted VS $-0.01 same quarter previous year

    • Qualcomm (NASDAQ:QCOM), due Wednesday after market close, $0.58 ESP forecast, VS $0.7 same quarter last year

    • (NASDAQ:AMZN), due Thursday after market close, $2.49 EPS forecast, VS $0.4 same quarter last year

    • Intel (NASDAQ:INTC), due Thursday, after market close, $0.99 EPS forecast, VS $0.72 same quarter last year

    • Twitter (NYSE:TWTR), due Friday before market open, $0.07 EPS forecast, VS $-0.02 same quarter last year

  • The European Central Bank’s policy decision comes out on Thursday.

  • Canada’s federal government Budget Balance for April is released Friday.

  • US gross domestic product due on Friday is forecast to have increased by about 4.2 percent at an annualized rate in the second quarter, the most since 2014.

Market Moves


  • Canada’s S&P/TSX Composite fell 0.24 percent on Tuesday.

  • Futures on the S&P 500 fell 0.1 percent.

  • The STOXX Europe 600 gained 0.1 percent to the highest level in more than five weeks.

  • The MSCI All-Country World Index climbed 0.1 percent to the highest level in almost six weeks.

  • The MSCI Emerging Market Index gained 0.4 percent to the highest in more than a month.


  • The Canadian loonie was up 0.28 per cent against the U.S. greenback early Wednesday, trading at 0.7604.

  • The Dollar Index dropped 0.04 percent.

  • The euro climbed 0.1 percent to $1.1695.

  • The British pound gained 0.2 percent to $1.3167, the strongest level in more than a week.

  • The Japanese yen gained less than 0.05 percent to 111.19 per dollar, reaching the strongest level in two weeks on its sixth straight advance.

  • The Turkish lira ticked 0.4 percent higher to 4.8635 per dollar.


  • Canada’s 10-year yield was steady early Wednesday at 2.225.
  • The yield on 10-year Treasuries slipped one basis point to 2.94 percent.

  • Germany’s 10-year yield fell one basis point to 0.39 percent.

  • Britain’s 10-year yield dropped one basis point to 1.264 percent.


  • The Bloomberg Commodity Index climbed 0.3 percent to the highest level in two weeks.

  • West Texas Intermediate crude gained 0.5 percent to $68.86 a barrel, the highest level in more than a week.

  • LME copper dropped 0.4 percent to $6,267.00 per metric ton.

  • Gold rose 0.2 percent to $1,227.36 an ounce.

Opening Bell: US-EU Talks Freeze Stock Surge, FX Markets; Oil Climbs

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Opening Bell: US-EU Talks Freeze Stock Surge, FX Markets; Oil Climbs

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