Opening Bell: U.S. Futures Waiver; Yields Up; Dollar Falls

Key Events

Futures contracts on the Dow, S&P, NASDAQ and Russell 2000 wobbled on Wednesday morning as markets continue to speculate on the US economic aid package, as well as concerns that new lockdowns in Europe will dent the economic recovery. 

Treasuries sold off, driving yields higher and gold climbed on a weaker dollar but was weighed down by risk-off.  

Global Financial Affairs

In pre-US market trading on Wednesday, the S&P 500 futures climbed for the second day, but pared gains upon reaching a technical resistance.

The contract retreated from the top of its falling hourly channel since the Oct. 2 high.

In Europe, the Stoxx 600 Index opened higher but was in a decline a minute later and has been extending its fall since.

The decline is an extension since the pan-European benchmark peaked on Monday, finding staunch resistance at its broken uptrend line since the Sept. 25 low. A fall below 361.20 would establish a second lower trough and a downtrend in the very short-term.

Shares in Nestle SA (SIX:NESN) advanced in early trade after the Swiss consumer giant raised guidance on its yearly revenue, as consumers stuck at home increased demand for ready-made meals and spending on pet food increased. Swedish multinational networking and telecommunications company Ericsson (BS:ERICAs) beat expectations after gaining market share, boosting the value of its shares.

In the US, stocks rebounded Tuesday as Republicans and Democrats continued negotiations on the fiscal aid package. The S&P 500 returned from Monday’s drop, after Federal Reserve Bank of Chicago President Charles Evans said that he was “somewhat optimistic” about the continued economic recovery into next year.

Fed speak countered continued haggling by lawmakers as a Republican majority-senate signaled it would approve a bill at just one quarter of the near $2 trillion negotiated by House Speaker Nancy Pelosi.

Confident investors sold Treasuries, including the 10-year note, to finance their equity purchases. 

The move allowed yields to rise and extend the short-term uptrend since the early-August bottom. Its next test would be the June 5 high.

Optimism on a fiscal aid package—which adds dollars into the economy—reduces the value of the dollar. It also adds to the pressure on the greenback from foreign holders selling American bonds to reroute capital to risk assets.

The dollar dropped for the fourth straight day—it’s longest downward trend in almost three months—blowing out its H&S bottom. A second H&S pattern, though this one is a “continuation” pattern, bearish within its underlying downtrend, as framed within the falling channel.

Gold was boosted by dollar weakness, but its gains were offset by investors selling the yellow metal due to its haven status, as they increase positions in equities instead.

While gold inched above a bullish wedge, it might still complete a bearsh flag, following a bearish pennant. A decisive upside breakout is necessary, with at least one long, green candle, to gain traders’ trust in the wedge’s completion. Such a move will also complete an RSI bottom, a bullish signal to join the MACD’s buy signal.

Bitcoin climbed for the fifth day in a row, its longest since Oct.12.

The rally is the longest since Oct. 12 which began a falling flag, bullish after the preceding five-day rally. The next test of the supply-demand balance is the Aug. 17, $12,415 peak.

Oil fell—following two days of gains—from the $41.50 area for the third time since Sept.18. The American Petroleum Institute found that stockpiles increased almost 500,000 barrels, the second gain in three weeks, if confirmed by Wednesday’s official government data.

The drop confirmed a pocket of supply at this level. Given that the range follows the completion of a bearish wedge, it’s more likely that WTI will fall at least to retest the $36-7 levels of the range bottom.

Up Ahead

• Canada is releasing core retail sales for August today.
• Brexit trade talks are likely to continue at least into next week if the U.K. and EU fail to reach an agreement.
• The final debate before the US election on Nov. 3, between President Donald Trump and former Vice President Joe Biden, is live from Nashville, Tennessee on Thursday.

Market Moves

Stocks

• Futures on the S&P 500 Index gained 0.5%.
• The MSCI Asia Pacific Index gained 0.7%.
• The MSCI Emerging Markets Index rose 0.5%.

Currencies

• The Dollar Index decreased 0.3% to 92.78.
• The euro increased 0.3% to $1.1855.
• The British pound gained 0.5% to $1.3008.
• The Japanese yen strengthened 0.4% to 105.13 per dollar.

Bonds

• The yield on 10-year Treasuries jumped three basis points to 0.82%.
• The yield on two-year Treasuries climbed one basis point to 0.15%.
• Germany’s 10-year yield jumped three basis points to -0.58%.
• Britain’s 10-year yield jumped three basis points to 0.218%.

Commodities

• West Texas Intermediate crude increased 0.2% to $41.32 a barrel, the highest in a week.
• Gold strengthened 0.6% to $1,919.09 an ounce.