Daily analysis

Opening Bell: Futures, Stocks Drop On Rising Economic, COVID, Geopolitical Fears

Key Events

US equity futures for the Dow JonesS&P 500NASDAQ and Russell 2000, along with European stocks all dropped in unison on Monday after weaker than expected economic data from China earlier in the day accelerated fears the global economic recovery is losing steam. Adding to market worries were the escalating cases of COVID-19 worldwide, which led to Sydney, Australia today recording its deadliest day of the pandemic thus far.

As well, investors are keeping an eye on any geopolitical fallout after the US withdrawal from Afghanistan led to the downfall of the Kabul government and a Taliban takeover.

The dollar steadied and yields declined.

Global Financial Affairs

All four contracts on US major indices were in the red today, after record highs for the S&P 500 and Dow Jones Industrial Average were hit on Friday. Though the Reflation Trade lifted markets last week, on Monday futures on the Russell 2000 were leading declines. Conversely, contracts on the NASDAQ 100 outperformed, down only 0.1%.

It appears growth sectors have returned to the fore, while cyclicals are once again out of favor, even though defensive sectors eked out gains all last week and dominated on Friday, ahead of the weekend when investors lock in positions that can't be altered until trading begins the following week.

The STOXX Europe 600 Index ended a 10-day record breaking streak, its longest winning run on record. Mirroring the paradigm seen today in US futures, sectors sensitive to economic cycles—such as oil and gas, retail, and travel and leisure stocks—led the declines, all trading deeper than 1% into the red.

Despite worrying economic data out of China, the Shanghai Composite, unlike other regional benchmarks, was little changed. Sino retail sales grew by only 8.5% annually, sorely missing 11.5% estimates. The country’s online shopping growth plummeted to 4.4%, almost a fifth of the 21% average over the past five years. Industrial production figures also disappointed.

Though today's data may not yet have impacted China's local stock market, Hong Kong’s Hang Seng fell 1.2%, and Japan’s Nikkei 225 dropped 1.7%, underperforming both because of regional pressures and its underlying currency, the yen, being lifted because of its safe haven status. 

Investors are eagerly awaiting Tuesday's town hall when Fed boss Jerome Powell speaks. Market participants are hoping to find some resolution on whether the current economic growth fits the central bank's definition of “further progress” ahead of considering tapering stimulus. Though it all makes sense, we find it very ironic these questions are being asked while investors are concerned the economy is running out of steam.

This morning, yields—including for the 10-year Treasury note—deepened their decline, as investors continue to acquire safe haven Treasuries even as US equities maintained their record streak on Friday.

UST 10Y Dail
UST 10Y Dail

Yields upended a potential double-bottom, forced down by a Death Cross.

The dollar appeared to find its footing, paring a bit of Friday’s plunge.

Dollar Daily
Dollar Daily

The greenback has been finding resistance by the neckline of a massive double-bottom. Meanwhile, the global reserve currency appears to be developing a small H&S continuation pattern, supported by a bullish moving average formation, to help it overcome the double-bottom’s resistance.

USD strength capped a gold rally.

Gold Daily
Gold Daily

The precious metal's rebound followed the completion of a rising wedge, bearish after the preceding plunge. The current rebound is seen as a corrective move within a falling channel, whose top is reinforced with a bearish moving average formation.

Bitcoin nearly erased all of the gains it made today.

BTC/USD Daily
BTC/USD Daily

The cryptocurrency found resistance by the Apr. 25 low, making its current rally ripe for a correction toward the bottom of the channel, where the 200-DMA may lend it support.

Oil slipped for the third day in a row as sentiment around the economic recovery soured. In addition, ongoing social restrictions during the summer, have diminished global demand.

Oil Daily
Oil Daily

WTI is trading within a descending triangle, demonstrating that selling is gradually, but consistently, overcoming buying.

Up Ahead

  • U.S. Federal Reserve Chair Jerome Powell hosts a town hall discussion with educators on Tuesday
  • On Tuesday, China’s top legislative body, the National People’s Congress Standing Committee, begins a four-day meeting in Beijing
  • U.S. Core Retail Sales print on Tuesday
  • The Reserve Bank of New Zealand issues a policy decision on Wednesday
  • FOMC minutes are released Wednesday

Market Moves

Stocks

Currencies

  • The Dollar Index rose 0.1%
  • The euro was little changed at $1.1790
  • The Japanese yen rose 0.2% to 109.33 per dollar
  • The offshore yuan was flat at 6.4802 per dollar
  • The British pound fell 0.1% to $1.3849

Bonds

  • The yield on 10-year Treasuries declined two basis points to 1.25%
  • Germany’s 10-year yield declined one basis point to -0.48%
  • Britain’s 10-year yield declined two basis points to 0.55%

Commodities

Opening Bell: Futures, Stocks Drop On Rising Economic, COVID, Geopolitical Fears
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