Opening Bell: Renewed Trade Risk Hits Global Stocks; Gold Jumps; USD Up

February 19, 2019

New York (Feb 19)  Renewed U.S.-China trade uncertainty hits Europe, U.S. futures.  Nikkei hits 2-month high as BoJ's Kuroda signals easing; S&P/ASX climbs on safety-driven big banks' rally.... Dollar and gold rise together on broad risk-off shift

Key Events

European markets gave up an initial charge to highs not seen since October this morning, ending a two-day advance. Technically, the price retreated from the 200 DMA. Futures on the S&P 500, Dow and NASDAQ 100 also fell from an early advance, extending a decline to a second day.

While some media outlets attribute the initial rise in equities to optimism around U.S.-China trade talks, others blame the very same market theme for the decline that followed.

What we do know is that HSBC (LON:HSBA), Europe’s largest bank, missed 2018 profits estimates. In fact, it fared as the banking sector's main laggard. What does it mean for Europe’s economic growth that its biggest lender is falling short of expectations? Moreover, the bank blamed its woes on China's economic slowdown, further exacerbating fears of the end of the longest bull stock market in history. Adding to the pressure, Brexit looms around the corner, threatening to yield yet more unpleasant surprises.

In the earlier Asian session, stock indices were mixed, as investors sought direction after U.S. market closure on Monday, for the President’s Day federal holiday. Emerging signs of a trade fallout between the world’s two largest economies didn't help market sentiment either.

The current situation well exemplifies how uncertain and potentially explosive geopolitics could levy a commensurate effect on markets. While the Trump Administration said yesterday that trade negotiations will resume in Washington on Tuesday, preparing for higher-level talks next week, Chinese sources suggested that the U.S. is not dealing in good faith and may be trying to hinder China's competitive market advantage by targeting the country's mobile network technology on grounds of cyber security risk.

China’s Shanghai Composite (+0.05) ended flat, after shares swung between a 0.65% loss and a 0.91% gain. The price clung on to yesterday’s 2.68% jump and to the near 7% gain since the beginning of the month, as well as to a near-five-month high.

On the other hand, today’s wide swings formed a high wave candle, suggesting a lack of leadership—also considering it occurred after a failed attempt to scale above the 200 DMA.

The questions investors need to ask themselves is whether the 2.83% penetration of a double-top neckline is enough to assume that a downward correction would only reach the neckline at the 2,700 level as part of a return-move or whether this increases the potential for a pattern failure, as Chinese stocks head lower and their bear market slips into fully-fledged hibernation.

The index's relevance stems from the fact it projects the forward-looking price of the world’s second largest economy, whose slowdown—associated with the 11-month old trade dispute with the U.S—has already been weighing on global investor sentiment.

Hong Kong’s Hang Seng retreated 0.42% after briefly touching a near-week high. Japan’s Nikkei 225 edged 0.1% higher to a more than a two-month high, after Bank of Japan's Governor Haruhiko Kuroda said the central bank is considering further easing. South Korea’s KOSPI slid 0.24%, extending February’s range.

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