US Opening Bell: Risk-Off Sentiment Returns To Markets; Gold Comes Back

October 15, 2018

London (Oct 15)  The global stock rebound seen in Friday's US session fizzled this morning as trade war fears returned to the spotlight. European shares, which first attempted to climb, have now followed the global opening lower.

US futures are set to deepen losses after their most significant weekly drop since March, with S&P 500 futures down almost half-percent at time of writing and NASDAQ futures posting losses of almost one percentage point.

The STOXX 600 Index is down about 0.2 percent, for a third straight day of losses totalling 3.75 percent and 6.5 percent for six sessions out of seven. The pan-European benchmark hit the lowest level since December 2016, weighed down by industrial goods makers and travel companies.

The FTSE outperformed its European counterparts and remained stable on Monday. The London index was up 0.05 percent mid-session, boosted by a weaker pound and higher oil prices as shares in international firms and oil majors helped keep the FTSE in the green.

Earlier, during the Asian session, a stronger yen weighed on the Nikkei 225, which closed 1.87 percent in the red, and was the region’s underperformer. The USD/JPY pair has been consolidating for the third session, above the 50 DMA, near the bottom of a rising channel since late May. The negative correlation between shares of companies reliant on exports and the value of the Japanese currency which determines their competitiveness in the global market is visible on the chart above. Should the yen resume within its falling channel, the Nikkei may resume within its rising channel.

China’s Shanghai Composite was the second-worst regional performer, shedding 1.49 percent of value, followed by Hong Kong's Hang Seng, which slid 1.38 percent lower and hit the lowest level since November 2014.

Global Financial Affairs

On Friday, US equities posted their best performance in six months as traders bought into a dip, taking advantage of the deepest technology shares selloff since March. While early gains were quickly reversed, a second rally successfully pushed prices higher after JPMorgan said that 70 percent of the computer-driven trading strategies that had prompted the selling were played out.

The decline was the result of traders unwinding options positions related to changes in volatility levels, as investors recalibrated their portfolios. The higher close, in the session's final hour, was accompanied by a 30-percent surge in volume.

The fundamental and geopolitical backdrop for Friday’s late session rally were:

1.Better-than-expected Chinese trade data easing concerns about global growth

2.A planned meeting between the US and China, signaling relaxing tensions between the world's two largest economies

3.Reassurance from the US Treasury Department that China is in fact not manipulating its currency, and

4.Solid bank earnings from JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC), which buoyed investor sentiment over the uptrend in corporate profits

Despite Friday's bullish performance, which saw tech stocks lead the climb and push the NASDAQ Composite 2.29 percent higher, the tech-heavy index, the S&P 500 and the Dow Jones Industrial Average all suffered their worst weekly losses since March. The market is debating whether this is a correction within an ongoing bull market, a buying dip, or the first stage of a broader selloff, potentially leading into a bear market. Earnings results may move the needle on the debate, from a fundamentals point of view.

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