Opening Bell: USD Rebounds, Global Stocks Soar, U.S. Futures Surge

Global equities resumed yesterday’s upward momentum, fueled by hope that negotiations between the US and China will avert an all-out trade war.

US futures are building on Monday’s rebound, which propelled equity prices across US major indices higher—after their worst equity weekly performance in two years at the close of last week's trading—to their biggest daily surge since August 2015. This followed a tweet by President Donald Trump saying trade talks are in full swing and “all will be happy.”

Both S&P 500 Futures and NASDAQ 100 Futures are upbeat, + 0.6 and + 0.8 percent respectively.

The STOXX Europe 600 advanced the most in almost two months, with every sector firmly in positive territory.

Earlier this morning a roaring, markedly risk-on Asian session kicked off global trade. Japan’s TOPIX jumped 2.75 percent, in its greatest leap since November 2016, while the Nikkei 225 popped even higher, surging 3.15 percent. This enabled the Japanese benchmark to overcome the bottom of the Descending Channel that was completed by Friday’s selloff.

Chinese investors, however, were only moderately optimistic. Their caution only boosted the Shanghai Composite 1.05 percent while Hong Kong’s Hang Seng was more sluggish, up just 0.83 percent, trimming an earlier 1.22 percent gain at the open.

South Korea’s KOSPI advanced even less, by 0.6 percent, down from a 0.7 percent pen. The stock index was probably weighed down by the won's outperformance among major currencies, buoyed by news reports that North Korean leader Kim Jong Un made an unexpected visit to Beijing, in his first foreign visit since ascending to power in 2011.

Australia’s S&P/ASX 200 climbed 0.72 percent. This helped it improve from yesterday's performance, which saw it reverse into an official downtrend upon registering a second trough, lower than its previous, February 9 low.

In a way, investor indecisiveness between risk-on and risk-off trade mirrors wavering diplomatic developments. Trump's recent sabre rattling may have been a strategic move to kick off negotiations on a stronger footing, to then scoot back toward the middle.

It may therefore be prudent to draw a parallel with the rapid shifts in investor behavior seen in late January and early February. At the time, US equities listed on the Dow, the S&P 500, the NASDAQ Composite and the Russell 2000 managed to make a quick turn around after posting their worst two-week performance in two years, as stocks across the board then clinched their best performance in five years.

However, that early February rebound, as blatant as it was, failed to generate a new high. Instead, US stocks ended up re-testing February lows last Friday. Therefore, what may now appear as bargain prices brought about by last week's equity slump, may just as quickly flip to a fire sale.

Compared with the overall market bounce-back, the dollar extended its decline for longer, after a downside breakout of a consolidation that failed to bottom. While It seems to be gaining some ground this morning, the greenback is under pressure from a one-two punch:

1. China’s new yuan-denominated oil futures contract, which is open to foreign investors, challenges the buck as the currency base for commodities. Oil exporters usually re-invest their proceeds from US sales in Treasury bonds. The rise of the petro-yuan could thereby also jeopardize a key source for US deficit spending .

2. Global central banks are planning to convert some of their currency reserves to euro, at the expense of the dollar. According to some analysts, this is a direct consequence of Trump’s trade negotiation strategy with China. However, if that’s true, central banks may revert their exposure if and when trade war jitters come to a close.

Oil is rebounding after yesterday’s loss. Goldman Sachs said that oil companies are set for a major jump in profits: after surviving particularly bad years, these energy companies have learned to live with low operating costs and high oil prices.

The price of crude bottomed last October, breaking out of a two-and-a-half-year consolidation. In the last four months, it broke above the resistance of its supply line, suggesting a steeper incline.

As many expected, Twitter (NYSE:TWTR) joined Google (NASDAQ:GOOGL) and Facebook (NASDAQ:FB) in banning crypto-related ads, which pushed Bitcoin lower for a fourth straight day, to under $8,000. Technically, the digital currency completed a return move to a double top and is poised to resume its downtrend.