Opening Bell: After Dow Hits Record, Stocks Retreat; Oil Slips
Investing.com | Aug 03, 2017 06:34AM ET
by Pinchas Cohenh3 Global Affairs/h3
Yesterday, Apple (NASDAQ:AAPL) beat earnings and lifted the Dow to 22,000 on a mixed day for stocks. In reaction, this morning Asian equities declined after climbing to their highest level in nearly 10 years. Investors are now focused on tomorrow's nonfarm payrolls release in addition to company earnings. With rumors of rising interest rates, the American labor market data may provide a clue in the short term on its trajectory.
South Korean stocks led the decline in Asia, dropping their most since November, on President Moon Jae-in’s plan to raise taxes for large companies. Equities from Japan to Australia declined, bringing down the MSCI Asia Pacific Index from its highest point since December 2007.
European shares are being weighed down by the drop in crude oil, causing a decline on energy stocks.
The dollar’s weakness is highlighted by its inability to move up from a near-two year low, even after the FOMC signaled they plan to tackle the balance sheet in September. This lack of movement underlines the currency's precarious state.
Though the USD may be pressured by traders' focus on rates after Fedspeakers expressed caution over further increases. Some investors think this weakeness is actually good for US investments: propping up equities via stronger purchasing power for overseas traders; increasing the value of commodities as it lowers currency-base values; attracting currency demand on top of China's already growing requirements; and lowering credit risk for foreign borrowers on a strengthening balance sheet.
On the political front, President Donald Trump is setting up to investigate China over alleged violations of intellectual property. The move is likely to affect trade ties between the world’s two biggest economies and will disrupt the global flow of capital, adding another worry for investors.
For now though, company earnings are on the front burner, as investors wade their way through the shifting waters of the markets in anticipation of tomorrow's NFP.
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The biggest beneficiary of the dollar weakness is the euro, the best-performing of G-10 currencies this year, maintaining most of its gains against the dollar.
The 10-year Treasury yield remained flat, in response to the dollar’s steadiness.
The question of who is leading the global economy took an interesting turn in recent weeks as reflation in the US slowed down, opening the path for Europe to take the lead. However, China may still regain leadership.
h3 Up Ahead/h37:00: UK - Bank of England interest rate decision: Will they, won’t they? Lots of mixed signals coming from rate setters after the 5-3 split to remain unchanged last time around. Governor Mark Carney may signal a more hawkish tone, while keeping rates steady. Markets to watch: FTSE 100, GBP crosses
10:00: US - ISM Non-Manufacturing PMI (July): This ISM number is forecast to remain steady at around 57.4. Market to watch: Dollar crosses
8:30 Friday: US - Payrolls are forecast to have added 180,000 jobs in July.
h3 Market Moves/h3Stocks
- The Dow rose 0.2 percent on Wednesday and broke through 22,000. Tesla (NASDAQ:TSLA) shares were up more than 7 percent in after-hours trading after the company burnt through less cash than expected in the second quarter.
- The KOSPI fell as much as 2.2 percent, its most since Nov. 9—the day after the US election—and was trading 1.7 percent lower, testing its recent rally which propelled the benchmark to a record high last month. Samsung (KS:005930), which has the largest weighting on the index, dropped as much as 3.8 percent. On Wednesday, the South Korean government unveiled plans to raise taxes on big corporations and high-earning individuals as Moon has vowed to tackle inequality.
- Japan’s TOPIX dropped 0.1 percent as of 2:25 p.m. in Tokyo.
- Australia’s S&P/ASX 200 Index lost 0.2 percent as Rio Tinto shares (AX:RIO) pulled the London stock lower.
- Hong Kong’s Hang Seng was down 0.2 percent.
- China's Shanghai Composite fell 0.3 percent.
- S&P 500 Futures lost 0.1 percent. The underlying gauge added 0.1 percent.
Currencies
- The euro fell less than 0.1 percent to $1.1851, after climbing 0.5 percent in the previous session.
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- The Bloomberg Dollar Spot Index added 0.1 percent after slipping 0.1 percent on Wednesday.
Bonds
- The yield on 10-year Treasuries slipped one basis point to 2.26 percent.
- 10-year yields in Australia fell to 2.67 percent.
Commodities
- West Texas Intermediate crude slipped 0.4 percent to $49.40 per barrel. It rose 0.9 percent on Wednesday. Record demand for gasoline helped ease concerns that increasing crude production from America’s shale fields will worsen a global glut.
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