Opening Bell: Dollar At 3-Year Low; Bitcoin Struggles; Stocks Stall

Key Events

US stocks completed their third straight up-day yesterday and emerging market shares reached highs not seen in a decade, as so-called synchronized global growth helped boost company profits. Earnings are beating estimates and the US government shutdown has, for the moment, been suspended.

However, all is not rosy on the economic front. The newly imposed tariffs just put in place by US President Donald Trump took a bite out of growth prospects for China, the world’s second largest economy, thereby provoking America’s biggest trading partner and creditor. Will the Chinese dragon take it lying down, or will Beijing return fire?

Global Financial Affairs

The S&P 500 rose 0.22 percent yesterday, to its 12th record within the 15 trading days of the new year. It also presented the 7th rising gap of the year, though it was filled. Only 4 of this year's 7 gaps remained unfilled. The SPX is currently up 6.21 percent for the year.

The Dow fell less than 6 points, forming a doji, a distinct trend-change signal, especially during rallies. Of the four major US indices—the S&P 500, the Dow, the NASDAQ Composite and the Russell 2000—it was the only one that declined; thus, of course, no new record was hit. The index is 6.07 percent higher since the start of 2018.

The NASDAQ Composite gained 0.72 percent, hitting its 12th record. Like the S&P, it provided its 7th up-gap of the year. Unlike the SPX however, this gap remained unfilled. Still, similar to the S&P 500, it was this index's 4th unfilled rising gap since the start of the year. The tech heavy index rose 8.11 percent this year.

The NASDAQ 100 rose for a fifth straight day, propelled by surging tech shares. It opened higher yesterday, gapping up 0.31 percent, its biggest move since December 15, extending gains to 0.83 percent. This marks its 13th record for the year. The index is up 8.88 percent for the year, outperforming the major indices.

The Russell 2000 gained 0.34 percent, clocking its 10th record of the year. Among the three indices which gained during yesterday's US session, it was the only one that did not produce a gap. As well, it's only produced 2 up-gaps since the start of the year, both of which were filled. The small-cap index rose 4.92 percent year-to-date, underperforming the other indexes.

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Sector analysis paints a more nuanced and mixed picture:

• 6 green, 4 red
• 5 of the sectors in the green were growth sectors, led by Real Estate, + 1.54 percent
• The 4 reds were split evenly between growth (Energy -0.15%, Materials -0.02%) and defensive sectors (Consumer Staples -0.33 percent, Healthcare -0.48%)

Japan's TOPIX weighed on Asia's MSCI Asia Pacific Index this morning, while emerging market equities dropped for the first time in nine days, after hitting their highest level in a decade. The record winning streak for Chinese stocks in Hong Kong continued.

In Europe, the Stoxx Europe 600 Index fell, ending a four-day advance.

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The dollar fell for a third day against almost all of its major FX peers. It's now at the lowest point for the global reserve currency in 3 years, since December 22, 2014.

According to Daniel Morris, a senior investment strategist with BNP Paribas Asset Management, as quoted on Bloomberg TV, fundamentally the dollar is expected to resume its fall against most of its peers. The US economy’s account deficit needs to be closed and “one way to do that is for the dollar to depreciate.”

Trump’s protectionist tariff move highlights the widening US trade deficit. As we forecast on Monday, here, the greenback has provided a decisive downside breakout. Traders are so bearish on the currency they were selling it off, even as the yield on 10-year Treasuries edged higher.

Dollar weakness drove gold to retest its September 8, $1,357.58 high.

At the same time, on the heels of the greenback’s weakness and despite dovish talk from Japan’s central bank earlier this week, the yen pushed past 110 per dollar for the first time since September.

Though US yields are rising, and are positively correlated to the USDJPY pair—both as safe havens and reflecting the outlook on US economic growth—the dollar-yen pair has decoupled.

For a third straight day, Bitcoin is struggling to stay above the $10,000 key level, after Monday’s lowest close of $10,771 since December first.

The next big focus for currency markets is likely tomorrow’s ECB meeting, with the Davos, Switzerland-based World Economic Forum in the background, the place where the world’s business and political movers-and-shakers meet for an annual, much watched, conference.

Oil's rally paused during the New York session, near the highest point for the commodity since December 2014 amid signs of a possible increase in U.S. crude stockpiles, after the commodity received a boost due to dollar weakness. Though it consolidated yesterday, we see the price heading yet higher.

Up Ahead

• Earnings season is in full swing: General Electric (NYSE:GE), Ford (NYSE:F), Intel (NASDAQ:INTC) and Starbucks (NASDAQ:SBUX) all report during the remainder of this week.
• Barring any last minute changes in Washington, President Trump will join world leaders and senior executives in Davos for the annual World Economic Forum; he's scheduled to speak on Friday.
• The European Central Bank announces its rate decision on Thursday

Market Moves

Stocks

• The Stoxx Europe 600 Index declined 0.1 percent as of 8:24 London time (3:34 EST), the first retreat in a week and the largest drop in more than a week.
• The MSCI All-Country World Index gained less than 0.05 percent to the highest on record.
• The U.K.’s FTSE 100 decreased 0.3 percent.
• Germany’s DAX fell less than 0.05 percent, the first retreat in a week.
• The MSCI Emerging Market Index decreased 0.1 percent, the first retreat in almost two weeks and the largest dip in two weeks.
• S&P 500 Futures increased 0.1 percent to the highest on record.

Currencies

• The Dollar Index declined 0.49 percent to the lowest in more than three years on the largest drop in almost two weeks.
• The euro gained 0.2 percent to $1.2319, the strongest in more than three years.
• The British pound advanced 0.3 percent to $1.4044, the strongest in 19 months.
• The Japanese yen increased 0.4 percent to 109.86 per dollar, the strongest in more than 19 weeks.

Bonds

• The yield on 10-year Treasuries advanced one basis point to 2.63 percent.
• Germany’s 10-year yield gained one basis point to 0.57 percent.
• Britain’s 10-year yield climbed one basis point to 1.366 percent, the highest in almost three months.

Commodities

• Gold advanced 0.3 percent to $1,345.74 an ounce, the highest in almost 20 weeks.
• West Texas Intermediate crude declined 0.1 percent to $64.40 a barrel.

Written By: Investing.com