Opening Bell: Futures Waver On U.S.-China Trade Flare-Up; Dollar Slumps

US futures for the Dow Jones, S&P 500, NASDAQ and Russell 2000 gave up advances on Monday, while European stocks struggled to hold on to gains as tensions between the US and China once again flared. Ironically, though civil unrest in the US and concerns over a second wave of the coronavirus outbreak have barely affected traders, a Bloomberg report this morning claiming "Chinese officials told agriculture companies to pause imports of some American farm goods," is pressuring US contracts.

Yields rose and the dollar extended a decline.

Though tensions between the US and China have been simmering recently, due to new national security legislation imposed by Beijing on the autonomous city of Hong Kong, one of the results of this morning's report, if confirmed, would include a halt by China to all US soybean imports.

Contracts on the S&P 500 flipped lower on the news, and look to upend what would have been a seventh day straight rally of the benchmark index, nearing its highest level since March 6.

The STOXX 600 opened higher, boosted by travel and mining shares, initially wiping out Friday’s decline, and nearing the highest since Mar 6. However, a pullback by the Pan-European index gave up half those gains.

Earlier, before the Bloomberg news broke, bulls were more consistent and forceful in Asia, with Hong Kong’s Hang Seng surging, (+3.4%), on the momentary geopolitical stability, as President Donald Trump left room in his rhetoric for calm in his relationship with China. Japan's Nikkei 225 underperformed, (+0.8%).

On Wall Street Friday, US stocks finished the week higher. They have been rising over multiple gauges as investors have disregarded the worst economic data in 70 years, choosing to believe instead that reopening economies will foster a V-shaped recovery amid repeated warnings by the IMF and the Fed to the contrary.

Yields, including for the US 10-year Treasury note, were well off their highs.

The benchmark sovereign bond found resistance by the 50 DMA, which flipped from its support since crossing over it on May 18. When equities trim gains and US contracts drop, investors generally shift their money into Treasurys. Yields have been developing a symmetrical triangle since the April 17 high.

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The US dollar slipped for a third day.

The global reserve currency broke to the bottom of a symmetrical triangle, supported by the 100 and 200 DMS. Friday’s hammer is providing support for today’s selloff, increasing the chance of a return-move. Past that, we’d expect another leg down.

Gold opened higher after penetrating the top of a possible falling flag, potentially the third consecutive bullish pattern since February.

The price of the precious metal would likely trade along a larger symmetrical triangle, which would jibe with a pull-back to the flag before attempting another upside breakout. Should this occur, it would be the fourth straight bullish pattern, building in considerable interest for an upside move.

Oil fluctuated.

Crude's price wobbled but stayed above $35, remaining on top of the congestion from which it broke free on Friday. However, the price is suppressed by the resistance of the March 9 falling gap.

h2 Up Ahead/h2

• Australia’s central bank is expected to keep its main policy programs unchanged on Tuesday. Similarly for the Bank of Canada, which could increase stimulus but is forecast to stand pat on rates on Wednesday to allow more time to evaluate the progress of policy action.
• On Thursday, the ECB is expected to top up its rescue program but keep rates steady. The move will inject an additional 500 billion euros of asset purchases. Anything less than an expansion would be a big shock, Bloomberg Economics said.
• The U.S. nonfarm payrolls report on Friday will probably also show that American unemployment soared to 19.6% in May, the highest since the 1930s.

h2 Market Moves/h2 h3 Stocks/h3

• The Stoxx Europe 600 Index rose 0.9% as of 8:18.
• Futures on the S&P 500 Index gained 0.3%.
• Hong Kong’s Hang Seng Index gained 3.4%.
• The MSCI Asia Pacific Index climbed 1.7%.

h3 Currencies/h3

• The Dollar Index dipped 0.4%.
• The euro rose 0.3% to $1.1134.
• The British pound increased 0.5% to $1.2404.
• The Japanese yen strengthened 0.2% to 107.61 per dollar.
• The Australian dollar jumped 1.2% to $0.675.

h3 Bonds/h3

• The yield on 10-year Treasuries gained one basis point to 0.67%.
• Germany’s 10-year yield climbed three basis points to -0.42%.
• Britain’s 10-year yield rose two basis points to 0.205%.

h3 Commodities/h3

• West Texas Intermediate crude declined 0.1% to $35.44 a barrel.
• Gold strengthened 0.6% to $1,740.16 an ounce.
• Iron ore rose 0.2% to $97.37 per metric ton.