Opening Bell: Reopening EU, Asian Data Boosts U.S. Futures; Cyclicals Lead

Key Events/h2

Market sentiment has shifted back into positive territory. Traders once again think that there will be a strong economic recovery as countries emerge from coronavirus lockdowns and are no longer concerned about increasing inflation. Global equities have risen for a fourth straight month as ample liquidity supports risk taking. In pre-US trading on Tuesday, Dow, S&P, NASDAQ and Russell 2000 futures were all in the green.

The dollar declined, boosting commodities.

Global Financial Affairs/h2

The often daily-whipsaw between inflation fears and recovery optimism has given us whiplash. Today’s market optimism is particularly interesting, given that commodities—the culprits of inflation fears—are rising, but that seems to be unable to sour the mood.

In Europe, the STOXX 600 Index jumped 0.8% right out of the gate to register a new all-time high, led by cyclicals, on news the EU is set to surveys showed manufacturing expanded in Asia last month despite the resurgence of coronavirus.

South Korea’s KOSPI added 0.6% after data revealed the country’s sharpest export expansion in 32 years in May. On the other hand, Japan’s Nikkei lowered 0.2% after data indicated companies reduced investments on plant and equipment for the fourth quarter in a row.

China’s Shanghai Composite grew just 0.25% after the country’s reported that factory activity slowed in May as raw material costs grew at their fastest rate in over a decade.

Yields on the 10-year Treasury note rose above 1.62%, the highest in a week-and-a-half.

However, rates are still within a range. Only a breakout will determine which way stocks are likely to go, provided the positive correlation between stocks and yields continues.

The dollar rebounded from another low.

The dollar is struggling between the implied demand of the massive falling wedge since the 2020 peak and the presumed supply following the smaller but more recent rising wedge. The greenback is tightly congested at the base of the smaller wedge. A new low would likely send the dollar much further lower, probably quickly, while an upward break may catapults the dollar toward its March 2020 high.

Gold gave up the highest level since Jan. 7, as the dollar turned around.

Gold has been struggling to advance but advancing, nonetheless, and is trading in the $1,900 range. It has been trading above its rising channel, but until it breaks its range, we would wait for a pullback to retest the channel top and maybe even the top of the broken falling channel since the 2020 record high.

We are waiting for Bitcoin traders to make up their minds.

After losing over 50% of its value and having achieved its H&S top’s implied target, we posted a bullish call on the cryptocurrency. However, if the digital coin falls below $29,000, we will reverse our position.

Oil rose after OPEC+ forecast a tightening market.

The price completed either a symmetrical or ascending triangle, both bullish in this chart. It is currently testing the intraday high of Mar. 8. As things stand, oil is now at its highest level since October 2018.

Up Ahead/h2

• OPEC+ is meeting to review oil production levels today.
• Philadelphia Fed President Patrick Harker, Chicago Fed President Charles Evans, Atlanta Fed President Raphael Bostic and Dallas Fed President Robert Kaplan are due to speak on Wednesday.
• On Friday the US employment report for May is released.

Market Moves/h2

Stocks/h3

• The Stoxx Europe 600 rose 0.5%
• The MSCI Asia Pacific Index rose 0.4%
• The MSCI Emerging Markets Index rose 0.6%

Currencies/h3

• The Dollar Index fell 0.1%
• The euro was little changed at $1.2234
• The Japanese yen was little changed at 109.51 per dollar
• The offshore yuan was little changed at 6.3758 per dollar
• The British pound rose 0.2% to $1.4240

Bonds/h3

• The yield on 10-year Treasuries advanced three basis points to 1.62%
• Germany’s 10-year yield advanced two basis points to -0.17%
• Britain’s 10-year yield advanced three basis points to 0.82%

h3 Commodities/h3

• Brent crude rose 1.3% to $70 a barrel
• Spot gold rose 0.3% to $1,913 an ounce