S&P futures are modestly in the green, following gains in European and Asian shares, after the cash index climbed on Monday for the first time in three days as volatility tumbled amid abysmal trading volumes. Meanwhile, European stocks joined an Asian stock rally following three days of losses, pushed higher again by mining shares as Antofagasta rose 5.5%, hitting a 4 year high on strong H1 earnings. Safe havens such as bonds, gold, and the yen declined despite the latest warning from Bridgewater’s Ray Dalio who said yesterday he was “reducing risk”, although not even he could offset the return of the VIX clubbing.
Despite increasingly cautious rhetoric from iconic market investors, traders have again gotten over some of the sensitivity that characterized the past few days following political turmoil in Washington, fresh terrorist attacks in Europe and ongoing tension between the U.S. and North Korea. Nonetheless as discussed yesterday Dalio said he’s “tactically reducing†risk because he’s concerned about growing internal and external conflict “leading to impaired government efficiency†in the U.S., according to a LinkedIn post Monday.
Back to Europe, where the Stoxx Europe 600 Index rebounded from the lowest in more than a week as miners and chemical makers led gains across almost every sector. Even with today’s rally, the Stoxx 50 is nearly 200 points below Wall Street’s year-end consensus target just above 3,600.
The broad index of European stocks was up 0.4 percent on the day. The surge in European stocks pushed up the MSCI world equity index, which is now up 0.1 percent on the day, its second day of gains after sharp falls last week.The performance comes on the back of strong sentiment towards Europe that saw the euro record its biggest one-day gain in a month on Monday. Though the single currency dipped slightly on Tuesday, it is still around the $1.18 mark which analysts believe might prompt policymakers to consider action.
Meanwhile over in Germany, we got another indication that Europe’s strongest economy has topped, after the 3rd ZEW decline in a row (August ZEW economic sentiment at 10.0, Exp. 15.0, Last 17.5) perhaps not surprising considering the poor DAX performance in recent weeks. The DAX pared gains to 0.5%, after earlier rising as much as 0.8%, after the Zew showed investor confidence fell more than expected. As a reminder, the DAX has dropped 1.6% so far this quarter, vs 0.2% dip for Euro Stoxx 50, 0.3% fall for CAC 40, and 5.7% rise for FTSE MIB. Is Germany getting sick again?
In Asia, equity markets were mostly higher although news flow was remarkably light amid a lack of central bank speakers and macroeconomic data. Focus was on last night’s speech by US President Trump in which he highlighted US plans to continue sending troops to Afghanistan to fight the terror threat emanating from the country. Japan’s Topix index fluctuated before ending the local session less than 0.1 percent higher while the Nikkei 225 fell -0.05%, entering the longest losing streak since April 2016, while the ASX 200 was up 0.42% after numerous earnings, including from BHP Billiton. Korea’s Kospi index gained 0.4% while the Shanghai Composite rose 0.1%.Hong Kong’s Hang Seng Index rose 0.9 percent, outperforming other equity markets in Asia, on strong earning results.
In macro, the DXY dollar index retraced yesterday’s entire push lower as EUR, GBP and AUD all continuously grind lower against USD amid little news. Dalian iron ore futures close above 600 yuan/ton for first time since March as rally in metals markets extends further. Italian BTPs sell off aggressively, with some noting summer related carry trades being unwound; UST curve bear flattens with focus on the strength in the USD, Bloomberg notes.
The US dollar rose against most Group-of-10 peers amid profit-taking on short positions and as fresh long exposure was added before the Jackson Hole symposium later this week.The Bloomberg Dollar Spot Index rose by 0.3 percent in early trading, following a drop of 0.6% since Friday. Some investors trimmed their short exposure in the greenback after the gauge hit a three-week low on Monday, according to traders in Europe quoted by Bloomberg, looking to add again should the rebound in place start losing steam. Leveraged accounts were also seen adding fresh long positions as they see upside risks into Federal Reserve Chair Janet Yellen’s speech at Jackson Hole, Wyoming on Friday. Even as the dollar gauge looks to erase Monday’s losses, the medium-term outlook was little changed. The downtrend this year remains firmly in place, with August’s trading pattern resembling more of a consolidation phase than a significant rebound. Bloomberg’s fear and greed indicator suggests bulls are in control this month, yet the U.S. currency trades just 0.4 percent higher.
In China, the offshore yuan closed at the highest since September 16, boosted by a stronger central bank reference rate after the dollar fell overnight. State media cited senior PBOC adviser as saying the Chinese currency’s advance may continue this year.
