Opening Bell: Investors Rotate Into Long U.S. Bonds, Yen, Raising Red Flag


  • Markets cautious ahead of Fed hike and trade escalation
  • Investors rotate into longer-dated Treasurys at a crucial technical point
  • Yen strengthens: a warning to investors?

  • China shares jump on expanded global access via MSCI and FTSE

  • Japan’s Nikkei 225 set for 27-year high

Key Events

Futures on the , and were hovering in positive territory this morning, while European shares seesawed after ongoing trade tensions spurred a selloff in the automotive sector.

STOXX 600 Daily Chart

The pan-European opened 0.12 percent higher but then fell 0.07 percent as of the time of writing, dragged lower by car manufacturers. Technically, the higher open hit a brick wall of sales orders above the 200 DMA, pushing prices down to the 50 DMA, where traders supported the price.

The price is meandering within a cluster of major moving averages (MAs)—which have met with the downtrend line since July 31—for the fourth consecutive day. Converging supply and demand pressures create this vortex of technical milestones. A move above 385.00 would suggest that the bulls took control, while a close below 382 would confirm the downtrend.

Earlier, during the Asian session, Chinese stocks outperformed, after global index provider MSCI announced it is considering quadrupling the weighing of large caps from the Asian country in its global benchmark. Meanwhile, the FTSE Russell is already expected to include Chinese shares in its benchmark this week. This gave traders some respite from worries over the country’s trade dispute with the US, allowing them to focus on the prospect that the broadened global access to Chinese equities stands to elevate foreign demand, which in turn is poised to prop up prices.

The climbed 0.92 percent to the highest level since August 1, potentially bottoming out, after closing for a third day above the 50 DMA. The 50 high-profile firms listed on the posted even healthier gains, jumping 1.33 percent, to cross over the 100 DMA. Hong Kong’s also enjoyed a 1.15 percent boost.

Nikkei 225 Monthly Chart

Nikkei 225 Monthly Chart

The upbeat sentiment spread to other regional markets, with Japan’s erasing virtually all the day’s losses to end just 0.04 percent below its highest point in almost eight months. The ticked up 0.36 percent to its highest close since January 23, less than 0.5 percent from the highest level since November 1991.

Global Financial Affairs

US benchmarks were mixed yesterday, as a 2.08 percent jump in Amazon (NASDAQ:) shares pulled the higher, while the prospect of increased interest rates pushed utilities stocks lower. Conversely, the ongoing US-China trade spat weighed on industrial shares, while drillers rallied with .

The dropped 0.13 to a combined three-day retreat of 0.52 percent, which follows last Thursday’s record close. were by far the biggest losers, as the highly anticipated Fed made bond proxies less enticing.

The underperformed the other major US averages, slipping 0.26 percent lower—or 0.94 percent lower for the week. Comments by US President Donald Trump that the country’s trade deficit with China “is just not acceptable” heightened fears of further escalation of diplomatic tensions, which is seen as a key headwind for multinational businesses.

The inched 0.18 percent higher, for a two-day climb of 0.26 percent.

Jeffries’ analyst Brent Thill wrote in a note that Amazon stock could hit $3,000 in two years, propelling the e-retail giant to a near $1.5 trillion market capitalization.

UST 10-Year Daily Chart

Meanwhile, yields on Treasurys are falling, as investors rotate into longer-dated bonds, with further inflows expected this month as investors seek protection from the numerous risks currently weighing on growth assets, including the US-China trade war and rising interest rates.

Technically, falling yields follow yesterday’s bearish shooting star, which found resistance from mid-May’s peak of 3.128. Should this trend gather steam, it could potentially complete a massive double top reversal.

USD/JPY Daily Chart

USD/JPY Daily Chart

Interestingly enough, a similar pattern is developing in the dollar versus the , with the the former returning to its typical risk status and the latter to its safe-haven status. Note that the is flat today, as other currencies and drivers are pressuring it.

WTI Daily Chart

WTI Daily Chart

Oil rebounded from an early slump, as the interventionist rhetoric voiced by Trump at a U.N. summit yesterday poured cold water on forecasts for $100 a barrel. Technically, yesterday’s bearish shooting star confirmed the May resistance, increasing the potential for a massive H&S top, whose neckline is at $65.

Should there be a breaking point to investor confidence, prompted by world leaders’ calculated negotiation tactics, it my be the catalyst for a breakdown in oil as well as equities and the USD.

Up Ahead

  • The FOMC monetary policy decision, due today, will be followed by a with Chairman Jerome Powell.

  • Bank of Canada Governor Stephen Poloz speaks on Thursday.

  • On Thursday, US , and are due.

  • Canadian for July is released on Friday.

  • The Canadian for August is released on Friday.

  • The Canadian for August is released on Friday.

Market Moves

All prices correct at time of writing

Stocks

  • Canada’s closed down 0.3 percent Tuesday.

  • Futures on the S&P 500 gained 0.2 percent.

  • The STOXX 600 was little changed.

  • The UK’s slid 0.2 percent.

  • Germany’s fell 0.1 percent.

  • The climbed 0.2 percent.

  • The rose 0.3 percent.

Currencies

  • The Canadian was down 0.06 percent against the U.S. greenback early Wednesday, trading at 0.7716.

  • The Dollar Index fell 0.06 percent for a third day, to a combined loss of 0.1 percent.

  • The was unchanged at $1.1767.

  • The slipped 0.1 percent lower to $1.3177.

  • The Japanese yen climbed 0.1 percent to 112.83 per dollar, the first advance in a week and the biggest advance in more than a week.

Bonds

  • Canada’s was down early Wednesday at 2.446, a 0.57-percent decrease.

  • The yield on 10-year Treasuries fell one basis point to 3.09 percent, the largest drop in two weeks.

  • Germany’s yield dropped one basis point to 0.54 percent.

  • Britain’s yield lost one basis point to 1.62 percent.

  • The spread of Italy’s bonds over Germany’s gave up five basis points to 2.36 percentage points, the smallest premium in more than a week.

Commodities

  • West Texas Intermediate crude edged less than 0.05 percent higher to $72.30 a barrel, the highest level in almost four years.

  • eased 0.1 percent to $1,200.02 an ounce.



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