Investing.com | Dec 03, 2018 05:30
European shares and futures on the S&P 500, Dow and NASDAQ 100 leaped forward this morning, projecting a sea of green, after the US and China established a trade ceasefire during the G20 meeting in Argentina this weekend. On the heels of last week's dovish Fed, all signs point to a gap up open for US trade.
Investors rotated out of US Treasuries into equities, pushing 10-year yields back above 3%, thereby dragging the dollar lower. WTI prices also jumped, gaining 5 percent on the US-Sino agreement and hopes OPEC+ will curb supply.
The pan-European STOXX 600 gapped up 0.58 percent when it opened and extended the rally to over 2 percent, where it was trading near the top of its session. Should the rally reach past 370, it will have completed a double bottom reversal. Miners and technology shares outperformed, while car manufacturers were boosted by a tweet from US President Donald Trump announcing China would “reduce and remove” tariffs on imported US cars.
Earlier, Asian traders were the first to start bidding stocks up. Japan’s Nikkei jumped 1.5 percent, then pared gains to 1 percent, hitting a resistance at the 22, 575 level, where both the 50 and 100 DMA marked the supply pressure of the November 8-shooting star. Chinese stocks, which were the hardest hit since the opening trade war salvo back in March, benefited the most from this weekend's headlines. The mainland’s Shanghai Composite surged 2.57% and Hong Kong’s Hang Seng followed close behind with a 2.55% leap. Hong Kong’s KOSPI climbed 1.67%, and Australia’s S&P/ASX 200 gained 1.84%.
h2 Global Financial Affairs/h2On Friday, all major US benchmarks advanced, sealing the week with the largest gain of the year. Positive economic data got the ball rolling and hopes of a trade breakthrough further infused markets with optimism.
However, last week's sudden dovish turn by the Fed was the real trigger of the stock surge. While the recent, intermittent trade-driven boosts to equities were based on hopes, and the interim trade deal reached over the weekend should be more meaningfully bullish, our main argument remains that the real driver of equity price movements is the outlook for interest rates .
The S&P 500 enjoyed its biggest weekly gain since 2011, and the Dow Jones Industrial Average posted its best performance since Trump took office in November 2016.
Microsoft (NASDAQ:MSFT) leaped 7.6 percent for the week, overtaking Apple (NASDAQ:AAPL) as the world’s most valuable company by market cap, and given it's listed on the SPX, Dow and NASDAQ, helped boost all those major indices.
The yield on 10-year Treasurys jumped over 1.5%, after investors rotated into government bonds last week, pricing in a slower path to interest rates. Technically, the yield found resistance after completing a return move to a bearish pennant, which followed a double top reversal. This resistance confirms the integrity of the pennant, on a closing basis, suggesting yields will retest the 3% level and the 200 DMA (red) again.
The euro strengthened on reports that the Italian government is open to revising its deficit target lower. The single currency was also helped by a weakening dollar on the back of the Treasury selloff. Technically, it might be forming a small, H&S bottom reversal, with a close above 1.1400.
The pound took a hit on fresh threats of a no-confidence vote against UK Prime Minister Theresa May's government looms nearer, should Parliament reject May's Brexit deal. The specter of a new round of elections raises the stakes even higher as lawmakers begin debating her proposal this week.
China's yuan edged higher alongside other emerging market currencies.
Last week, Fed Chief Jerome Powell’s comments that we are nearing neutral interest rates level—which contrasts with his October statement that rates were a long way from neutral—reduced analysts' outlook for a coming recession. Then, over the weekend, the US-Sino interim trade deal further boosted optimism that the global economy will continue to expand.
With these two key market themes—which threatened to jeopardize the first global synchronized growth in a decade—now looking more promising, much of the fear of slumping demand for energy has receded. On top of that, global efforts to rebalance the oil market further boosted prices. On the sidelines of the G20 summit, Saudi Arabia and Russia did in fact extend their agreement to support prices and Canada’s largest producing province ordered unprecedented oil supply cuts , though prices retreated slightly after Qatar said it was leaving the OPEC club.
Technically, the onus is on oil bulls, as bears pushed moving averages into a bearish formation, with the shorter slips falling below longer ones, demonstrating that declines are steepening. Any rise up to $55 would be considered nothing more than a bounce, as only then would they reach their downtrend line.
h2 Up Ahead/h2Canadian RBC Manufacturing PMI for November is released on Monday.
Canadian Labor Productivity (Q3) is released Tuesday.
Bank of Canada issues an Interest Rate Decision Wednesday.
Stocks
Canada’s S&P/TSX Composite closed up 0.02 percent last Friday.
Currencies
The Canadian loonie was up 0.66 percent against the U.S. greenback early Monday, trading at 0.7579.
Bonds
Canada’s 10-year yield was up early Monday at 2.297, a 1.28-percent increase.
Commodities
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