Opening Bell: Oil Bounces After Sharp Selloff; USD Weighs On EM FX

Global stocks showed signs of a rebound on Thursday, following reports that US and Chinese officials may resume high-level talks on trade issues. Investors have begun rotating out of safety trades including the dollar, which gave back just a small amount of yesterday's outsized gains. Treasury yields trimmed most of yesterday's drop as investors moved to riskier assets.

European shares, along with futures for the S&P 500, Dow and NASDAQ 100, are all flashing green, reversing Wednesday's sharp global selloff which saw WTI crude sliding the most in two years and US energy and material producer shares tumbling at least 2 percent—pushing the S&P 500 into its heaviest decline in two weeks.

Where are equities headed next? While pundits warn there are no winners in a trade war, US shares stand out as the outperformers. While Asian benchmarks (except for Australia's S&P/ASX 200) are in a downtrend and European indices are drifting, US majors remain in a clear uptrend.

We believe this will almost certainly create a virtuous cycle for US assets, prompting international investors to shed foreign holdings, sending them yet further down, even as these same investors ramp up their US exposures—driving up returns on US markets.

The STOXX 600 opened 0.25 percent higher—posting a more modest gain than Asian counterparts—but was pressured lower in early trade. Media companies and car manufacturers outperformed, helping the pan-European index move higher—to about 0.4 up at the time of writing. Technically, yesterday’s plunge extended the medium-term downtrend within a falling channel since the May peak, while potentially developing a massive H&S top since mid-May 2017.

Earlier this morning, during the Asian session, Chinese shares made up for Wednesday’s underperformance. The Shanghai Composite jumped 2.2 percent, wiping out yesterday's deep losses, adding another 0.35 percent in gains, setting up the mainland index for its highest close since June 29. Technically, today's vigorous rebound extended a turn-around from the July 6 low, triggering the most reliable buy signals of the MACD and RSI in five months, after these indicators reached their lowest levels since February, at the end of the global January selloff.

Hong Kong’s Hang Seng didn’t perform as strongly as its mainland counterpart. It settled 0.60 percent into positive territory after fluctuating between a 0.3 percent loss and a 1.17 percent gain.

South Korea’s KOSPI swung even more widely, between a 0.8 percent gain and a 0.1 percent loss, only to finish very near today's opening price, 0.2 percent above yesterday’s close.

Japan’s TOPIX advanced 0.48 percent, losing steam from the initial 0.8 percent rally.

Australia's S&P/ASX 200 climbed 0.85 percent this morning, erasing yesterday's losses and sealing an additional 0.15 percent advance. Technically, as we've been saying for a week, the Aussie benchmark has completed a bullish pennant pattern. Price moves on Friday generated the upside breakout, then extended gains on Monday. Tuesday and Wednesday trading completed a return-move, with prices penetrating the pennant slightly but closing above it. Today, prices bounced off the support of the pattern.