Opening Bell: Global Stocks Drop As Rate Cut Hopes Falter; Turkish Lira Slips

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STOXX 600 Daily Chart


  • U.S. futures drop, Asian shares tumble on reduced outlook for interest rates cut
  • Deutsche Bank’s rally U-turn pressures STOXX 600
  • Euro shows signs of downward reversal
  • Erdogan’s shock central bank decision threatens to end Turkish lira’s fortunes

Key Events

Futures on the , and slid this morning but mostly managed to avert the steeper declines seen across Asia after strong form the U.S. of a on Friday.

The fluctuated around neutral levels, with Deutsche Bank (DE:) stock reversing a 2.7% surge that had been prompted by the announcement, from the German investment bank, of , including a 25% staff cut.

STOXX 600 Daily Chart

Technically, the price of the pan-European index is at a precarious level, evidenced by Friday’s completion of an Evening Star, which confirmed the April highs. If prices fall below the 365.00 level—below the 200 DMA, underlining the importance of those prices as a supply-demand pressure-point—they would have completed a double top. A drop below the RSI uptrend line may lead to the same outcome.

EUR/USD Daily Chart

The looked relatively steady, ticking mildly higher after German just missed expectations. From a technical perspective, the single currency slipped below the short-term uptrend line on Friday, after dropping below the 200, 100 and 50 DMA since the beginning if the month. Also, the RSI completed a double top.

In the earlier Asian session, regional shares tumbled across the board as traders raced to take advantage of a sudden imbalance between overpriced stocks and reduced bets for interest rate cuts.

Investors also dialed down their risk positions after Morgan Stanley trimmed exposure to global stocks, unconvinced that monetary easing would make up for weakening economic activity.

Despite the immediate benefit of easing trade relations with the U.S., for Chinese equities, the (-2.58%) underperformed, almost hitting a three-week low, with the RSI completing a double top. South Korea’s (-2.2%) ranked as the day’s second worst performer, even as the weakened by almost 1% as the dollar strengthened on investors’ rate outlook shift.

Technology stocks in particular underperformed on the fallout of Japan’s export controls on South Korean semiconductor materials, vital for tech companies. Technically, the drop confirmed a January-May double-top, after the 200 DMA forced prices down. The RSI provided a negative divergence, establishing a descending series of peak and troughs, before the price does.

USD/TRY Daily Chart

In other news, the ‘s two-month rally was dealt a heavy blow after President Recep Tayyip Erdogan unexpectedly fired of the country’s central bank governor on Saturday, reawakening investor worries around a lack of independence in the Middle Eastern country. Despite initially sinking near 3% in the Asian session, the USD/TRY later found support by the 200 DMA, from where it leaped above the 100 DMA, where it is now finding further support. The 50 DMA is “guarding” the downtrend line since May. The RSI is creeping back up from an oversold condition to potentially complete a double bottom, suggesting the lira’s rally will reverse.

In commodities markets, fluctuated, caught in between a myriad of catalysts, including Iran’s threat to breach levels of uranium enrichment established by the 2015 nuclear accord unless the U.S. drops economic sanctions. A meaty Fed speakers line up this week.

Overall, investors will be tuning into the upcoming batch of Fed speeches—first and foremost by Fed Chairman Jerome Powell, who on the state of the U.S. economy on Wednesday and Thursday—and into the from June’s monetary policy meeting hoping to gain more insight into the twists and turns of the Fed’s interest rates path since January. Friday’s data threw them off course, sparking fears of a U-turn on the central bank’s recent policy dovishness. Once again, good economic data disappoints—counterintuitively—equity investors, who have grown dependant on policy easing.

Up Ahead

  • Federal Reserve Chairman Jerome Powell testifies before Congress on monetary policy and the state of the U.S. economy on Wednesday and Thursday.
  • Fed minutes are due on Wednesday, on Thursday.
  • The , a key measure of U.S. inflation coming out on Thursday, is expected to have increased 0.2% in June from the prior month, while the broader is forecast to remain unchanged.
  • U.S. are due on Friday.

Market Moves

Stocks

  • The U.K.’s gained 0.1%.
  • The fell 1.2% to the lowest in more than a week.

Currencies

  • The fell 0.05%.
  • The euro slid less than 0.05% to $1.1224, the weakest in almost three weeks.
  • The declined 0.1% to $1.2513, the weakest in seven months.
  • The advanced 0.1% to 108.36 per dollar.

Bonds

  • The yield on Treasurys dropped one basis point to 2.02%.
  • Germany’s yield slid two basis points to -0.38%.
  • Britain’s yield declined three basis points to 0.707%.

Commodities

  • increased 0.5% to $1,406.58 an ounce.
  • West Texas Intermediate crude climbed 0.3% to $57.71 a barrel, the highest in a week.





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