Opening Bell: Stocks Slip As U.S. Ramps Up China Trade War; Oil Tumbles

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Shanghai Composite Daily Chart


  • Global stocks, U.S. futures slip as Trump resumes trade offensive on China
  • Apple bucks falling stock on reassurance of production capabilities outside China
  • Yields drop as safe-havens climb on risk-off
  • Oil tumbles on dismal outlook of low demand and oversupplied market

Key Events

Futures on the , and tracked global stocks lower as the U.S. turned its trade tariff salvos from Mexico—which boosted the rally compounded by —back to China.

The opened lower, threatening to end a three-day winning streak and seven sessions out of eight of sealing gains.

In the earlier Asian session, Hong Kong’s (-1.94%) underperformed, falling back below the 200 DMA after scaling above it for the first time since Jan. 31, amid mass protests against an extradition bill that would allow people to be sent to mainland China for trial.

Nevertheless, the climbed to the strongest level since December amid signs of tightening funding costs. While the HKD completed a double-top, its technical signals are questionable as the currency is not allowed to trade freely, as it’s controlled by the Hong Kong Monetary Authority. Despite being the third most active currency in Asia—and the eighth most traded currency in the forex marketplace—the HKD is not a major reserve currency.

With renewed threats of U.S. tariffs hanging over the country, China’s (-0.56%) fared as the region’s second worst performer. After jumping 2.5% on Tuesday — on the government’s stated commitment to ramp up stimulus to offset the trade war’s adverse effects on its market—and closing near the top of the session, the index opened lower today and then extended the decline. Technically, it traded according to its descending triangle, after finding a dual resistance by the 100 DMA and the top of the triangle, where supply overcomes demand.

Global Financial Affairs

On Tuesday, U.S. shares closed flat to slightly lower. What traders should pay attention to is bulls’ disappointment measured by how many stocks slipped from their opening prices on the protracted euphoria of averting a trade war with Mexico.

The closed only mildly in the red (-0.03%), but it gave up a 0.7% higher open. The may have only backtracked 0.05%, but that was after giving back a 0.5% higher open. The is the best example of yesterday’s dynamic. While it closed virtually flat, slipping a mere 0.01%, traders watched a 1.00 % higher open slip between their fingers. While the (-0.32%) underperformed, ironically, it may have cost traders the least, opening only 0.1% higher, therefore actually outperforming relative to its opening price.

From a technical perspective, we have received another layer of confirmation of the available supply at these levels after all the main U.S. indices attempted to—but ultimately failed to—break through the resistance of their respective shooting stars.

S&P 500 Daily Chart

S&P 500 Daily Chart

While the S&P 500 didn’t complete an evening star, whose potential , it did complete a bearish engulfing pattern, as it closed below the real body, confirming Monday’s shooting star, which in turn reinforced May’s highs. Having said that, the last two sessions did produce higher highs, erasing May’s peak as part of a descending peak-trough formation, required for a downtrend.

However, prices are still lower than the May 1 peak record, which means that, if prices fall from here, yesterday’s high would be considered a second low from the May peak, according to a more lenient interpretation. A stricter analyst would require two descending peaks and troughs that weren’t part of the uptrend. Therefore, if prices do take out the June 3 low, a purist would only have one lower peak-trough formation and would require another set to call a downtrend.

(-0.86) weighed down on the SPX as trade war rhetoric turned ugly again. U.S. President Donald Trump threatened China President Xi Jinping with “much higher than 25%” tariffs on $300 billion of Chinese goods, to be enacted immediately.

Throughout the trade dispute, since it first roiled global markets last March, China has tried to respond in a balanced way to the U.S. tariff offensives. While the Asian nation has a lot more to lose than the U.S., it’s doubtful it will openly capitulate. On the other hand, Trump must know this. Therefore, after the tough talk, we expect the president to give Chinese negotiators a way out of this impasse while still saving face.

We can expect rhetoric to impact market moves at least until the G-20 summit, scheduled for June 28-29 in Osaka, Japan. Will the two presidents meet and come to any agreement on the occasion?

Apple Daily Chart

Apple Daily Chart

Meanwhile, Apple (NASDAQ:) jumped 1.16% against a declining market, after its main assembler, Foxconn, revealed it would be able to manufacture iPhones for the U.S. outside China.

However, from a technical perspective, the stock may be due for a correction, after forming a high wave candle—showing a lack of direction, bearish after a rally—beneath the resistance of the shooting star formed Monday.

Overall, investors back-pedaled into safe-haven assets, pushing yields on bonds toward the bottom of a rising flag, bullish—upon a downward breakout—following the drop from below 2.45% to scraping the 2.00% level in just under two weeks.

As traders have added bets on , Trump stepped up his criticism of policy on Tuesday, calling borrowing costs “way too high” amid “very low inflation.”

DXY Daily Chart

DXY Daily Chart

The has been squeezed between the 100 and 200 DMA after completing a double-top. A close below the 200 DMA would signal the decline will resume.

On the other side of the Atlantic, traders seem to be happy about a change of leadership—ahead of Thursday’s first ballot to select Theresa May’s successor as prime minister—as the price of the is up 1.3% from the low of May’s end. A close above 1.2750 would complete a small H&S pattern, suggesting a continued rally for the British currency.

WTI Daily Chart

WTI Daily Chart

slid lower for a second day, toward $52 a barrel, as ongoing trade wars and widespread signs of a contracting global economy depressed demand. The EIA cut its forecast for the year by 160,000 barrels per day, to 1.22 million bpd, and scaled back its forecast for 2019 U.S. crude production to 12.32 million bpd—both on declining world oil demand and U.S. production. Some analysts pointed out that towards the U.S. as well as OPEC allies is also keeping the market under pressure. WTI may have completed a pennant, a continuation pattern, suggesting prices will continue to fall below $50.

Up Ahead

  • Monthly figures, a key measure of U.S. inflation, are due on Wednesday.
  • The race to pick a successor to British Prime Minister Theresa May heats up on Thursday, with the first Conservative Party leadership ballot.
  • Also on Thursday, euro-area finance ministers meet in Luxembourg. On the agenda: financial penalties for Italy over its debt load and the euro-area budget.
  • U.S. and data on comes out on Friday
  • China also releases and on Friday.

Market Moves

Stocks

  • Hong Kong’s dropped 1.9%, in the largest tumble in almost five weeks.
  • The slid 0.5%, the biggest drop in almost three weeks.

Currencies

  • The Dollar Index slipped 0.08% for the second day and a total of 0.16%.
  • The gained 0.2%.
  • The Hong Kong dollar climbed 0.2% to 7.8246 per U.S. dollar.
  • The dropped less than 0.05%.

Bonds

  • The yield on 10-year Treasurys declined two basis points to 2.13%.
  • Britain’s yield fell two basis points to 0.838%.
  • Germany’s yield slid one basis point to -0.24%.

Commodities

  • slipped 0.9% to $101.90 per metric ton, the biggest decrease in more than a week.
  • increased 0.6% to $1,335.31 an ounce.
  • West Texas Intermediate crude fell 1.8% to $52.32 a barrel, headed for its biggest drop in a week.





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