U.S. Opening Bell: Global Stocks, Futures Slump, Dollar Jumps On Fed Surprise

Key Financials/h2

On Thursday, European shares retreated from yesterday's record close, following Wednesday's Wall Street selloff, when the the Federal Reserve caught investors by surprise and moved its timeline for hiking interest rates. Futures on the Dow, S&P, NASDAQ and Russell 2000 also sold off ahead of the US open.

Bitcoin advanced despite the jump in the dollar.

Global Financial Affairs/h2

The weakness in US contracts demonstrates that even though US stocks ended yesterday off their lows, after Federal Reserve Chair Jerome Powell downplayed an immediate rate hike, traders still consider risk to be to the downside.

The STOXX 600 Index dipped 0.3%, ending a nine-day winning streak, its longest in over two years.

The pan-European index pared a near -0.5% drop to just a 0.25% decline, having found support by an uptrend line since the May 13 trough. The benchmark is also being pressured by the resistance of the June 14 shooting star, signaling a potential correction as European stocks near the top of a rising channel, while the RSI turns around from an overbought condition.

The decline of the European benchmark is ironic considering that the European Central Bank last week was dovish, saying it is too early to discuss tapering even as inflation rises on the continent. The fact that traders are nevertheless lightening their exposure to risk assets after the Fed’s hawkish surprise demonstrates the dominance of the US central bank.

Stocks in Asia took their cue from yesterday's US session. The MSCI gauge of Asian shares was on track for its biggest slide in a month. Japan’s Nikkei 225 underperformed the region and fell 0.9%, driven by declines in Paper & Pulp, Railway & Bus and Real Estate.

The Japanese index is being pressured by technicals. The benchmark has been sliding from the top of its falling channel since its Feb. 16 peak, the highest since 1990.

China’s Shanghai Composite, on the other hand, rose 0.2%, outperforming the region’s major benchmark. As we often noted, the world’s second largest economy often operates in its own space and time. The previous selloff occurred while other Pacific-Asian stocks rose.

Today’s contrarian advance followed muted manufacturing activity. The poor performance was considered good news by traders relying on government support as it alleviated fears of policy tightening.

Additionally, shares in technology firms jumped on a report that China will push for chip independence amid a tech race with the US reminiscent of the space race against the Soviet Union during the Cold War.

The outlook for US rate hikes a year ahead of schedule pushed yields on the 10-year Treasury note higher, the biggest jump since early March.

Nevertheless, rates are moving within a declining channel.

The dollar extended yesterday’s 1% jump, its biggest since March 2020, taking the global reserve currency to a more than a two-month high.

The greenback’s price action completed a small rounding bottom, putting it back on track to resume the upside breakout of a falling wedge since the 2020 peak, interrupted by a smaller rising wedge.

Gold fell out of favor as investors priced in a faster rate hike.

The yellow metal found support by the top of its previous falling channel from its 2020 record peak. A fall below the 100 DMA may signal a continued decline along with the channel, while a rebound would increase the odds of higher highs.

Bitcoin is outperforming in its role as “digital gold.” Cryptocurrency aficionados were disappointed when the World Bank rejected El Salvador’s request to help with Bitcoin implementation due to environmental and transparency concerns.

So, why is BTC rising now? The typical Bitcoin believer is a young, anti-establishment investor. Some have been very vocal in their lack of trust in the Fed.

In fact, the central appeal of cryptocurrency is the lack of government meddling. Perhaps, these critics believe that the Fed's admission, finally, that inflation is becoming a concern means that the problem of accelerating prices is more serious that the Fed is letting on.

Bitcoin is rebounding from yesterday’s selloff, perhaps finding support above a small H&S bottom.

Crude oil declined as the strengthening dollar reduced the appeal of commodities priced in that currency.

Dip buyers pared the decline, as they struggle to stop a potential evening star, which could signal a return-move toward the bullish triangle, as the RSI round down from overbought conditions.

Up Ahead/h2

• US Treasury Secretary Janet Yellen testifies before a House panel today on the federal budget.
• Switzerland and Norway announce interest rate decisions on Thursday.
• On Friday, the Bank of Japan announces its monetary policy decision.

Market Moves/h2

Stocks/h3

• The FTSE 100 declined 0.6%
• The STOXX 600 fell 0.2%
• Futures on the S&P 500 fell 0.4%
• Futures on the NASDAQ 100 fell 0.5%
• Futures on the Dow Jones Industrial Average fell 0.3%
• The MSCI Asia Pacific Index fell 0.8%
• The MSCI Emerging Markets Index fell 0.6%

Currencies/h3

• The Dollar Index rose 0.3%
• The British pound fell 0.1% to $1.3968
• The euro fell 0.4% to $1.1947
• The Japanese yen was little changed at 110.66 per dollar
• The offshore yuan was little changed at 6.4371 per dollar

Bonds/h2

• The yield on 10-year Treasuries declined two basis points to 1.56%
• Britain’s 10-year yield advanced six basis points to 0.80%
• Germany’s 10-year yield advanced seven basis points to -0.18%

Commodities

• Brent crude fell 0.8% to $73.81 a barrel
• Spot gold fell 0.2% to $1,807.37 an ounce