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

 | Jul 12, 2018 11:30

  • Oil rebounds from its sharpest selloff in a year

  • Global equity recovery looses some steam in Europe after strong Asian rally

  • EM currencies remain under pressure from dollar strength and trade war risk

  • h2 Key Events/h2

    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.

    The FTSE was up 0.8 percent mid-session, with shares in bookmakers booming following England's exit from the World Cup in Russia. Some analysts predicted bookmakers would have to pay out as much as £100 million if England were to beat France in the final on Sunday.

    Paddy Power Betfair and GVC increased 3 percent and 1.7 percent respectively. William Hill (LON:WMH) increased by 1.4 percent.

    Shares in fashion online retailer ASOS (LON:ASOS) fell more than 11 percent on Thursday after it announced it had missed sales forecasts and that its full year growth would be around the lower end of its forecast.

    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.