Biden said he’s considering revising Trump’s China tariffs
Bitcoin continues to struggle
Futures on the Dow Jones, S&P 500, NASDAQ 100, and Russell 2000 surged and European stocks also advanced ahead of the New York open on Monday. Expectations that US President Joseph Biden may remove some tariffs on Chinese goods put in place by former President Donald Trump boosted trader optimism. However, China reported 99 new COVID-19 infections on Sunday, up from 61 a day earlier, a record number of daily cases for the current outbreak.
The dollar slid as investors moved back into risk assets following comments from the ECB President that hikes in Europe are likely.
Global Financial Affairs
All four US contracts were in the green with the Russell 2000 outperforming. As a point of interest, the Russell 2000 index fell the least amid the recent market selloff.
Earlier today, the US president and Japanese Prime Minister Fumio Kishida held a press conference in Tokyo where Biden responded to a question on China tariffs saying “I am considering it. We did not impose any of those tariffs. They were imposed by the last administration, and they’re under consideration.”
In Europe, the STOXX 600 Index climbed, led by the industrial and financial sectors. However, we predict this rally won’t last.
STOXX 600 Daily
The pan-European gauge is developing a Rising Flag, bearish—upon a downside breakout—following the preceding near-7% drop in just three days. The follow-through of the pattern would test the Mar. 7 low. If the price falls further, it will cement the downtrend, with the third set of declining peaks and troughs, or two second sets discounting the pair that were part of the uptrend.
The UK’s FTSE 100 rose with mining and oil majors boosted by rising global commodity prices. Shares in British multinational home improvement retail giant Kingfisher (LON:KGF) surged after positive earnings. Nevertheless, the stock faces an uphill battle.
The price fell below major supports including the 200 WMA and the lows between August 2020 and February 2021.
Biden’s remarks on tariffs lifted Asian stocks from session lows, though shares in China and Hong Kong either closed flat or in the red. The Hang Seng underperformed, falling 1.2%, as big-name tech companies sold off ahead of earnings pressured by ongoing coronavirus lockdowns.
In Japan, the Nikkei 225 outperformed, rising almost 1%, as the US President announced a new trade deal with 12 Indo-Pacific nations during his visit to Japan.
Will the outlook for a rollback of trade tariffs on China end worries following weak retail sector earnings last week from Walmart (NYSE:WMT) and Target (NYSE:TGT), whose stocks both suffered their worst selloffs since 1987 on disappointing earnings?
The S&P 500 saw its sharpest daily drop in nearly two years on the same day the giant retailers sold off. Last week, the S&P 500 posted its seventh week of declines, the longest losing streak for the broad benchmark in two years. The NASDAQ also posted seven straight weeks of losses, its most extended drop since 2002.
Last week’s earnings miss by Target and Walmart means that investors are concerned ahead of this week’s additional results from sector stalwarts. Retail performance is considered to be a leading indicator of the broader market and the economy.
Treasuries yields on the 10-year note rebounded from Friday’s drop as traders increased risk on the prospect of improving trade relations with China.
10-year Treasuries Daily
The rebound follows two straight weeks of declines, for the first time since November. Yields might be in a Return Move to the neckline of a small H&S top.
The dollar also weakened as investors rotated out of safe havens into risk assets. The greenback fell to its lowest level since Apr. 26.
Dollar Index Hourly
The price found some support at the May 4 lows, though the risk is to the downside in the short term after a Return Move confirmed the resistance of an H&S top.
Another headwind for the dollar is ECB President Christine Lagarde’s comments that negative Eurozone interest rates are likely to end. As a result, the euro jumped to a near-monthly high.
For the first time since mid-April, gold rose for the fourth straight day to a two-and-a-half-week high. Investors should take note that the price rises occurred despite the risk-on mood. This anomaly could be a combination of inflation-hedging ahead of the next Fed meeting, dollar weakness though could have also occurred for technical reasons.
The price extended the bounce off the Rising Channel’s bottom.
Bitcoin was volatile as the digital currency continued to battle against technical resistance. The asset class has been under increasing pressure as confidence in cryptocurrencies is slipping.
BTC tested the top of a pennant, bearish after the initial plunge. The downside breakout is expected to trigger a chain reaction to repeat the last move. If that happens, it will complete a massive double bottom, perhaps signaling the collapse of the concept of a cryptocurrency.
Oil fell, ending a two-day advance, but then recovered.
Crude Oil Daily
WTI price is at the possible neckline of a small H&S bottom, within a larger triangle.
On Tuesday UK PMI figures are published.
US new home sales are released on Tuesday.
ECB President Christine Lagarde is due to speak on Tuesday.
The MSCI Asia Pacific Index rose 1.5%
The MSCI Emerging Markets Index rose 2%
The Japanese yen fell 0.3% to 127.43 per dollar
The offshore yuan fell 0.5% to 6.6583 per dollar
The British pound rose 0.7% to $1.2579
Germany’s 10-year yield rose to 0.977%
Britain’s 10-year yield increased to 1.92%
Brent crude rose 1% to $111.18 a barrel
Spot gold rose 0.8% to $1,862.54 an ounce