US Stocks Surge as Asia Finally Rebounds

The rally that started exactly in line with the kicking in of the US-Chinese tariffs continued in earnest yesterday, with US equities leading the way higher. The dynamics that have dominated global markets in recent weeks and months are still present, with Europe and especially some Asian markets lagging behind the outperforming US benchmarks.

Nasdaq 100 Futures, 4-Hour Chart Analysis

The divergences didn’t prevent the Nasdaq from hitting new all-time highs last month and the tech benchmark, together with the also very strong Russell 2000 is one again on the verge of setting records in the low-volume summer environment. That said, with most of the other markets well shy of their highs, and China barely off last week’s lows, the foundation of the rally is still fairly weak.

Shanghai Composite, 4-Hour Chart Analysis

Today’s economic numbers were mostly negative, with British manufacturing production coming in well below expected, while the German ZEW economic sentiment index missing the consensus estimate by a mile.

As liquidity remains low, fears of an escalation of the trade wars took a back seat, and the economic calendar is relatively empty except Thursday’s US CPI index, choppy intraday action is expected.

Dollar Bounces Back after Correction

DXY (Dollar Index), 4-Hour Chart Analysis

The US Dollar which has been consolidating after its lofty late-spring gains in since early June, bounced higher today after selling off following Friday’s employment numbers. While the reserve currency is still clearly off its highs against most of its peers, against the safe-haven Yen, it’s only a hair of the May high, trading back above the 111 level. The pair is boosted by the risk-on sentiment and Chinese worries, and of course the widening rate differential between the two countries.

USD/TRY, 4-Hour Chart Analysis

Although emerging market currencies are broadly trading off their June panic lows, technically speaking we are just in a correction phase, and the fundamental woes will likely return as sentiment resets. That is confirmed by the way the Turkish Lira reacted to the fact that President Erdogan appointed his son-in-law as finance minister and took the power to appoint the head of the central bank to himself.

The moves were big blows for investors looking for signs of consolidation and after the president’s recent re-election, while reducing the chance of the much-needed reforms that would help the country’s escalating funding problems. The USD/TRY pair jumped higher following the decisions, and although it remains below the panicky levels of May, the overbought consolidation might be ending.

Among commodities, WTI crude oil settled down somewhat after a very volatile period, holding up near its multi-year high near the $74 per barrel level. Gold pulled back towards the $1250 level amid the Dollar rally after hitting $1260 last week, while copper failed to build on the oversold bounce, with the industrial metal following the movement’s of the Chinese market closely.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.