The Friday Market Minute

  • Global stocks steady as China rebounds on investment restriction ease, central bank signals for liquidity support.
  • China stocks, however, are on pace for worst month in 2.5 years as yuan plunges 3.4% against the dollar over the month of June.
  • Euro posts healthy gains against the U.S. dollar after EU leaders reach framework agreement on migrant crisis, easing domestic political pressure on Germany's Angela Merkel.
  • Wall Street futures show firm opening bell gains as bank stocks look set to pace gains after second phase of Federal Reserve stress tests.

Market Snapshot

Global stocks rebounded Friday as a turnaround in China shares, as well as a weakening of the U.S. dollar, eased pressure in Asia even as investors continue to fret about the trade war impact on broader economic growth.

China stocks bounced from multi-year lows Friday, sparked in part by news that the National Development and Reform Commission will ease some restrictions on foreign investment in domestic industries such as aviation, crop development and banking and comments from the People's Bank of China (PBOC) that it intends to maintain "reasonably ample" liquidity in the financial system of the world's second-largest economy.

A deeper concern, however, remains the fate the yuan, which is on pace for its steepest monthly decline against the U.S. dollar in two and a half years. The PBOC set a higher mid-point for the currency earlier Friday, at 6.1666, suggesting it doesn't want a disorderly decline into the summer months, but the fact that investors are dumping it so quickly, amid both trade tensions and souring economic fundamentals, suggests China's ambition of 6.8% GDP growth this year will difficult to achieve. 

Broader sentiment was also supported by a weaker U.S. dollar, which fell 0.58% against a basket of six global currencies to 94.835 as the euro jumped higher in the wake of a framework agreement among European leaders to tackle the region's migrant crisis, a move that relieves some near-term political pressure on German Chancellor Angela Merkel.

A 2.2% gain for the Shanghai Composite, however, and a 2.57% rise in the blue-chip CSI 300 sparked the global rebound and led regional shares higher, with the MSCI Asia ex-Japan index gaining 1.3% heading into the close of the session and Japan's Nikkei 225 gaining 0.15% to end the week at 22,304.55 points.

U.S. equity futures look set to respond, as well, with contracts tied to the Dow Jones Industrial Average  I:DJI pointing to a 183 point gain and those linked to the S&P 500 I:GSPC suggesting a 15.4 point rise for the broader benchmark, with bank stocks likely to pace the day's advance after most of the 35 lenders supervised by the U.S. Federal Reserve passed the second phase of stress tests that will allow them to increase dividends and share buybacks.

European stocks caught the rebound on the final day of both the second quarter and the first half of the year, as well, with the Stoxx Europe 600 rising 1.13% to 381.12 points at the start of trading and markets in Germany (+1.5%) and France (+1.3%) rose firmly higher. Britain's FTSE 100 lead regional gainers with a 0.86% rise as basic resource stocks paced the advance.

Bond markets, however, continue to paint a more cautious picture for investors, with the U.S. Treasury bond curve still holding on to the narrowest gap between 2-year and 10-year yields since 2007.

Benchmark 10-year notes were marked at 2.86% in early London trading, while 2-year notes traded at 2.528%, following a poll by Reuters that suggested most fixed income professionals expect the curve to invert -- that is to say short term yields will rise higher than longer term yields -- within the next one to two years. An inverted yield curve is one of the market's key signals for recession in the world's biggest economy.

Global oil prices, however, don't appear to be reflecting concerns of a slowdown, given that crude has continued to march towards 2014 highs in recent days, owing to a slowdown in output from some OPEC members, sanctions on Iran and supply disruptions from Canada.

Brent crude futures contracts for September delivery, the global benchmark, were little changed from their Thursday close in New York at $77.59 per barrel while WTI contracts for August, which are more tightly-linked to U.S. gas prices, were marked 19 cents lower at $73.28 per barrel.