The Thursday Market Minute

  • Global stocks gain with benchmarks edging higher but casting a keen eye across oil and government bond markets as the trade war headline cycle goes quite.
  • Global crude prices extend gains, taking WTI past $71 a barrel and Brent closer to $80, following Wednesday fall in domestic inventories and ahead of Sunday's OPEC meeting in Algeria
  • U.S. bond yields hold gains, with 10-year notes trading at 3.06% overnight, as hot U.S. economy keeps hawkish Fed view in focus.
  • Oil prices should support early gains for the Dow, with futures pointing to a 150-point opening bell gain, with the S&P 500 and the Nasdaq rising firmly from last night's close.

Market Snapshot

Global stocks traded firmer Thursday, with modest gains in Asia and stronger advances in Europe, as investors assessed the risk landscape amid rising bond yields and crude prices that could offset the week's bullish sentiment built from a solid U.S. economy and a weakening dollar.

U.S. equity futures, however, suggest the Dow Jones Industrial Average ^DJI will open 150 points higher, a move that would take it to within 100 points of the January 26 peak of 26,616.76 points. Contracts linked to the S&P 500 are trading about 12.75 points to the upside to open at another all-time high.

Trade tensions, of course, continue to hang over the markets as well, but with smaller-than-expected tariffs unveiled this week from both Washington and Beijing, and no new headlines from either side during the overnight trading session that escalated the standoff, investors were instead left to spy other corners of the market to take their cues on equity direction.

In fact, JPMorgan (JPM) CEO Jamie Dimon said it was more accurate to call the U.S.-China dispute a "trade skirmish" rather than a "trade war."

"Our President, is right to raise the issues (around trade) with China," he told CNBC Thursday, but added that he "may have used a different strategy to go about fixing it" and conceded that "it's unclear where we're going to get to."

Financial and jobs numbers are fantastic. There are plenty of new, high paying jobs available in our great and very vibrant economy. If you are not happy where you are, start looking - but also remember, our economy is only getting better. Vote in Midterms!

— Donald J. Trump (@realDonaldTrump) September 20, 2018

One area of concern, at least over the past week, has been the global oil markets, where prices have risen for a third consecutive session, taking U.S. crude past $71 a barrel and pushed Brent contacts closer to the $80 level, following data which showed domestic inventories fell to the lowest level in three-and-a-half years and ahead of a key meeting of OPEC members later this week in Algeria.

Oil's 2% surge yesterday, in fact, helped the Dow Jones Industrial Average gain 158 points to lead U.S. equity benchmarks higher, although a modestly 0.08% slip for the Nasdaq Composite suggested some investors have concerns over the heady gains record so far this year for the tech sector.

Brent crude contracts for November delivery, the global benchmark, were seen 55 cents lower than their Wednesday close in New York and changing hands $78.85 a barrel after President Donald Trump Tweeted his displeasure with OPEC, while WTI contracts of the same month were marked 10 cents lower at $70.38 per barrel.

General Electric (GE) shares were a notable pre-market mover, falling more than 2% to trade at $12.60 each after JPMorgan analysts cut their rating on the struggling conglomerate amid concerns that a key gas turbine launch would hit the group's earnings.

Rising crude prices, thankfully for emerging market investors, have been offset by a fall in the U.S dollar index, which fell 0.7%to a two month low of 93.875 in overnight trading even as 10-year bond yields held at multi-month highs of around 3.072%, suggesting a decent measure of risk aversion remains in the market even as equity indices around the world continue to inch higher. Longer-term bond yields, which hit 3.248% yesterday, eased to 3.281% in the overnight session.

Yields: On the march! 10's above 3% again, this time without financial media concern. Watch 3.25% on 30's. Two closes above = game changer.

— Jeffrey Gundlach (@TruthGundlach) September 19, 2018

European stocks were similarly cautious, but with a bullish tone, as the Stoxx 600 jumped 0.52% by mid-day in Frankfurt while benchmarks around the region carved out similar percentage gains with basic materials and financials leading the gains.

Britain's FTSE 100, whose constituents earn around 75% of their revenues from outside the U.K., slipped to a 0.13% gain as the pound climbed to 1.3280 against the dollar following a stronger-than-expected reading from August retail sales, which rose 3.3% from the same period last year.

In Asia, the MSCI ex-Japan index added 0.19%, despite a modestly slip for shares in China, while Japan's Nikkei 225 managed to post its four consecutive session gain -- barely -- with a 0.01% advance that followed the part re-election of Prime Minister Shinzo Abe, who is on track to be the country's longest-serving democratic leader when his term expires in 2019.

Certainly a portion of the bullish global market sentiment comes from the fact that the U.S. economy continues to extend its late-cycle advance, with the Atlanta Federal Reserve's GDPNow indicator pointing to a 4.4% third quarter growth rate.

Added to this is the fact that, while the Fed remains clear in its future interest rate signalling, other central banks around the world are largely constrained in their ability to tighten monetary policy, either based on economic (in the case of Japan or the United Kingdom) or political (in the case of the European Central Bank's monitoring of developments in Italy).

Piled on top of that, of course, is the estimated $11 trillion of excess central bank liquidity that continues to course its way through the veins of the global financial markets.