The STOXX 600 managed to crawl above neutral levels after a lower open. Italian stocks pushed the benchmark lower, selling off on heightened political risk as Deputy Prime Minister Matteo Salvini was pressured to clarify whether he intends to break the government coalition and prompt snap elections. The country's FTSE MIB pared some losses by late European morning, after notching up its worst session in months on Friday. Overall, today's lack of direction on the pan-European index follows Friday’s high wave candle, which saw substantial price action, only to close flat.
Earlier, Asian traders were directly influenced by Friday’s back pedaling, by stock investors, on the outlook for a rate cut after FOMC member James Bullard and Eric Rosengren prompted them to scale back expectations for a 50-basis point reduction. The MSCI Asia-Pacific index excluding Japan fell 0.4%. Japan’s Nikkei dropped 0.23%, while China’s Shanghai Composite (-1.27%) was the heaviest faller of the session as it hit its lowest level since June 4, despite the launch of China's own version of NASDAQ, which saw its 25 listed components soaring 140% on average.
U.S. stocks slipped on Friday, ending the week lower after more than a third of companies releasing their earnings results blamed the U.S.-China trade war for lower profits and provided soft guidance. Adding to headwinds were lower prospects of more marked policy easing by the Fed, and mounting worries over a military intervention in the Middle East, after Iran seized a British oil tanker in the Strait of Hormuz.
Investors raced to increase Treasury holdings as they repriced a slower path to lower interest rates. Technically, the 4-hour chart on 10-year Treasury yields is forming a H&S continuation pattern, confirming its downtrend.
Similarly, investors balanced the previously overly dovish outlook by buying up the dollar for a second day—though the greenback is well off its daily highs, after nearing the top of its short-term falling channel.
Despite the sudden USD strength, a pennant-shaped continuation pattern retained integrity, increasing the scenario for a gold rally.
Meanwhile, oil gapped up on Middle East tensions and a Libyan oil field shutdown. However, from a technical perspective, bulls have their work cut out for them. They’d need to carry prices above $61 to extend the short-term trend up and be willing to commit to $67 a barrel to extend the medium term higher.
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