Dow Futures Dip, Dollar Slides as Trade Concerns Trim Risk Appetite Ahead of G20

The Tuesday Market Minute

  • U.S. stock futures retreat, dollar wanes as investors peel back from recent equity market highs and take a defensive stance on risk ahead of this weekend’s G20 Summit in Japan.
  • The U.S. dollar slumps to a fresh 3-month low as investors aggressively price in rate cut bets ahead of five Fed speeches today, including Chairman Jerome Powell at 11:00 am Eastern Time
  • Global oil prices edge lower following yesterday’s sanctions on the Iranian leadership and suggestions that the U.S. military presence in the Gulf could abate over the coming months.
  • Wall Street futures suggest modest opening bell declines for the three major benchmarks, and the first three-day pullback for the S&P 500 since May, ahead of housing and Redbook retail sales data shortly after the start of trading.

Market Snapshot

U.S. equity futures drifted lower Tuesday, setting up the S&P 500 for its first three-day decline since early May, as investors peel back from recent record highs and take a defensive stance on risk ahead of this weekend’s G20 Summit in Japan.

With the President Donald Trump announcing a new set of sanctions on Iran, its Supreme Leader Ayatollah Ali Khamenei, and several of the country’s senior leadership, and U.S. officials downplaying expectations for a breakthrough on talks with Beijing from this weekend’s meeting with China’s Xi Jingping, investors appear unwilling to reach for risk in the absence of headline drivers on trade or central bank support.

That said, markets are also braced for a host of Federal Reserve speakers today, including Chairman Jerome Powell, each of whom may reiterate or intensify the central bank’s recent dovish turn on interest rates, which has traders pricing in a 100% chance of a July reduction in the Fed Funds rate, and a 73.3% of two more cuts between now and the end of the year.

Early indications from U.S. equity futures suggest modest opening bell declines on Wall Street ahead of house price data and retail sales figures from the Redbook just after the start of trading. Contracts tied to the Dow Jones Industrial Average suggest a 37 point pullback while those linked to the S&P 500, which is holding onto a year-to-date gain of 17.5%, are indicting a 6 point slip.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, is trading at a three-month low of 96.92 as investors add to bets on Fed rate cuts, which benchmark 10-year Treasury note yields slipped to a November 2016 low of 2.004% in overnight dealing.

Gold, on the other hand, continued its recent upward March, rising to a fresh six-year high of $1,438.63 per ounce in overnight trading, taking its three-month gain past 8.8%.

The Trump administration’s renewed Iran sanctions effort appears to have eased some of the recent Gulf region tension, as did comments from Trump on his Twitter account yesterday that suggested the U.S. could reduce its military presence in the region while compelling other nations to contribute to security around the Strait of Hormuz.

That has global oil prices on the back foot in early European trading, with further downward pressure coming from concerns over energy demand in a slowing economy. In fact, the World Trade Organization published data late Monday that tallied more than $816.8 billion in new import-restrictive measures over the past 18 months, nearly four times those put in place when the report was launched in 2012.

Brent crude contracts for August delivery, the global benchmark, were seen 35 cents lower from their Monday close in New York and changing hands at $64.51 per barrel in early European trading. WTI contracts for the same month, which are more tightly linked to U.S. gas prices, were marked 23 cents lower at $57.67 per barrel.

European stocks were also on the defensive at the start of trading in Frankfurt, following Monday’s 0.25% pullback, as the euro retraced its recent decline to hit a fresh three-month high of 1.1401 against the U.S. dollar.

The region-wide Stoxx 600 was marked 0.29% lower in the opening minutes, with similar percentage declines recorded for benchmarks in Germany and France, while Britain’s FTSE 100 opening 0.56% lower at 7,375.45 points.

Stocks in Asia were weaker across the board Tuesday, as well, as investors switched their focus from Gulf tensions to trade concerns ahead of the weekend’s G20 Summit in Osaka, with Chinese stocks leading to the downside via a 1.24% slide for the Shanghai Composite and a 0.44% retreat for the broader MSCI Asia ex-Japan index.

Japan’s Nikkei 225, meanwhile, closed 0.43% lower at 21,193.81 points and the yen jumped to a January 2019 high of 106.97 against the greenback.

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