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Market Update

European Stocks Join U.S. On a Record Run as Summer Looms

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June 20, 2017

(Tuesday Pre-Market) Today marks the first full day of the Northern Hemisphere summer (it actually officially begins at 11:24 p.m. CDT). It’s as good a time as any for a “Eurotrip” of sorts for the markets.

European stock indexes have joined U.S. counterparts in a recent record run, with traders emboldened by French President Emmanuel Macron’s party winning a majority in parliamentary elections on Sunday.

Overnight, major index such as Germany’s DAX 30, France’s CAC 30 and the U.K.’s FTSE 100 extended the climb, helped by consumer stocks (the DAX is up over 12% this year, outpacing the S&P 500).

Europe bears watching for several reasons – including recent terrorist attacks and the start of talks over Britain’s exit from the European Union.  Additionally, benchmark interest rates in the U.S. are rising while Europe’s are expect to remain low (Bank of England chief Carney said earlier today that “now is not yet the time” to begin to lift the bank’s key interest rate from its current 0.25%, according to news reports).

Comments like that are lending a bid to the dollar, which has strengthened against the euro this month (see figure 1 below). Has the dollar’s erosion against the euro for much of this year finally reversed course? It’s certainly possible the dollar can continue higher.

U.S. stocks are poised to open flat to up slightly, as technology shares continue to rebound from a sell-off earlier this month. Futures based on the S&P 500 were little-changed, while Nasdaq futures were up about 0.3%. 

Crude oil prices continue to grind lower, to the point of some concern for market professionals. In overnight trading, crude futures fell near $43 a barrel to reach a seven-month low. Prices are also down about 20% from a February peak, near what could be considered bear-market status.

USD/EUR 6-20-17

FIGURE 1: CME EURO FX FUTURES.

The euro has been gaining versus the U.S. dollar since the start of the year, but may have reversed course last week. Data source: CME Group. Chart source: The thinkorswim® platform from TD Ameritrade. For illustrative purposes only. Past performance does not guarantee future results.

Almighty Dollar: The dollar still has a ways to go before it makes up all the ground it’s given up this year. At 7 a.m. CDT today, the dollar was trading around $1.115 versus the euro, a gain of about 0.8% compared with $1.1244 at the beginning of June. Still, that’s weaker than $1.039 in late December, when the dollar was at its strongest point in 14 years.

Said the Fed: Three Federal Reserve officials are scheduled to speak today, allowing investors more opportunities to read between the lines and try to ascertain the central bank’s next moves after last week’s rate hike.

Speakers include Fed Vice Chairman Stanley Fischer at the DNB-Riksbank Macroprudential Conference Series in Amsterdam and Dallas Fed president Robert Kaplan, who will discuss economic conditions and implications for monetary policy in San Francisco. Then there’s, Eric Rosengren, the Boston Fed president, who will offer an intriguingly-titled address, “Bad zero: Financial Stability in a Low Interest Rate Environment” at the DNB-Riksbank Macroprudential Conference Series in Amsterdam, according to Bloomberg.

On Monday, New York Federal Reserve President William Dudley said U.S. inflation was a little low but should rise alongside wages as the labor market continues to improve. That would allow the Fed to continue gradually tightening monetary policy.

Tech Resurgence: Market participants may be watching the tech sector to see if it can continue its recent bounce. On Monday, the Nasdaq Composite Index rose 1.4% to 6,239.01, down from a record close of 6,321.76 on June 8, but still up nearly 16% for the year. The upswing was led by the so-called FANG stocks (Facebook, Amazon, Netflix and Google parent Alphabet). A couple other names worth watching include Tesla (TSLA), which jumped 2% after said it will open up a plant in China, and Oracle, a “mature” tech company that is scheduled to report earnings later today.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR.

Source: Briefing.com

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