The extreme volatility that has shaken equity markets since the start of this month appears to be subsiding for the moment. Overseas trading overnight has been mixed with the Nikkei down 3.0%, the Hang Seng up 1.1%, the Dax down 1.3% and the FTSE up 0.5%. In trade war news, China increased its retaliatory tariffs against the US overnight, while the EU reportedly appears to be getting ready to sit down and talk. US index futures are up 0.4%-0.6%, stabilizing following yesterday’s 2.5% to 4.3% declines for major US indices.
Capital flows and trading volatility now appears to have shifted to currency markets where the US Dollar is selling off and the US Dollar Index is down 1.1%, which is a lot for a currency in one day. The Canadian Dollar reached its highest level since November with a 1.0% overnight gain, and USDCAD has broken down below $1.4000. Meanwhile, the Euro is up 1.4%, the Yen is up 1.2% and the Pound is up 1.1%. Alternative currencies are also running with Gold up 1.9% and taking another run at $3,250/oz, Silver up 2.2%, and Bitcoin up 3.4%. In commodity action, Copper is up 2.5% and Crude Oil is up 0.2%, holding near $60.00/bbl.
Earnings season has kicked off with a number of Financials beating expectations by wide margins, including JPMorgan Chase ($5.07 vs street $4.63), Morgan Stanley ($2.60 vs street $2.21), Blackrock ($11.30 vs street $10.08), and Wells Fargo ($1.39 vs street $1.23). Generally speaking, company executives were more cautious in their outlook for the coming quarter, calling for a quick resolution to the tariff battles. The market reaction to the results has been subdued with shares trading flat to up 1.5% in premarket action, compared to losses of 3.1% to 4.8% within that group yesterday. Manufacturer Fastenal is down 1,0% premarket after reporting in-line results.
US Producer Prices came in significantly lower than expected (2.7% vs street 3.3%), which could be seen as a positive in that inflation pressures are easing which could potentially the Fed more room to cut interest rates. If the price decline is due to a slowing economy, however, it could be problematic. Also the impact of tariffs on inflation remains to be seen.