Stocks Drop as China Rally Ignored; Dollar Gains: MasterMind Update

Investors in U.S. and European equities downplayed an overnight rally in Asian equities and most stocks turned lower ahead of a spate of earnings reports this week. The dollar rose to the highest level in two months, while the pound slumped.

After initially opening higher, the S&P 500 and Dow Jones Industrial Average fell, led by declines in energy and material companies. The Nasdaq swung between gains and losses. In China, the Shanghai Composite Index surged more than 4 percent, the biggest increase since March 2016, in the wake of verbal interventions from authorities at the end of last week and plans to cut personal income taxes. Chinese President Xi Jinping vowed “unwavering” support for the country’s private sector.

“The biggest headwind that this market has right now — and there’s a lot of them — it’s getting something accomplished on trade with China,” said Art Hogan, chief market strategist at B Riley FBR. “That can be lost in the parade of earnings that were going to hear from and have heard from.”

Risks still abound across global markets, from the continuing U.S.-China trade showdown and tension surrounding the killing of a Saudi journalist to Italian budget fears and President Donald Trump’s unpredictable actions ahead of American midterm elections. Still, equities were attempting to bounce back after a miserable few weeks, and company results from the likes of Amazon, Alphabet, Microsoft and Intel as well as U.S. growth data may provide a welcome stimulus in the coming days.

“It’s early days with under 15 percent of companies having reported [earnings], but the beats have been above average, and margin strength has continued despite some concerns about higher input costs,” said Katie Nixon, chief investment officer at Northern Trust Wealth Management. “That said, corporate earnings calls have highlighted several potential and real headwinds as we face 2019.”

Italy’s sovereign bonds pared their advance after the nation’s populist government called for a budget dialogue with the European Union to address their differences. The pound retreated as the U.K. blurred more red lines in its Brexit negotiations, heightening the danger to Prime Minister Theresa May.

Elsewhere, commodities were mixed. Brent crude hovered close to $80 per barrel and gold dropped. Emerging-market stocks jumped. The South African rand rallied before the country’s budget