A battling close lifted the spirits on a very tough day for equity markets on Monday. European markets are taking that bounce at the death on Wall Street – and a firmer close for Europe – and rallying this morning after a drubbing in yesterday’s session. Basic resources leading the way – what went down furthest yesterday is bouncing the most today. Shell rallied 3% in early trade, whilst IAG continued to catch bid on the reopening of the lucrative transatlantic trade. The airline group trades +6% after a double-digit rally yesterday as the US said it would let UK and EU travellers back in. Lufthansa is also up more than 4%.

Question now is whether this rally has enough puff or if there is a tendency – as I suggested last Wednesday – to sell into rallies rather than buy the dip. Not a lot of data to get in the way and a two-day Fed meeting that starts today suggest risk appetite will be moderate for the time being. Market indicators are flashing – US 10yr swap spreads at widest in 6 months, Vix spiked to its highest since May. To answer this – have market fears that led to the sell-off gone away or been fully priced? For now, I like a -10% decline rather than just 5% but so much depends on what the Fed delivers tomorrow.

The S&P 500 closed down 1.7%, its worst daily decline since May, but rallied a solid 50pts in the last 45 minutes or so of the session. That ought to offer some encouragement for bulls that there are still dips to be bought but we should caution that the uptrend is broken, and we should look for recovery of the Sep 14-16 highs around the 4,485 mark for a sign that the downswing is over. The Nasdaq fell 2.2%. Shares in Tokyo fell 2% as it caught up following a holiday – just wait until Chinese equity markets reopen on Wednesday. Hang Seng almost flat, Evergrande down a little over 1% as the panic moderated.

European stocks closed off the lows: FTSE –0.86% at 6,904, having touched an intra-day low of 6,8027. The DAX finished –2.3% at 15,117, having hit a low of 15,132. Bid started to come through just ahead of the US cash open- which though soft – was encouraging as it marked the low of the day for the futures. 4,350 is the key near-term support for the S&P 500, eyes down for the 200-day SMA at 4,100, having tested the 100-day SMA at 4,326 with a low of 4,305 yesterday.

Briefly:

• Coinbase stock fell 3.5% as the company dropped plans to launch its Lend programme, following a major spat with the SEC.
• Tesla dropped 4% as regulators took aim at the carmaker’s self-driving function. The US National Highway Traffic Safety Administration (NHTSA) has already announced an investigation into Tesla’s Autopilot over its possible involvement a number of crashes. Now the National Transportation Safety Board (NTSB) is weighing in, calling the approach Tesla is taking “misleading and irresponsible”. Jennifer Homendy, the new head of the regulator, told the WSJ that “[Tesla] has clearly misled numerous people to misuse and abuse technology.”
• Shares in Universal Music Group surged on debut in Amsterdam, rallying +35% above the reference price after its spin-off from Vivendi, which declined 17% on the dilution. Tomorrow will be a difficult second album for the biggest listing in Europe this year.
• Minutes from the Reserve Bank of Australia reiterated that there will be no rate rise until 2024 and that the Delta variant “delayed, but not derailed, the recovery”.
• Stagecoach +17%, National Express +5% on news that they are exploring a merger that would create some big synergies and an even bigger national travel operator. Immediately I think competition concerns might be a problem. Shares in the pair have been cut by the pandemic – a tie-up makes sense.
• Return of sporting events lifted Compass, with revenues +86% over 2019 levels. Shares just traded a tad light on the news.
• Kingfisher shares down 5% to the bottom of the FTSE despite strong performance and a hike to the dividend. The interim dividend is up 40% and LFL sales up 22.8% and corresponding 2-year LFL up 21.3%. Retail profits rose 45%, though free cash flow was 30% lower as result of the reversal of working capital inflow in the prior year related to inventory. But H2 is up against some very tough comparisons as Kingfisher was a big winner from lockdowns. Management expect LFL sales to be between -7% to -3% (previously -15% to -5%), with corresponding 2-year LFLs of +9% to +13%. Full year adjusted pre-tax profit is now seen in the range of c.£910 million to £950 million. Always going to be incredibly tough for KGF after the monster rally during the pandemic on some pretty amazing performance – investors will want to see more on the longer-term strategy on how to carry on the momentum.

Elsewhere, Bitcoin dropped to its weakest since the start of August having crashed through its 200-day SMA as the entire crypto space was smashed down as it was caught up the broad market sell-off. The riskier the asset, the quicker it is to be sold in times of stress, so hardly a surprise that crypto takes a beating whenever markets turn.

New highs for the dollar were made yesterday but just seeing some pause in early trade this morning. EURUSD still looking weak and bearish MACD still in play. Bit of RSI divergence to watch that might call for a flip as dollar strength looks overdone.

GBPUSD: Again some pushback from sterling bulls this morning – RSI/MACD divergence may be calling for a rebound once the descending triangle plays out.