Opening Bell: Fedspeak, Sanctions Weigh On U.S. Futures, Global Equities; Oil Up
2022.04.06 14:16
- Sanction worries dent sentiment
- Markets anticipating Fed may hike rates by 0.5%
- Treasury yields advance
Key Events
After a selloff on Wall Street yesterday, US futures on the Dow Jones, S&P 500, NASDAQ 100 and Russell 2000 continued to move lower in trading on Wednesday. Traders were concerned that additional sanctions on Russia from the US and EU could exacerbate supply chain issues and a surge in commodity prices, both of which would put further pressure on inflation, increasing the likelihood that the US Federal Reserve will hike rates by 50 basis points at its next meeting.
Expectations of higher rates pushed the US dollar higher.
Global Financial Affairs
Shares in Europe sold off, ending a three-day advance, as traders were concerned by comments from Federal Reserve Governor Lael Brainard that the US central bank would step up the pace of unwinding of its bloated balance sheet.
Carmakers led the STOXX 600 Index lower. The technology sector also sold off after the NASDAQ 100‘s worst performance in a month on Tuesday during the US session, as spiking Treasury yields pressured shares with high valuations.
STOXX 600 Daily
The pan-European gauge has been churning at the same level since late March, below the 200 DMA, and below the January-February low.
Asian stock exchanges also took their cue from Wall Street and slumped. Hong Kong’s Hang Seng led the region lower, falling 1.9%, its most severe selloff in a week, after Shanghai reported on Tuesday a record 13,354 new cases of coronavirus, amid stringent lockdowns in the mainland’s financial hub. Additionally, the Caixin Services PMI dropped to 42 in March, from 50.2 in February, which puts it in contraction mode.
In US trading on Tuesday, the Russell 2000 underperformed, falling 2.49% as smaller companies have fewer options in a higher interest rate environment. The tech-heavy NASDAQ 100 retreated 2.24% as more expensive borrowing costs are also difficult for higher valued shares. The Dow Jones outperformed, shedding just 0.8% as mega-cap multinational businesses have the resources to navigate higher US borrowing costs. The S&P slipped 1.26%; futures on the broad benchmark index are underperforming today.
S&P 500 Daily
Contracts on the S&P 500 were testing the bottom of a pennant, considered bullish after the preceding sharp rise. The 200 DMA supports the continuation pattern, though the 50 DMA languished below the longer MA, triggering a Death Cross.
The outlook for faster US rate hikes resulted in investors selling 10-year Treasuries, pushing yields past 2.6% for the first time since Feb. 2019.
10-year Treasuries Daily
Yields extended the upside breakout from a bullish pennant, promising even higher rates ahead.
Traders increased their bets on the dollar based on faster-than-expected rate tightening, which pushed the greenback to its fifth day of gains.
Dollar Index Daily
The US currency finally broke out of its range yesterday, and today’s advance increased that penetration after it completed an H&S Continuation pattern. The current trade is developing an intraday Shooting Star. A close with that candlestick would suggest a return move to retest the range’s top. The currency could be heading to 100 and beyond.
Gold advanced slightly after sliding yesterday.
Gold Daily
The more aggressive Fedspeak could be the catalyst to help bears complete an H&S top after the yellow metal shot out from a year-and-a-half-long Symmetrical Triangle that catapulted the commodity toward its August 2020 record high.
Bitcoin dropped for the second day on the strengthening dollar.
Bitcoin Daily
Although we have been bearish on the cryptocurrency for a long time, we try to keep an open mind. The digital token is potentially forming a bullish pennant at the top of a range that has remained below the H&S neckline, reinforced by the 200 DMA.
Oil traders had a wild session. After falling ahead of concerns the European Union would introduce new sanctions on Russia, it rebounded when the EU said it would focus its attention on coal while it continued to work on imposing limits to oil imports.
Oil Daily
Crude’s current volatility also matches its technical situation, as the price reaches the apex of a Symmetrical Triangle. The direction of the breakout will set in motion another sharp move, and we’re betting it will be a move higher, given that the range occurred within an uptrend.
Up Ahead
- The ECB publishes the minutes of its Monetary Policy meeting on Thursday.
- On Thursday, St. Louis Fed’s James Bullard, Atlanta Fed’s Raphael Bostic, Chicago Fed’s Charles Evans speak at separate events.
- US initial jobless claims are reported on Thursday.
Market Moves
- The STOXX 600 fell 0.1% as of 8:19 a.m. London time
- Futures on the S&P 500 slipped
- Futures on the NASDAQ 100 traded lower
- Futures on the Dow Jones Industrial Average fell
- The MSCI Asia Pacific Index fell 1.3%
- The MSCI Emerging Markets Index fell 0.9%
- The Dollar Index was little changed
- The euro was little changed at $1.0912
- The Japanese yen rose 0.3% to 124 per dollar
- The offshore yuan fell 0.1% to 6.3672 per dollar
- The British pound moved up 0.2% to $1.3097
- The yield on 10-year Treasuries advanced six basis points to 2.61%
- Germany’s 10-year yield rose to 0.66%
- Britain’s 10-year yield increased to 1.73%
- WTI crude advanced 1.34% to $103.17 a barrel.
- Brent crude rose 1.43% to $108.16 a barrel
- Spot gold rallied 0.3% to $1,919.24 an ounce
