Economic slowdown and stimulus easing now conflicting market themes
Oil fluctates
Bitcoin recovered
Key Events
US futures contracts on the Dow, S&P, NASDAQ and Russell 2000 as well as European shares extended a slide in trading on Thursday on fears of slowing economic recovery after US nonfarm payrolls disappointed last week and the prospect of central banks beginning to tighten monetary policy.
Despite US Treasuries rallying, the dollar fell.
Global Financial Affairs
All four US futures were in the red today—Russell 2000 contracts were the deepest, 0.5% in negative territory, as of the time of writing while NASDAQ 100 contracts were outperforming, down just 0.2%. This paradigm may suggest a reversal of the reflation trade.
Small caps underperformed in yesterday’s Wall Street session during which the S&P 500 Index suffered its longest rout in two months and the NASDAQ 100 had its worst fall in two weeks. The Russell 2000, which mainly includes small-cap, domestic firms plunged 1.13%
Equities in Europe this morning followed Asian regional benchmarks into negative territory, on speculation the European Central Bank could be getting ready to announce when it will start to pare its bond purchasing program. The STOXX 600 Index fell 0.8% to a three week low, led by travel stocks (-1.8%), technology shares (-1%) and automakers (-1.4%). The UK's FTSE 100 dropped 1.1%, underperforming the region. Germany’s DAX declined 0.3% to a monthly low.
Asian stocks also headed south, tumbling the most in two weeks, on a continued regulatory clampdown in China on the tech sector and fears that global central banks will announce the removal of supports, just when the economy may be starting to sputter. The MSCI’s broadest index of Asia-Pacific stocks excluding Japan was down over 1.25% in its worst daily rout since mid-August, when markets were nervous about tapering by the Us Federal Reserve.
The slide in US markets yesterday may be the result of conflicting market themes. On the one hand, having reached sky high valuations, tech shares are being sold off on the prospect of the long-anticipated removal of central bank safety nets. On the other hand, cyclicals are suffering from the ongoing social restrictions in place due to the global coronavirus pandemic. For now, both are falling, with value stocks underperforming, having provided superior results so far this year.
Treasuries rose for the second day, pushing yields on the 10-year Treasury note down, back to the possible neckline of a H&S bottom or the top of a symmetrical triangle.
10-year Treasuries Daily10-year Treasuries Daily
Either way, the upside breakout suggests yields are headed higher. Drawing a trendline through the recent highs may create the top of an ascending triangle, bullish as well. Note, yields found support precisely on the top of the H&S neckline/ symmetrical triangle’s top.
Surprisingly, the dollar fell. The expectation of stimulus tapering as well as Treasury buying should strengthen the greenback.
Dollar Index DailyDollar Index Daily
Presumably, the US currency is experiencing technical pressure, as the USD may be forming a H&S top, below the resistance of the Mar. 31 high. However, if this resistance is overcome, dollar bulls will have completed a massive bottom since November.
Gold climbed on dollar weakness.
Gold DailyGold Daily
From a technical perspective, the yellow metal found support above the falling channel it escaped two weeks ago. However, the precious metal is still in a downtrend since its August record peak. Nevertheless, the precious metal may be forming a H&S bottom, which would help it break out of that channel too.
Bitcoin found its footing after a two-day selloff—including Tuesday’s collapse that erased 3 weeks of gains—as Ukraine is the latest country to legalize the digital currency.
Bitcoin DailyBitcoin Daily
After achieving the target of a falling flag, the cryptocurrency found intraday support by the 50 DMA while closing above the 200 DMA two days running. Is the cryptocurrency forming a H&S top?
Oil traders attempted to find direction amid a slow return to production after Hurricane Ida as well as differing outlooks for the market from OPEC+ and Morgan Stanley.
Oil DailyOil Daily
Technically, the price of crude is fluctuating between the 50 and 100 DMAs. Bulls have momentum stacked up against them as the price is congesting at the top-range of a falling channel.
Up Ahead
The UK announces its GDP figures on Friday.
On Friday US PPI for August is released.
Canada publishes employment data on Friday.
Market Moves
Stocks
The STOXX 600 fell 0.7%
Futures on the S&P 500 fell 0.5%
Futures on the NASDAQ100 fell 0.3%
Futures on the Dow Jones Industrial Average fell 0.5%
The MSCI Asia Pacific Index fell 1.1%
The MSCI Emerging Markets Index fell 1.2%
Currencies
The Dollar Index was little changed
The euro was little changed at $1.1825
The Japanese yen rose 0.3% to 109.92 per dollar
The offshore yuan was little changed at 6.4593 per dollar
The British pound was little changed at $1.3778
Bonds
The yield on 10-year Treasuries declined two basis points to 1.32%
Germany’s 10-year yield was little changed at -0.33%
Britain’s 10-year yield was little changed at 0.74%
Commodities
Brent crude was little changed
Spot gold rose 0.1% to $1,791.69 an ounce
