Key Events
Contracts on U.S. indices for the S&P 500, Dow and NASDAQ this morning extended Monday's exuberant Wall Street rally, which including a record gain for the mega cap Dow Jones benchmark.
Traders, however, remain uneasy. Futures fluctuated ahead of a conference call later today between G7 financial ministers and central bank leaders, in hopes of coordinated global policy action. The expectation is that Australia’s quarter-point rate reduction earlier today could be the start of additional easing by policymakers. Bets on the Federal Funds Rate reveal the market expects a half-point rate reduction in March.
Nonetheless, despite yesterday's massive rally, safe havens gained this morning.
Global Financial Affairs
S&P 500 futures wavered during the Asia session, but a longer look reveals there's a method behind the indecision.
Overall, the swings have been leading the prices higher. Yesterday, the popular benchmark posted its biggest daily gain since December 2018. Remember, however, at the end of that month markets also experienced a rout which left them a hairsbreadth away from a bear market.
The STOXX Europe 600 Index surged 2.6% today, after closing flat on Monday following a tumultuous session.
Earlier in Asia regional benchmarks were mixed. China’s Shanghai Composite, (+0.47%), continued to outperform; Japan’s Nikkei 225, (-1.22%), was the only major regional index seriously in the red, even after the BoJ pledged support, underscoring how strongly virus fears have hit the country.
On Monday, Wall Street roared, with the Dow Jones Industrial Average catapulting almost 1,300 points, or more than 5.0%, a new daily record for gains. The optimism compounded the dip buying that follows a double-digit correction, and above trendlines no less, with expectations of Fed easing.
While we predicated a rally—a forecast which was proven right by any measure—we’re not convinced it’s sustainable. The Fed would have to beat expectations significantly to attract interest, and even then, the core issue—coronavirus—hasn't been dealt with yet. Having said that, it's not just the natural, human fear that's pressuring markets. Perhaps moreso it's the as yet unknown impact to global and local growth after the severe disruption of manufacturing lines and supply chains.
Don't forget, as well, what's been one of the major drivers moving markets over the past two years: the trade war. China will most likely not be able to, or may simply be unwilling to uphold all it had pledged to do in its Phase 1 obligations, following the current health catastrophe.
Yesterday's Dow performance was its best showing since March, 2009.
From a technical standpoint, bulls will require some serious heavy lifting to push the price through the 200 DMA and the broken uptrend line since the December bottom.
Perhaps that's why safe havens remain in demand.
Treasury yields, including for the benchmark 10-year note, dipped after plunging into heretofore uncharted depths.
The dollar jumped, trimming much of yesterday’s decline—even in the face of rate cut expectations. The move, presumably, is being fueled by foreign demand for Treasurys. Technically, rates have the same problem experienced by U.S. equities, they need to climb back through the double resistance of the 200 DMA and an uptrend line.
The Japanese yen gained, even against a strengthening dollar, and despite the BoJ's pledge to support the country's economy, calling attention to the degree of investor worries. From a technical perspective, the USDJPY is struggling to remain above a crucial support line since November.
Gold is climbing for the second day, validating our analysis that the yellow metal and equities could rally in tandem.
Yesterday, oil saw its biggest daily gain of the year. The rally extended today as OPEC tries to stop the selloff. Technically, we’re not optimistic, though, now that the commodity has entered a downtrend.
Up Ahead
- Today, Democratic primaries will take place in 14 states as well as in U.S. Samoa. Designated 'Super Tuesday' participating states include delegate-rich California and Texas.
- The Bank of Canada will issue a rate decision on Wednesday.
- OPEC ministers gather in Vienna on March 5-6.
Market Moves
Stocks
- Futures on the S&P 500 Index gained 0.4%.
- The Stoxx Europe 600 Index surged 1.5%.
- The U.K.’s FTSE 100 Index surged 1.5%.
- The MSCI Asia Pacific Index was little changed.
Currencies
Bonds
- The yield on 10-year Treasuries decreased three basis points to 1.13%.
- Germany’s 10-year yield increased one basis point to -0.61%.
- Britain’s 10-year yield climbed two basis points to 0.425%.