- Market volatility continues
- Oil rebounds, but we expect only temporarily
- Bitcoin's rally ends
Key Events
Worries about US inflation sent futures on the Dow Jones, S&P 500, NASDAQ, and Russell 2000, as well European equities lower in trading on Thursday. Traders are also keenly awaiting the Monetary Policy Statement from the European Central Bank, due for release ahead of the US market open, in the hope of getting a sense of the policymaker's views on the war in Ukraine.
The dollar recovered.
Global Financial Affairs
Contracts on the Russell 2000 were the hardest hit of the US indices, down over 1.1%. The selloff comes on the heels of yesterday's 2.6% rally, the sharpest since June 2020.
The daily volatility in trading underscores the lack of leadership in markets—Tuesday's exceptional gains followed Monday's significant losses—one of the steepest daily declines since October 2020.
In Germany, the DAX catapulted 7.9% yesterday, benefiting from easing oil prices, but it is down almost 2% today. While the pan-European STOXX 600 rallied over 4% yesterday, it has fallen around 1% today.
Wednesday's surge was the most significant percentage gain for the index since the 8.4% rise on Mar. 24, 2020, when global stock markets bottomed out after the first wave of the coronavirus. From a technical perspective, we are bearish on the gauge.
The pan-European benchmark may rebound at the top of its rising channel, though we don't think so, as it found resistance by the previous trough, which is likely to strengthen the expected selling at the bottom of the channel. If the price bounces toward the channel top, it is worth noting that the volume, along with the powerful price rally, would be well below the earlier selling days, and the 50 DMA crossed below the 200 DMA, triggering a dreaded Death Cross for good measure.
Earlier, the prospects of peace talks between Russia and Ukraine boosted Asian stocks, and traders increased risk after the dramatic slide in the oil price on Wednesday. The MSCI Asia Pacific excluding Japan jumped 1.85%, but then fell back.
The regional index found support at the bottom of a falling channel and may prove rising demand by the 200-week MA.
The Nikkei 225 rebounded almost 4% on its most rewarding day since June 2020. However, from a technical standpoint, we are pessimistic.
Although the weekly candle is forming into a mighty hammer, with a king shadow after a significant decline, the weekly volume shows little participation, and the gauge just completed a year-long double-top. Therefore, while we expect a return move, we anticipate the bounce to be a corrective move within a downtrend. Unless negotiations between Russia and Ukraine prove fruitful, we foresee today's gains in Asia reversing.
A view that the market was oversold attracted significant dip-buying yesterday. The Dow Jones Industrial Average rallied 2%, the S&P 500 advanced 2.6% and the NASDAQ Composite jumped 3.6%.
Yields on the 10-year Treasury note opened lower, as investors uncharacteristically increased Treasury holdings even amid the risk-on seen in the Asian session. Perhaps, technicals are in play.
Yields might be developing an H&S top, though we still bet on the much larger symmetrical triangle that preceded it.
The dollar opened higher after more than a full percentage point drop in Wednesday's session.
The greenback found support above the neckline of an H&S continuation pattern in the uptrend.,
Gold edged lower but then recovered slightly, after yesterday's 2.7% slide.
The yellow metal completed a Bearish Engulfing pattern, signaling a return-move to retest the huge symmetrical triangle since late 2020.
Bitcoin practically gave up all of yesterday's gains, which were made on a leaked document showing that the Biden Administration planned to study cryptocurrencies. Nevertheless, after the knee-jerk reaction traders realized that the remarks actually addressed potential regulation, so then the cryptocurrency dropped back below $40,000.
While the digital currency might be developing an H&S bottom, we're banking on the four-times-the-size H&S top between July 2021 and January 2022.
Oil recovered after yesterday's 13.2% plunge, though we expect the gains to be short-lived and more volatility.
The price is rising within a rising flag, bearish after the initial plunge. The flag also makes up the right shoulder for an H&S top.
Up Ahead
- On Friday, UK GDP figures are released.
- Canada releases its employment data on Friday.
- Michigan consumer sentiment figures are published on Friday.
Market Moves
Stocks
- The STOXX 600 fell 1%
- Futures on the S&P 500 fell 0.6%
- Futures on the NASDAQ 100 fell 0.7%
- Futures on the Dow Jones Industrial Average fell 0.6%
- The MSCI Asia Pacific Index rose 2.5%
- The MSCI Emerging Markets Index rose 1.5%
Currencies
- The Dollar Index rose 0.1%
- The euro fell 0.2% to $1.1054
- The Japanese yen was up 0.1% at 115.96 per dollar
- The offshore yuan was up 0.1% at 6.3305 per dollar
- The British pound was down 0.1% at $1.3162
Bonds
- The yield on 10-year Treasuries declined three basis points to 1.92%
- Germany's 10-year yield fell two basis points to 0.19%
- Britain's 10-year yield fell two basis points to 1.49%
Commodities
- WTI crude jumped 3% to 112.02 a barrel
- Brent crude rose 5% to $116.80 a barrel
- Spot gold rose 0.6% to $2,003.51 an ounce