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Opening Bell: Global Equities Continue Longest Rally In 18 Years; Yields Jump

Published 2021-02-16, 07:35 a/m
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  • Global markets continue pushing higher
  • Treasury yields near yearly high on reflation trade
  • Oil falls despite production disruption in Texas
  • Key Events

    US contracts on the Dow, S&P, NASDAQ and Russell 2000 climbed in pre-US open trading on Tuesday, along with global stocks. Investors are placing their bets on a combination of coronavirus vaccine progress and a bumper level of additional US stimulus to reignite the economy.

    Natural gas was in focus after freezing temperatures across much of the US left millions of Americans in the dark and cold.

    Global Financial Affairs

    Global stocks listed on the MSCI World Index were on course to advance for the twelfth session in a row on Tuesday, the longest rally for the index since 2003, hitting yet another all-time high.

    Contracts on the Russell 2000 outperformed, more than doubling lagging tech futures—as the cyclical rotation, or the reflation trade, resumed.

    In Europe, the STOXX 600 Index gained 0.2%, building on Monday’s 1.3% jump and hovering near a high for the year. The index was buoyed by mining shares. BHP (LON:BHPB) traded higher after it recorded its its best first-half profit in seven years and announced a record interim dividend. The world's largest miner benefitted from strong demand from China. Commodities producer, Glencore (LON:GLEN) jumped 3.75% after it reported results and reinstated its dividend.

    Asian indices extended a rally, though prices fluctuated, and some indices closed off their highs after news surfaced that China is considering blocking rare earth exports to the US, which would hurt American defense contractors, as rare earth minerals are critical to the industry.

    Such a move could reignite a trade war with the US for the first time during the Biden administration, demonstrating that this particular conflict may be beyond party lines or personalities.

    With China's markets closed today for the Lunar New Year holiday, Hong Kong’s Hang Seng outperformed with a solid 1.8% gain to its highest since June 2018. The Asian financial hub reopened with a roar after the Chinese New Year; HSBC (HK:0005) and Standard Chartered (HK:2888) were among the top gainers, benefiting from the reflation trade.

    Japan’s Nikkei advanced 1.3% to seal a close above 30,000 for the first time since 1990. South Korea’s KOSPI rallied, adding 0.5% to close within 1.5% of its Jan. 25 record of 3,212.22.

    KOSPI Daily

    The price of the index completed a falling flag since the gauge’s Jan. 11 all-time high, after completing a smaller falling flag on Monday amid February’s trading.

    The Treasury yield curve spread between the benchmark note and two-year Treasury is around the steepest in over five years on rising hopes for stronger growth.

    Yields on the 10-year note surged to the highest level in almost a year. Investors are selling bonds, in favor of newer issues amid an outlook for rising inflation. Rising yields are also an indicator that equities will keep moving higher.

    10-year Treasuries Daily

    Rates are knocking on the top of a raising channel, threatening to catapult at a steeper trajectory, but will probably first retest the falling flag that propelled yields higher, the second in a row.

    The dollar fell, testing the bottom of a five-day range.Dollar Index Daily

    The greenback is struggling between a confluence of technical forces, a H&S bottom that provided an upside breakout of the falling wedge since the March high and the rising channel since the Jan. 6 low.

    Gold edged up on dollar weakness, breaking a three-day straight fall.

    Silver is up for the third day, demonstrating it has more to offer than taking the oppositional trade of the dollar.

    At the daily high of $49,522.50, Bitcoin was a stone's throw away from what would be a historic $50,000 milestone. It has gained a breathtaking 70% since the beginning of the year, and 250% from its 2017 record. This new, potential milestone is something many, including us, thought was a faraway fantasy when the digital currency was trading below $4,000 in late 2018 and early 2019.

    While institutional investors are often called 'smart money,' as they know when to buy after a crash, they are only now coming around to the potential value of cryptocurrencies. A Morgan Stanley investment unit is considering investing in the digital currency leader.

    Bitcoin Daily

    Both momentum measures for BTC, the ROC and RSI, were providing negative divergences, suggesting the rally was losing momentum, an early indication of a potential pullback.

    Oil fell back below $60, as natural gas stole the show after rare, freezing temperatures hit the Texas power system, crippling crude production.

    Oil Daily

    If the price of WTI falls below $59.50, it may complete an Evening Star—a three candle pattern denoting a top. Indeed, the ROC suggests the price may have topped out.

    Natural gas climbed for the third day, building on Monday’s surge.

    Natural Gas Daily

    It completed a bullish pennant amid a return move that solidified a H&S bottom.

    Up Ahead

    • Earnings continue with results expected from Deere (NYSE:DE) on Friday, Nestle (OTC:NSRGY) on Feb. 25 and Daimler (OTC:DDAIF) on Mar. 2.
    • Today the euro-area finance ministers will discuss the bloc’s current economic situation and outlook.
    • Federal Open Market Committee minutes from the January meeting are due on Wednesday.
    • US retail sales figures are released on Wednesday.

    Market Moves

    Stocks

    • Futures on the S&P 500 Index increased 0.1% to 3949.88.
    • The STOXX Europe 600 Index climbed 0.1% to 419.92.

    Currencies

    • The Dollar Index fell 0.25% to 90.24.
    • The euro rose 0.2% to $1.2153.
    • The British pound rose 0.2% to $1.3931.
    • The Japanese yen weakened 0.1% to 105.29 per dollar.

    Bonds

    • The yield on 10-year Treasuries gained two basis points to 1.23%.
    • The yield on two-year Treasuries added 1 basis points to 0.115%.
    • Germany’s 10-yearyield sank three basis points to -0.390%.
    • Britain’s 10-year yield was little changed at 0.57%

    Commodities

    • West Texas Intermediate crude declined 0.5% to $59.75.
    • NG climbed 0.4% to 3.080
    • Gold rose 0.25% to $1,823.20

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