- Global markets mixed
- Conflicting economic signals from China
- Dollar may correct lower
Key Events
Futures on the Dow, S&P, NASDAQ and Russell 2000, as well as European shares oscillated ahead of the US session as investors searched for direction on Wednesday. The move comes after Tuesday’s massive rally in US stocks which saw significant gains in mega-tech shares including Tesla (NASDAQ:TSLA), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
Gold posted a substantial boost while oil was flat.
Global Financial Affairs
In Europe this morning, the STOXX 600 Index struggled to move higher at the open. The index was held back by fears inflation will slow a recovery, denting mining and travel stocks—two sectors dependent on reopening economies for growth. However, telecom and real estate shares helped the pan-European gauge push modestly higher.
Slowing Chinese demand for base metals also weighed on European markets as the world's second largest economy slowed in the first two months of the year. The producer price index climbed 1.7% YoY, beating the median 1.5% forecast, reflecting inflation fears. However, those worries have yet to reach the Chinese consumer as the consumer price index actually fell 0.2% YoY.
Should factory prices keep rising, they will inevitably reach consumers. The question is whether it will be an even pace, allowing the economy to utilize rising prices as energy to expand, or whether prices will rise too quickly, tightening investing along with consumer spending.
Meanwhile, in the US, the three-year Treasury auction went off without a hitch, as yields remained steady below recent highs. However, sales of the longer-dated 10- and 30-year issues today and tomorrow will determine how much appetite investors have for the safest debt. Any volatility could well spill into the rest of the financial markets.
Asian indexes painted a mixed picture, failing to jump on the express train arriving from Wall Street’s solid rally. Even stabilizing yields couldn’t garner substantial interest on account of investors concerns on tightening in China. The mixed inflation data left the Shanghai Composite flat at the end of a volatile session. Japan’s Nikkei 225 also ended little changed after a choppy day. Australia’s ASX 200 suffered a 0.8% drop after two days of gains.
In US trading on Tuesday, the NASDAQ 100 surged 4%, suggesting investors sought the familiarity of the tried and tested technology sector which benefited from the strict lockdown rules during the global pandemic. However, the $1.9 trillion stimulus and continued rollout of the coronavirus vaccination has economists expecting a recovery.
From a technical perspective, we consider the rally a short squeeze and misguided dip-buying. We expect the tech-heavy benchmark to resume heading lower. Yesterday's trading pattern supports our assertion.
The NASDAQ 100 pared its daily highs upon reaching the neckline of a H&S top.
The dollar found its footing in the form of a Bearish Engulfing pattern after yesterday’s drop.
The greenback opened higher but still erased the entire advance from the previous day. While that's a signal that bears are picking up momentum, this week the USD completed a double bottom, after completing a falling wedge since the March highs. Therefore, while we expect a potential corrective dip, we expect the dollar to keep rising toward 94.
Gold saw a powerful bounce after touching the bottom of a falling channel for the first time since Nov. 30.
That line represents buying, which has been returning the yellow metal toward the extreme end within the rising channel. The RSI is testing its downtrend line, having rebounded from an oversold condition, while the MACD is turning for a bullish signal. The impetus of the trend, however, is lower, and therefore can always fall. One shouldn't count on a return to the channel top. So, employ a sensible trade plan.
Bitcoin edged up for the sixth straight day, trading above the $55,000 level again as it takes on its Feb. 21 record high of $57,376.
Oil was little changed, having rebounded from an earlier dip, ahead of the EIA inventory report later today.
Up Ahead
- The European Central Bank holds its monetary policy meeting on Thursday and President Christine Lagarde is set to hold a briefing.
- In the US the Initial Jobless Claims report and JOLTs Job Openings are released on Thursday.
- On Friday, US PPI is published.
Market Moves
Stocks
- Futures on the S&P 500 Index dipped 0.1%.
- The STOXX 600 Index decreased 0.1%.
- The MSCI Asia Pacific Index gained 0.2%.
- The MSCI Emerging Markets Index rose 0.6%.
Currencies
- The Dollar Index edged up 0.1% to 92.03.
- The euro declined 0.2% to $1.1873.
- The British pound dipped 0.1% to $1.3878.
- The onshore yuan weakened 0.1% to 6.513 per dollar.
- The Japanese yen weakened 0.3% to 108.83 per dollar.
Bonds
- The yield on 10-year Treasuries rose two basis points to 1.55%.
- The yield on two-year Treasuries dipped less than one basis point to 0.16%.
- Germany’s 10-year yield gained less than one basis point to -0.30%.
- Britain’s 10-year yield rose less than one basis point to 0.729%.
- Japan’s 10-year yield climbed less than one basis point to 0.128%.
Commodities
- West Texas Intermediate crude dipped 0.5% to $63.70 a barrel.
- Brent crude declined 0.6% to $67.09 a barrel.
- Gold weakened 0.3% to $1,710.99 an ounce.