Breaking News
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Opening Bell: U.S. Yields Rise Boosting Dollar, Pressuring Equities

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewOct 10, 2018 04:33
ca.investing.com/analysis/opening-bell-us-yields-rise-boosting-dollar-pressuring-equities-200197712
Opening Bell: U.S. Yields Rise Boosting Dollar, Pressuring Equities
By Investing.com (Pinchas Cohen/Investing.com)   |  Oct 10, 2018 04:33
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Pick up in Treasury selloff coupled with dwindling equity gains flags up bearish paradigm

  • Morgan Stanley warns of shift into value sectors, upcoming correction

  • US investors rotate into Asian stocks' attractive valuations

  • Soaring US yields favor the dollar as the preferred safe-haven currency

Key Events

While yields on US Treasurys resumed their climb this morning, hitting a fresh 7-year high, European shares on the STOXX 600 and futures on the S&P 500, Dow and NASDAQ 100 kept falling, despite a rebound in Asian equities earlier today.

UST 10-Y Daily Chart
UST 10-Y Daily Chart

The yield on US 10-year bonds reversed yesterday's slide and looks set to continue edging higher, as investors resume their selloff of government bonds. It's important to note that yesterday's selling break coincided with an advance in European shares and with a US stock rebound off the day's lows, whereas today's pick-up is coupled with losses across European equities and US futures. Typically, when investors rotate out of bonds, they buy risk assets. That's a bullish paradigm. Conversely, the current Treasury selloff signals a bearish paradigm.

Morgan Stanley) analysts warned that the stock market has reached a “tipping point.” Rising yields may spur a shift in sector allocations, away from growth stocks and toward value assets, favoring energy, utilities and financials over tech and consumer discretionary. The US investment bank is forecasting a market correction as early as 2019, sooner than what the current market narrative is suggesting.

There has also been a rotation into Asian shares, whose very low valuations provide bargains when compared to the record price levels on US stocks. Japan’s Nikkei 225 and the broader TOPIX rebounded from a four-day rout. China’s Shanghai Composite and Hong Kong’s Hang Seng closed 0.18 percent and 0.08 percent higher respectively.

Global Financial Affairs

Yesterday, most US stocks fell, though technology shares gained, consolidating after a three-day selloff.

S&P 500 Daily Chart
S&P 500 Daily Chart

The S&P 500 dropped 0.14 percent, due to fear of rising export costs. Materials shares (-3.32 percent) tumbled, followed by stocks in the Industrials sector (-1.54 percent). Energy (+0.89 percent) outperformed, tracking oil prices higher.

Technically, the benchmark index appears to be forming an H&S top, after the MACD and RSI broke down. Also, the RSI provided a negative divergence, after it crossed below its August trough (horizontal black line), while the price is well above the same indicator.

The Dow Jones Industrial Average bucked the trend, losing 0.21 percent. The NASDAQ Composite eked out a 0.03 percent gain, while the Russell 2000 underperformed, losing 0.47 percent. Technically, all US major indices provided sell signals based on MACD and RSI.

Russell 2000 Daily Chart
Russell 2000 Daily Chart

The small cap index formed a trough, lower than those preceding, but still within the uptrend. A peak lower than the August 30, 1,742.09 would establish a downtrend.

DXY Daily Chart
DXY Daily Chart

The dollar bounced back from its decline after US President Donald Trump said the Fed is tightening interest rates too rapidly. Technically, the DXY may be forming a flag, bullish after the nearly 2.5 percent rise in late September, early October.

Interestingly, the greenback is also strengthening against the yen, perhaps suggesting that foreign investors now see USD-denominated Treasurys as providing safer and better returns than Japan's currency. This pattern may help the dollar overtake the yen as the preferred safe haven currency once again. Technically, the USD/JPY found support by the July peak.

In European FX trade, the euro was unable to hold on to gains after it rallied, alongside the pound, on positive momentum on Brexit talks. Conversely, cable managed to remain in green territory after the Times reported that 30 to 40 Labour MPs would endorse a softer-stance proposal to avert a no-deal Brexit. Officials from both sides of the Channel are meeting in Brussels today to discuss a temporary stay, for the UK, within the EU customs regime.

Meanwhile, the yuan slightly strengthened against the dollar for a second day, easing controversy around China's currency devaluation policy.

WTI slipped back below $75 a barrel, after initially nearing that key psychological level as Hurricane Michael hampered offshore oil production and the IEA issued a warning to the global market.

Up Ahead

  • Canadian Building Permits for August are released on Wednesday.

  • Canadian New Housing Price Index for August is released Thursday.

  • The US Treasury auctions $230 billion worth of debt this week.

  • US President Donald Trump holds the latest series of rallies this week ahead of the November 6 mid-term elections.

  • US consumer prices, due on Thursday, are expected to have remained elevated in September, climbing 2.3 percent from a year earlier.

  • JPMorgan Chase (NYSE:JPM), Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) kick off earnings season for US banks on Friday.

Market Moves

Stocks

  • Canada’s S&P/TSX Composite closed down 0.58 percent Monday.

  • Futures on the S&P 500 dropped 0.1 percent.

  • The Stoxx Europe 600 slipped 0.2 percent.

  • The UK’s FTSE 100 slid 0.1 percent to the lowest level in about six months.

  • Germany’s DAX fell 0.3 percent to the lowest level in more than six months.

  • The MSCI Asia Pacific Index climbed 0.1 percent, the first advance in more than a week.

  • The MSCI Emerging Market Index gained less than 0.05 percent, the first advance in a week.

Currencies

  • The Canadian loonie was down 0.13 percent against the U.S. greenback early Wednesday, trading at 0.7713.

  • The Dollar Index climbed 0.1 percent to 95.71.

  • The euro was unchanged at $1.1491, the strongest level in a week.

  • The British pound gained 0.1 percent to $1.3162, the strongest level in two weeks.

  • The Japanese yen dropped 0.1 percent to 113.12 per dollar, the first retreat in a week.

Bonds

  • Canada’s 10-year yield was up early Wednesday at 2.593 a 0.89-percent increase.

  • The yield on 10-year Treasurys gained one basis point to 3.21 percent.

  • Germany’s 10-year yield lost one basis point to 0.54 percent.

  • Britain’s 10-year yield gained less than one basis point to 1.719 percent.

  • The spread of Italy's 10-year bonds over Germany's climbed ten basis points to 3.026 percentage points.

Commodities

  • West Texas Intermediate crude edged 0.3 percent lower to $74.72 a barrel.

  • Gold fell 0.1 percent to $1,188.57 an ounce.

Opening Bell: U.S. Yields Rise Boosting Dollar, Pressuring Equities
 

Related Articles

FactSet Research Systems Inc
Podcast: Evergrande, US Futures, Central Banks in Focus By FactSet Research Systems Inc - Sep 23, 2021

US futures are indicating a higher open as of 05:00 ET. Central banks in focus with Norges Bank, SNB, and BoE policy announcements this morning, following the FOMC announcement...

Opening Bell: U.S. Yields Rise Boosting Dollar, Pressuring Equities

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email