Stock markets are suffering continues pressure from rising Treasuries yields that soared above 1.58% on 10-year T-bonds on Thursday as rising inflation expectations are mounting. A 13-month highs in yields returned the market in the beginning of 2020 just before the COVID-19 pandemic broke out. Should we expect another plunge in the stock market as we saw March last year? We shall see how the situation is evolving.
For the moment the U.S technological sectors suffers the most. Nasdaq 100 lost more than 3% this week while Dow Jones keeps its gains of 1.5% and S&P 500 is struggling to return to 3900 level, where it has started this week. Incredibly high multipliers in tech giants evaluation together with expected decline in demand for on-line services and orders amid significant improvement in the pandemic situation worldwide undermines tech giants’ fundamentals.
It seems investors are convinced in rising economic recovery, and are betting on cyclical goods and assets. That is why we witness the rise of the industrial Dow Jones index, breathtaking climb of copper and crude prices, and strengthening of export commodities-dependent currencies by 2-3% this week alone.
However, such optimism could be too premature and excessive, as macroeconomic data doesn’t confirm it so far. Moreover, global growth is declining for the last six consecutive weeks. So, more prudent investors prefer wait and see tactics until the situation becomes more clear.
And it may turn more apprehensible in a few weeks with S&P 500 broad market index completing to form a reversal pattern. So, a downside target for S&P 500 at 3810 points may be reached by the end of the trading day.
Crude prices broke through resistance levels with Brent crude steady above $65 per barrel. However, this upside spike seems more unstable amid slowing down global economy and rising crud reserves in the United States. Energy Information administration reported on Wednesday crude reserves were up by 1.3 million barrels. In Texas the weather is returning to its season’s average normal and crude production gradually recovers. So, from a fundamental point of view a return to $65 per barrel of Brent crude is seen more likely.
Gold prices are guided by rising Treasuries yields. So, if yields continue to rise we prices may drop below the resistance zone of $1780-1800 toz with next targets at $1650-1700 per ounce.
The U.S. Dollar has retreated on FX market clearing the path for the Euro to climb to the 1.23000 mark. If this target would be achieved it will signal a good selling position.
The British Pound surrendered plummeting bellow 1.40200. Any prices below 1.41300-1.41600 after technical confirmation of the downside move may be considered.
The Japanese Yen is trying to break through its highs at 106.20 level. It is succeeds we may witness a true flash crash of the Japanese currency as the next resistance level for USDJPY is at 110.50 only. A buy position after technical confirmation of the upside movement in the pair would be reasonable.