US 10 year yields are back on the rise
The sell off in the FTSE continued through the afternoon, intensifying as the US equity indices opened and extended losses for a second straight session. The rise of the US 10-year bond yield is capturing the attention of traders and suddenly equities are not looking so favourable.
The FTSE closed just shy of 1% lower with banking stocks and miners bearing the brunt of the pain. After a solid start to the year for these cyclical sectors, investors are bookings their profits and taking some money off the table, as near term direction is starting to look less certain.
Dow plummets 300 plus points
Over in the US the Dow Jones has plummeted a further 300 points in the first few hours of trading, as Monday’s selloff spills over into Tuesday. The losses of Monday and trading so far on Tuesday combined put the Dow on track for its biggest two day sell off since 2016. The S&P 500 and the Nasdaq both shed 1.1% within the first hours of trading.
Healthcare was the biggest decliner, with UnitedHealth (NYSE:UNH) recording the largest losses on the Dow. This comes following news that Amazon (NASDAQ:AMZN), Berkshire Hathaway (NYSE:BRKa) and JPMorgan (SIX:JPM) look to shake up the healthcare through a joint venture aimed at cutting the healthcare costs of their workers, some 1 million people.
10 year yields back on the rise
Sentiment has been low across the board as prospect of rising interest rates is starting to weigh on the global optimism story, a story which had been boosting stocks to record high after record high. The fear that interest rates may have to rise faster than markets had initially priced in amid concerns of faster inflation is starting to weigh on trading decisions.
The dollar is back on the front foot finding support from higher yields, although investors will turn towards the Fed FOMC announcement due on Thursday and President Trump’s State of the Nation address this evening.
What too look for in Trump’s Speech
President Trump will deliver his first State of the Nation address this evening. Whilst this is not usually a market moving event, with Trump at the helm expect the unexpected.
The speech is usually an opportunity for the President to lay out legislative policy going forward, but Trump is likely to seize on the opportunity to gloat about “record setting” achievements so far as well. The two areas which could cause some volatility in the dollar will be firstly, talk of spending $1 trillion on infrastructure, although this will need questions answered on where the money will come from. Secondly trade talk could also impact on the dollar, especially if protectionist Trump decides to make an appearance on his home soil.
With 10 year yields back on the rise and potentially dollar impacting comments from Trump this evening, the dollar could be in for a choppy session.
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