- Powell renomination unnerves markets
- European stocks plunge on COVID-19 acceleration
- Dollar slides
Key Events
Dow, S&P, NASDAQ and Russell 2000 futures were all trading lower on Tuesday following the announcement Monday that Fed Chair, Jerome Powell will be nominated for a second term as head of the US central bank. The news was seen by investors as confirmation that tighter monetary policy will be put in place sooner than anticipated; yesterday's Wall Street session ended lower.
This morning, the continued spread of COVID-19 and renewed lockdowns across Europe added to the risk-off narrative.
The reintroduction of coronavirus restrictions in parts of Europe also caused a selloff in oil as traders worry there will be a slump in demand.
Global Financial Affairs
The market is interpreting the reappointment of Powell as a signal from the White House that it expects policy tightening, sooner than already outlined by the central bank, in order to deal with the highest inflation in over three decades.
Accordingly, traders on both sides of the Powell wager are exiting positions. The news is expected to weigh on stocks but any reduction in liquidity will likely bolster the USD and hurt the price of gold.
All four US futures contracts were in the red on Tuesday, extending the sharp decline that took place in the final hour of yesterday's trading. While growth stocks on the NASDAQ underperformed on Monday, value stocks on the Russell 2000 are lagging in futures trading ahead of the US open.
The STOXX 600 Index extended a sell-off to the fourth straight day, plummetting as much as 1.55%. This drop marks the pan-European gauge's worst daily performance in six weeks as coronavirus cases in Europe continue to escalate.
Earlier, Asian stocks were mixed as COVID-19 outbreaks continue to fray investors' nerves. Hong Kong's Hang Seng declined 1.2% and the KOSPI in Seoul retreated 0.5%. In Sydney, the ASX 200 gained 0.8% and China's Shanghai Composite index edged 0.2% higher.
Tech shares dragged the broader US market lower at the end of yesterday's trading. The S&P 500 declined 0.32%, with Communication Services and Technology shares losing over 1% each. Economically sensitive sectors dug in their heels, with Energy rising 1.77%, followed by Financials, which added 1.41%.
While 10-year Treasuries declined, the 2-year note sold off sharply, sending the yield five basis points higher. The nod from Biden to give Powell a second term is considered by some to provide the Fed chair with more freedom to fight inflation.
Yields extended an upside breakout of a symmetrical triangle.
The dollar retreated as traders cashed out following a two-day rally. The greenback is rising for its fifth week in a row, for the second time since early October.
After the US currency bottomed out, it is finding resistance by the lowest levels of 2019 and the first half of 2020. If the greenback breaks the 97.00 level, it will aim towards the 100 critical level.
Gold is falling for the fourth consecutive day—apparently, a tighter outlook is overshadowing its inflation hedge status.
The yellow metal's price is heading toward the bottom of its rising channel.
Bitcoin has been attempting to climb back over a neckline to a double top.
While the token is officially in a short-term downtrend, assets can bounce back when they're this close, especially one as volatile as the leading cryptocurrency. Even if the price of the digital coin rebounds, it could just form the right shoulder of an H&S top and remain bearish.
Oil started falling again and is now aiming at the psychological $75 level. This is causing volatility in the commodity market, as larger oil consuming nations are considering tapping their strategic reserves.
Up Ahead
- On Wednesday, the Reserve Bank of New Zealand announces its rate decision.
- US initial jobless claims are published on Wednesday.
- The University of Michigan consumer sentiment index is printed on Wednesday.
Market Moves
Stocks
- The STOXX 600 fell 1.5%
- Futures on the S&P 500 fell 0.4%
- Futures on the NASDAQ 100 fell 0.5%
- Futures on the Dow Jones Industrial Average fell 0.4%
- The MSCI Asia Pacific Index fell 0.3%
- The MSCI Emerging Markets Index fell 0.6%
Currencies
- The British pound was little changed at $1.3386
- The Dollar Index was little changed
- The euro rose 0.2% to $1.1263
- The Japanese yen rose 0.3% to 114.58 per dollar
- The offshore yuan was little changed at 6.3851 per dollar
Bonds
- The yield on 10-year Treasuries was little changed at 1.62%
- Germany's 10-year yield advanced three basis points to -0.27%
- Britain's 10-year yield rose two basis points to 0.95%
Commodities
- Brent crude fell 0.9% to $79.01 a barrel
- Spot gold was little changed