Breaking News
Close
Investing Pro 0
NEW! Get Actionable Insights with InvestingPro+ Try 7 Days Free

U.S. Opening Bell: Equity Reflation Trade Set To Resume; Yields, Dollar Surge

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewFeb 04, 2021 12:14
uk.investing.com/analysis/opening-bell-equity-reflation-trade-set-to-resume-yields-dollar-surge-200454725
U.S. Opening Bell: Equity Reflation Trade Set To Resume; Yields, Dollar Surge
By Investing.com (Pinchas Cohen/Investing.com)   |  Feb 04, 2021 12:14
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Steepest 30Y:5Yyield curve in years
  • Cyclical trade hits bump but reflation trade to resume
  • Economically sensitive sectors in position to outperform

Key Events

The global rally in stocks that paused on Wednesday appears ready to resume during Thursday's Wall Street session, based on pre-US open futures trading. Contracts for the Dow and S&P, were led higher by NASDAQ futures, while Russell 2000 futures were in the red. Investors continue to remain positive following strong corporate results and the decision by Democrats to go it alone in passing their $1.9 trillion coronavirus relief plan.

The dollar moved higher as gold slumped.

Global Financial Affairs

The story of the equity market's oscillating cyclical rotation is currently being displayed via US futures trading. The rally, which began in November, was led by stocks sensitive to the economic cycle. These sectors were the ones that plunged during the COVID-19 lockdowns, as investors moved capital into technology and other sectors that benefited from the work-from-home environment.

The “reflation trade,” which benefits shares in companies that will do well in the post-pandemic environment resurfaced recently since the expected fiscal stimulus, combined with the ongoing monetary easing, will spur economic growth and benefit businesses that suffered during the lockdowns. Meanwhile technology shares suffered. 

But what we've been seeing recently has been a a whipsawing version of the reflation trade. Tech has been leading the rallies when market leadership shifted out of the cyclical trade. But On Wednesday, the NASDAQ outperformed during the US session, at least at first.

However, by the close it was in the red, while small caps—which excel during an economic recovery—posted the best results. This morning, however, perhaps ominously, tech futures are leading and contracts on US small caps are lagging, trading in negative territory at time of writing.

The STOXX 600 Index pushed higher with energy shares amid mixed earnings results. Deutsche Bank (DE:DBKGn) wiped out earlier gains even after the German lender posted annual profits for the first time in six years. Global household and personal products giant Unilever (AS:ULVR) dropped after it disappointed analysts’ expectations on restructuring charges.

STOXX 600 Daily
STOXX 600 Daily

The pan-European Index rebounded from a lower open, but at the time of writing, appeared to have found resistance by yesterday’s shooting star, after falling below the uptrend line since Oct 29. We don’t consider the previous decline as a bullish flag because it was preceded by a sideways move, rather than by a climactic uptick.

Earlier today, Asia was red across the digital board, as the pandemic’s impact appears to have weighed on sentiment moreso than in the West, where the vaccine rollout is well underway. On the other hand in Asia, only China seems to be on top of that critical initiative.

Japan’s Nikkei 225 dropped 1.1%, while South Korea's KOSPI lost 1.4% of value, underperforming the region. China’s Shanghai Composite declined by only 0.4%, which might confirm the apparent lack of vaccine preparedness was indeed the reason for regional declines.

Yesterday, the majority of US stocks listed on the S&P 500 managed to stop a retreat, after the broad benchmark's biggest two-day rallin in nealy three months. Energy and financial shares outperformed amid the cyclical rotation, outpacing tech, even after Alphabet (NASDAQ:GOOGL) posted a record high on spectacular earnings results.

Amazon (NASDAQ:AMZN) slumped altogether. However, it kept our trade in play, even providing an extraordinary entry point from a risk-reward perspective. 

AMZN Daily
AMZN Daily

The e-tail giant found support by a bullish flag, at the top of a symmetrical triangle.

Banks advanced after JPMorgan Chase (NYSE:JPM) and Morgan Stanley (NYSE:MS) both issued bullish calls on the sector.

Reddit retail trader target GameStop (NYSE:GME) stopped plunging and another Reddit 'victim' AMC Entertainment (NYSE:AMC) even rebounded.

Silver, on the other hand, which was also in Reddit trader crosshairs, extended a decline.

Yields, including for the 10-year benchmark note, took a breather after Treasuries are sold off in anticipation of new issues with higher interest rates.

US Treasuries 30-year Vs. 5-year
US Treasuries 30-year Vs. 5-year

The 30-year Treasury yield is treading near its highest level in a year, while the gap to 5-year yields—a leading growth indicator—reached its steepest level in nearly five weeks on Wednesday.

The dollar extended a dual upside breakout of a small H&S bottom and a massive falling wedge. 

Dollar Index Daily
Dollar Index Daily

US strength pushed gold lower, clearing a bearish flag.

Gold Daily
Gold Daily

The yellow metal was propelled deeper within a falling channel, which is lowering the odds for a H&S bottom.

Bitcoin retreated from a four day advance.

Bitcoin Daily
Bitcoin Daily

The drop helped the cryptocurrency complete a falling flag, finding resistance by Friday’s shooting star. Its decline could trigger some buying opportunities in lower prices alt-currencies. 

Oil extended an advance to the fourth straight day as OPEC+ announced it will resume clearing the pandemic’s surplus.

Up Ahead

  • The Bank of England and Indian central bank will set interest rates later today. rates on Thursday and an Indian central bank policy decision is due Friday.
  • On Friday, US Nonfarm Payrolls are released.

Market Moves

Stocks

  • Futures on the S&P 500 Index climbed 0.2%.
  • The FTSE 100 Index fell 0.4%.
  • The Stoxx Europe 600 Index increased 0.4%.
  • The MSCI Asia Pacific Index fell 0.6%.
  • The MSCI Emerging Market Index declined 0.4%.

Currencies

  • The Dollar Index rose 0.9% to 91.38.
  • The British pound was flat at $1.3641.
  • The euro fell 0.3% to $1.2002.
  • The onshore yuan was little changed at 6.463 per dollar.
  • The Japanese yen weakened 0.2% to 105.19 per dollar.

Bonds

  • Britain’s 10-year yield jumped 4 basis points to 0.407%.
  • The yield on 10-year Treasuries declined less than one basis point to 1.14%.
  • The yield on two-year Treasuries declined less than one basis point to 0.12%.
  • Germany’s 10-year yield was unchanged at -0.46%.
  • Japan’s 10-year yield rose less than one basis point to 0.061%.

Commodities

  • West Texas Intermediate crude gained 0.7% to $56.10 a barrel.
  • Brent crude increased 0.7% to $58.84 a barrel.
  • Gold weakened 0.6% to $1,823.04 an ounce.
U.S. Opening Bell: Equity Reflation Trade Set To Resume; Yields, Dollar Surge
 

Related Articles

U.S. Opening Bell: Equity Reflation Trade Set To Resume; Yields, Dollar Surge

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
Our Apps
DOWNLOAD APPApp store
Investing.com
© 2007-2022 Fusion Media Limited. All Rights Reserved.
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
  • Sign up for FREE and get:
  • Real-Time Alerts
  • Advanced Portfolio Features
  • Personalized Charts
  • Fully-Synced App
Continue with Google
or
Sign up with Email