- Markets bounce as inflation concerns ease
- Yields slide
- Oil remains buoyant
Key Events
Contracts on the Dow, S&P, NASDAQ and Russell 2000 advanced on Tuesday along with European shares after comments from Federal Reserve officials—that inflation was not a concern—and a warning from Chinese regulators, that it has 'zero tolerance' for speculation in commodities, eased inflation concerns.
Falling yields caused the dollar to slide to its lowest level of the year.
Global Financial Affairs
In Europe, the technology sector led the STOXX 600 Index to a new all-time high, though at the time of writing the pan-European benchmark was off its highs, showing there remain some willing sellers.
In the largest takeover in the history of European real estate, Vonovia (DE:VNAn) plummeted almost 7% because it agreed to buy competitor Deutsche Wohnen (DE:DWNG) for $23 billion. Wohnen, by contrast, leaped over 15% to a record.
Earlier today, Asia was painted green, as regional benchmarks tracked yeserday's rally on Wall Street after inflation concerns faded. The region’s main equity gauges climbed with MSCI’s broadest index of Asia-Pacific shares outside Japan up 1.3% at a two-week high. China’s Shanghai Composite jumped 2.4%, outperforming peers.
On Monday, Fed officials again downplayed inflation risk, stating that surging prices are simply because of unleashed pent-up demand amid a receding pandemic, which will stabilize as economies return to normal. Therefore, inflation will only be temporary and not upend an economic recovery.
China, the world’s second largest economy did its part to rein in inflation worries, threatening business executives with severe punishments for excessive speculation and spreading fake news.
In yesterday’s US session, technology shares led the rally. Ten of the 11 S&P 500 sectors were in the green. Utilities was the only sector in the red. Technology (+1.8%) and Communications Services (+1.8%) were the obvious outperformers, as growth stocks benefit the most from an outlook of lower inflation. By contrast, Financials (+0.5%) was among the laggers, as lower inflation means a narrower profit margin in the largest part of its business, loans.
The S&P 500 completed a bullish wedge, which perfectly realigned with the rising trend line since the 2020 bottom.
Falling yields on the 10-year Treasury note helped equity bulls find their risk appetite again.
However, we’re here to warn that the current trading pattern, a symmetrical triangle, puts risk to the upside.
Falling yields have dragged the dollar lower, enough to potentially complete a bearish pennant.
The slide may provide the momentum for the greenback to retest the Jan. 6 low, which we are still holding out as the catalyst for a rebound to retest the 2020 peak.
Lower yields and a weaker dollar made gold more attractive, pushing it up for the third out of four days.
The yellow metal is struggling for the seventh day, at the top of its rising channel, below the 1,900 level, after having broken through the top of a falling channel since the 2020 record peak.
Bitcoin held gains Tuesday after Elon Musk’s effort to bolster the token’s green credentials stoked a rally, extending a bout of marked volatility in the wake of last week’s crypto rout.
The largest cryptocurrency remains about $25,000, or almost 40%, off its mid-April record.
Bitcoin has bounced off its uptrend line since October, after completing a H&S top—which already achieved its implied target—after it more than halved its value, reaching our earlier price target. We are now bullish on the token.
Oil retained most of the biggest two-day gain since March as investors tracked a recovery in demand that may enable the market to accommodate any fresh flows from Iran should the nation’s nuclear deal be revived.
The price is experiencing downward technical pressure, falling from the top of its rising channel and possibly a new downward channel, giving in to resistance of the Mar. 8 peak.
Up Ahead
- The Reserve Bank of New Zealand announces its policy decision on Wednesday,
- JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) CEOs will testify before lawmakers in the Senate Banking and House Financial Services committees on Wednesday.
- On Thursday the Bank of Korea rate publishes its rate decision.
- US initial jobless claims, GDP, durable goods and pending home sales are published on Thursday.
Market Moves
Stocks
- The FTSE 100 Index was unchanged
- The STOXX 600 rose 0.4%
- Futures on the S&P 500 rose 0.4%
- Futures on the NASDAQ 100 rose 0.6%
- Futures on the Dow Jones Industrial Average rose 0.3%
- The MSCI Asia Pacific Index rose 1.2%
- The MSCI Emerging Markets Index rose 1.3%
Currencies
- The Dollar Index fell 0.2%
- The British pound rose 0.3% to $1.4199
- The euro rose 0.3% to $1.2256
- The Japanese yen rose 0.1% to 108.62 per dollar
- The offshore yuan rose 0.2% to 6.3962 per dollar
Bonds
- The yield on 10-year Treasuries declined one basis point to 1.59%
- Britain’s 10-year yield declined one basis point to 0.80%
- Germany’s 10-year yield declined one basis point to -0.15%
Commodities
- Brent crude fell 0.1% to $68 a barrel
- Spot gold rose 0.3% to $1,886 an ounce