Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

U.S. Opening Bell: Reflation Trade Returns After Best Half In 23 Years; USD Gains

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewJul 01, 2021 11:26
uk.investing.com/analysis/opening-bell-reflation-trade-returns-after-best-half-in-23-years-usd-gains-200484319
U.S. Opening Bell: Reflation Trade Returns After Best Half In 23 Years; USD Gains
By Investing.com (Pinchas Cohen/Investing.com)   |  Jul 01, 2021 11:26
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • US stocks seal longest quarterly gains since 2017
  • Oil reaches highest since 2018
  • Bitcoin continues to slide

Key Events

US futures on the Dow, S&P, NASDAQ and Russell 2000 and European shares advanced in trading on Thursday ahead of Friday’s monthly employment report, a key economic release amid the Federal Reserve's shift on the path towards tighter monetary policy. Asian stocks closed lower on new COVID-19 outbreaks in the region.

The oil price rally continues.

Global Financial Affairs

US contracts climbed ahead of today's weekly initial jobless figures which, along with tomorrow's nonfarm payrolls data generally has some of the strongest impact on markets every month, but which is particularly significant currently given rising inflation and the Fed’s stepped up timeline for higher interest rates is driving markets.

In yesterday’s post we said that growth stocks, including those in the technology sector, were driving markets. However, a snapshot of US futures today shows that the reflation trade is back in vogue.

Value shares such as those listed on the Dow Jones Industrial Average—which outperformed yesterday—compared to the tech-heavy NASDAQ, which was the only major US index to close in the red on Wednesday, and the Russell 2000, whose futures contract is now outperforming those on the NASDAQ 2:1 are driving today's gains.

We are seeing a renewed shift to stocks that were depressed during the coronavirus lockdowns, most notably a rebound in travel shares, after a selloff over the past several days. This is noteworthy as it is incongruous given Europe has started to see outbreaks of the Delta variant and increased concerns about new travel restrictions, battering European travel stocks.

Still, European stocks are trading higher overall, after yesterday’s selloff. The shifting focus is driving a return to optimism of an economic recovery, obscuring yesterday's concerns over the spreading virus and inflation.

On the other hand, most US stocks ticked higher during Wednesday's Wall St. session, with the S&P 500 Index even reaching a new all-time high, posting its best half since 1998. This dichotomy—a rally in the US after a European selloff—contradicts the view of US investment banks that European stocks will outperform the US market this year.

The STOXX 600 Index touched its highest levels since June 17, slightly lower the June 16 record, after yesterday sealing its fifth consecutive quarter of gains—and completing one of the pan-European benchmark’s best first half in over two decades—as German retail sales rebounded in the month of May.

STOXX 600 Daily
STOXX 600 Daily

The European gauge has been ranging within a triangular patter, presumed to be a temporary equilibrium before it continues higher. The pattern is complete only upon an upside breakout, preferably amid a spike in volume, demonstrating participation. The sensitive Rate of Change momentum gauge is testing its downtrend line, a leading indicator providing a heads up to the price breakout.

Wednesday was the final day of trading in the first half of 2021 with indices making their best returns, although it was marked by small moves and slow trading. Strong data helped investors endure stretched valuations and the persistent threat of the Delta strain of the coronavirus. The S&P 500 Index is up 14% YTD, locking in its longest winning quarterly streak since 2017.

Yields on the 10-year Treasury note rose, breaking a three-day decline, following yesterday’s imperfect (slight upper shadow) bullish hammer.

10-year Treasuries Daily
10-year Treasuries Daily

Rates are struggling to stay within a triangular pattern. The downside breakout will likely push yields lower, as investors extend a rotation out of Treasuries into stocks, as they gain confidence that the economy and the Fed will prevail over inflation and the pandemic.

The dollar extended a rally to its seventh day,

Dollar Index Daily
Dollar Index Daily

The greenback is completing a bullish pennant, presumably to propel the US currency to the Mar. 31, 93.45 high, to test a large double bottom.

Gold rose for the second day, together with the dollar. Yesterday’s advance could be attributed to a drop in yields, but today, both the dollar and yields are rising.

Gold Daily
Gold Daily

The yellow metal found resistance by the bearish pennant, making this an ideal entry for a short position, with the price right beneath the pattern.

Bitcoin fell for the second day, with gold, the dollar and yields on the rise.

Bitcoin Daily
Bitcoin Daily

The cryptocurrency is extending a potential Head & Shoulders continuation pattern, whose downside breakout would give it the momentum to take on the $29,000 level, the bulls’ last stronghold before $20,000.

Oil advanced toward $75, reaching the highest since 2018, ahead of the OPEC+ meeting, where output will be discussed. Also, the talks between Iran and the US have hit a wall, after a hardliner was elected as President of Iran, removing the expected imminent return of Iranian oil to global markets.

Oil Daily
Oil Daily

The price is trying again to cut through the $74 resistance, in attempt to reach the highest since 2014.

Up Ahead

  • ECB President Christine Lagarde is speaking on Friday.
  • On Friday, the US releases the nonfarm payrolls report.

Market Moves

Stocks

Currencies

  • The Dollar Index was little changed
  • The British pound was little changed at $1.3819
  • The euro was little changed at $1.1854
  • The Japanese yen fell 0.1% to 111.25 per dollar
  • The offshore yuan was little changed at 6.4672 per dollar

Bonds

  • The yield on 10-year Treasuries was little changed at 1.47%
  • Britain’s 10-year yield advanced two basis points to 0.74%
  • Germany’s 10-year yield advanced two basis points to -0.19%

Commodities

U.S. Opening Bell: Reflation Trade Returns After Best Half In 23 Years; USD Gains
 

Related Articles

Neil Wilson
Travel Stocks Lead Gains In Europe By Neil Wilson - Sep 17, 2021

European markets on a firmer footing on Friday – FTSE 100 made a bold move at the open to recapture the week’s intraday high at 7,093 struck on Monday before pulling back, still...

U.S. Opening Bell: Reflation Trade Returns After Best Half In 23 Years; USD Gains

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
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email