Key Events
Though U.S. index futures for the S&P 500, Dow Jones and NASDAQ all moved higher this morning, along with some Asian markets, European equities retreated on Tuesday, after initially attempting a rally. In the wake of yesterday's global rout—which erased this year’s gains for stocks—today's activity provides the impression that the worst, at least for markets, might be behind us.
Potentially confirming that sentiment: gold and the dollar are lower, whereas oil bounced from its lows. Still, the yen strengthened, indicating that risk appetite hasn't necessarily returned.
The truth is, one can't know what happens next. But for now, market mechanics indicate that the probability of a top has dramatically increased.
Global Financial Affairs
The major U.S. futures contracts have clawed back some of yesterday's losses, after Wall Street's worst selloff since February 2018, as buyers look for equity market 'bargains.'
The STOXX Europe 600 Index, which initially rebounded, was unable to muster enough demand and is little changed, at the time of writing.
Earlier, in Asia, Japanese markets opened after a holiday. Investors there, who might have thought they could escape Monday's equity devestation, were reminded that perhaps there's no place to hide right now, The Nikkei 225 crumbled, losing 3.34% of value. South Korea’s KOSPI outperformed, (+1.18%), after the previous day’s 4% plunge, which rendered that index undervalued.
During Tuesday's U.S. session, stocks plunged. The S&P 500 Index experienced its worst drubbing in two years—all 11 sectors were in negative territory as the benchmark saw all its gains for the year wiped out, even after hitting a series of fresh records earlier in 2020. The big three major indices—the SPX, Dow and NASDAQ—were each sold off by more than 3%. The mega cap FAANG stocks underperformed, wiping out 4% of value.
The S&P 500 dropped below its uptrend line since the Oct. 2 bottom, finding support by the previous two lows, both made on the last days of December and January. The rising peaks and flat lows are a classic development of a H&S top, with the MACD and RSI confirming a bearish outcome.
Yields remained depressed, with the 30-year Treasury hovering at record lows, demonstrating that demand for the institutional safe haven hasn't diminished even amid today's pickup in U.S. futures.
The U.S. Dollar Index extended Friday’s selloff, trading at the low end of the session.
The MACD and RSI are at a crossroad between bearish signals and the start of a bounce. The dollar is well above its uptrend, leaving room for a pullback.
The yen strengthened for the third straight day – confirming signals sent by Treasurys – that safe haven demand has not dried up. The yen pushed the dollar back into its rising channel, still bullish for the USDJPY but at a more moderate pace.
Gold came back from a selloff and is currently flat with yesterday’s close—showing a growing momentum for a return to havens.
The preceding, nine-day rally completed a rising channel, but the onus is on bears to make a move or see gold take on the $1,700 levels. Unless the spread of Covid-19 accelerates, however, normal market mechanics would allow profit-taking at this juncture for a return toward the $1,600 level before the uptrend resumed.
Bitcoin has been trading in a very condensed fashion. This could be a prelude to an upside breakout, a possibility the recent golden cross acknowledged, which would take the digital currency well above its Feb. 13, $10,489 high.
Oil’s inability to climb back above its uptrend line since the Feb. 10 bottom and the $52 support-resistance level increases the potential for a retest of the $49.50-$50.00 levels.
Up Ahead
- Earnings season continues: Home Depot (NYSE:HD) reports on Tuesday; Peugeot (OTC:PUGOY) on Wednesday; Baidu (NASDAQ:BIDU), Best Buy (NYSE:BBY) and Occidental Petroleum (NYSE:OXY) on Thursday; and Beyond Meat (NASDAQ:BYND) on Friday.
- The Bank of Korea announces its policy decision on Thursday, with the rising probability of an interest-rate cut.
- U.S. initial jobless claims, GDP and durable goods data will be released on Thursday.
- Japan's industrial production, jobs, and retail sales figures are due on Friday.
Market Moves
Stocks
- The Stoxx Europe 600 Index gained 0.5%.
- Futures on the S&P 500 Index climbed 0.9%.
- The MSCI All-Country World Equity Index dipped 0.1%.
- The U.K.’s FTSE 100 gained 0.5%.
Currencies
Bonds
- The yield on 10-year Treasuries advanced two basis points to 1.39%.
- The yield on 2-year Treasuries increased three basis points to 1.28%.
- Germany’s 10-year yield dipped less than one basis point to -0.48%.
- Britain’s 10-year yield gained one basis point to 0.553%.