- US Treasury yields rally
- Oil hits a new 7-year high on continued supply disruptions
- European luxury goods players thrive
Key Events
On Wednesday, US futures on the Dow Jones, S&P 500, NASDAQ and Russell 2000 and European stocks recovered slightly after yesterday's equity selloff coincided with investors selling global bonds, driving yields higher ahead of tightening US monetary policy amid the highest inflation in four decades.
The dollar slid while gold was stronger.
Global Financial Affairs
US futures were all trading in the green, with contracts on the NASDAQ 100 leading and Russell 2000 futures lagging, as investors switched out of the cyclical rotation which favors value over growth stocks.
Retailers climbed after Swiss luxury brands retailer Richemont (SIX:CFR) and the UK's Burberry Group (LON:BRBY) outperformed earnings forecasts, with sales beating pre-pandemic levels. Moreover, London-based Burberry forecast 35% earnings growth this year, demonstrating that consumers were comfortable splurging on luxury goods which is a positive indicator for economic growth.
This is noteworthy. The luxury goods group's outlook contradicts the superficial read of today's US futures performance, as the Consumer Discretionary sector is economically sensitive, therefore should be underperforming.
Earlier Wednesday, stocks in Asia extended their decline, and the only index in the green was Hong Kong's Hang Seng, but only just—it closed up less than 0.1%
The MSCI's broadest index of Asian Pacific shares excluding Japan continued its slide for a fifth day.
The pan-Asian benchmark extended the downtrend within its falling channel but still had the potential for a reversal, with an H&S bottom.
The yield on the 10-year Treasury note surged as high as 1.897, settling at the time of writing at 1.893, leading some to consider a 2% cross inevitable. This rise is the fastest since the 2016 Trump Trade and indicates a 50 basis point hike in March.
The expectation of increased interest rates is weighing on stocks with higher valuations making value stocks more attractive to investors so we expect investors' funds to continue to flow in this direction.
Yields completed a rising flag, helping rates blow out a potential double top while extending the peak and trough uptrend.
Some sectors naturally benefit from higher rates. For example, banks receive a boost from increased margins. Also, a more expensive dollar renders stocks that were in demand overpriced.
The greenback pared yesterday's extraordinary advance, which extended a rise to its third day. However, it remained above the rising channel and inside a trading range that has been shifting. Our latest read was a descending triangle, but the currency's reinsertion could blow it out.
Gold rallied on dollar weakness.
Technically, the yellow metal has been ranging for a week in downward congestion after finding resistance by a broken uptrend line, which could turn it into a double top. On the other hand, these patterns are small, and there are anomalies in this fast-shifting market. So, traders must remain vigilant for breakouts and blowouts.
Bitcoin completed a rising flag and is set to extend a selloff along its falling channel upon competing with a sizeable H&S top, which puts it on target for $30,000.
If that breaks, it could be the beginning of the end for the cryptocurrency.
Oil continued its move higher after a fire in a pipeline between Iraq and Turkey stopped flows. WTI moved past $85, to its highest levels since October 2014, aggravating inflation which is already at a 40-year high.
Should a few long green candles form, there may be the potential for a top since April's level has blown out.
Up Ahead
- The EIA reports crude oil inventories on Thursday.
- US initial jobless claims are announced on Thursday.
- On Friday Canada reports retail sales for November.
Market Moves
Stocks
- The STOXX 600 was little changed
- Futures on the S&P 500 fell 0.1%
- Futures on the NASDAQ 100 fell 0.1%
- Futures on the Dow Jones Industrial Average fell 0.1%
- The MSCI Asia Pacific Index fell 0.6%
- The MSCI Emerging Markets Index fell 1%
Currencies
- The Dollar Index fell 0.1%
- The euro was up 0.1% at $1.1341
- The Japanese yen fell 0.1% to 114.43 per dollar
- The offshore yuan fell 0.1% to 6.3513 per dollar
- The British pound was up 0.3% at $1.3638
Bonds
- The yield on 10-year Treasuries advanced one basis point to 1.89%
- Germany's 10-year yield rose three basis points to 0.01%
- Britain's 10-year yield increased five basis points to 1.26%
Commodities
- WTI crude advanced 0.47% to $85.85 a barrel
- Brent crude rose 0.3% to $87.74 a barrel
- Spot gold was little changed