- Fed speakers raise possibility of tapering this year
- Dollar buoyed by comments
- Technology outperformed for second day
- Canada announces employment figures on Friday.
- On Friday the Reserve Bank of India announces its monetary policy decision on Friday
- Friday's US jobs report is expected to show another robust month of hiring.
- The FTSE 100 was broadly unchanged
- The STOXX 600 rose 0.2%
- Futures on the S&P 500 rose 0.2%
- Futures on the NASDAQ 100 rose 0.1%
- Futures on the Dow Jones Industrial Average rose 0.2%
- The MSCI Asia Pacific Index was little changed
- The MSCI Emerging Markets Index fell 0.3%
- The British pound rose 0.2% to $1.3914
- The Dollar Index was little changed
- The euro was little changed at $1.1842
- The Japanese yen fell 0.2% to 109.69 per dollar
- The offshore yuan was little changed at 6.4612 per dollar
- Britain’s 10-year yield was little changed at 0.51%
- The yield on 10-year Treasuries was little changed at 1.18%
- Germany’s 10-year yield was little changed at -0.50%
- Brent crude fell 0.2% to $70.24 a barrel
- Spot gold was little changed
Key Events
US futures on the Dow, S&P, NASDAQ and Russell 2000, as well as European shares, advanced in trading ahead of the US open on Thursday as investors focused on robust corporate earnings and positive comments from Fed members while ignoring the downside risk posed by the ongoing spread of the Delta variant of COVID-19.
Yields also rallied following the positive Fedspeak.
Global Financial Affairs
In Europe, Rolls Royce (LON:RR) reported unexpected profits, and German industrial manufacturer Seimens (DE:SIEGn) beat expectations, pushing the STOXX 600 Index to its fourth straight record.
The string of records followed a period of indecision, in which traders were both buying higher, even as they were selling lower—forming a Broadening Pattern. The resolution of that contradiction provided the impetus for this impressive display of strength.
The Asian market lacked leadership, as investors waited for guidance from US data, though most regional benchmarks closed lower.
Only two countries—Japan and Australia—had leading benchmarks in the green. Japan’s Nikkei 225 climbed 0.5%, outperforming peers on robust results from shipping company Nippon Yusen’s (T:9101)—whose stock jumped to its highest level since before the 2008 crash—food manufacturer Kikkoman (T:2801)—bringing the company to within 3.5% of its Feb. 15 record—and industrial & engineering company Hitachi Zozen (T:6501), rising to a four-month high. However, the rally was somewhat muted by ongoing virus concerns, as evidenced by an outperformance by the technology sector.
Technology shares also propped up Australia’s ASX 200, raising it 0.1% but their rally was offset by the energy sector. The benchmark hit the second record and all-time high in a row.
Hong Kong’s Hang Seng underperformed, falling 0.85%, after China’s state media called for addressing gaming addiction with higher taxes on the industry.
US stocks retreated from a record after Fed Vice Chair, Richard Clarida said the bank was set to start a cycle of raising interest rates next year, while tapering it's QE program this year. The rhetoric was especially potent after indications that the US Treasury might limit the sales of its debt securities later this year and a weak ADP jobs report offset a record ISM services index growth, demonstrating that the jobs market may not be able to keep up with higher demand which could stifle growth.
The S&P 500 Index slumped within a range after General Motors (NYSE:GM) missed second-quarter earnings expectations.
GM sold off about 9%, threatening to top out, while the stock still found support by a hammer, when it last visited these levels, at July 19. The 200 DMA just showed up, underlying this price as a technical pressure point where a downward reversal is likely.
CVS Health (NYSE:CVS) beat analyst expectations and even raised its forecast for the year, but the price still slid 4.00%, after the pharmaceutical said it expected fewer vaccinations while costs, including employee wages and technology, would increase.
Technically, the stock has sown growing signs of weakness.
Yesterday’s plunge completed a rising flag, bearish after the preceding plunge. Note, the flag’s development tracked the underbelly of the former uptrend line, broken with the same decline that set up the profit-taking that created the flag. The 100 DMA provides support for now, but if the market mechanics that accompany this pattern continue, the price should retest the 200 DMA.
Also, yesterday technology outperformed, as the NASDAQ 100 was the only gauge in the green, up 0.1%. On the other side of the reflation-spectrum US domestic firms listed on the Russell 2000 underperformed, dropping 1.2%, followed by blue-chip, value mega-caps on the Dow, closing 0.9% into the red.
Yields on the 10-year Treasury note jumped after hawkish Fedspeak from Clarida and St Louis President James Bullard. Bullard said the Fed could taper QE, making current Treasury yields seem more attractive.
The dollar was lifted by the sudden outlook for faster tightening, though today the greenback pulled back, paring some of yesterday’s advance. However, technically, the trajectory is up.
USD found support above a failed bearish pennant, as traders seemed to have reversed bearish positions, after yesterday’s comments. Also, overall, the trend remains bullish, with a recent Golden Cross, which could take the dollar to faceoff with the Mar. 31 high, whose demise, would complete a massive double-bottom.
Dollar strength weighed on gold, which was still little changed.
The yellow metal remained within a range, after completing a bearish wedge. However, the 50 DMA dipped below the 200 DMA, triggering a Death Cross, showing that pricing is weakening in broader terms.
Bitcoin returned to a selloff after yesterday’s rally, the first after a four-day straight decline. Yesterday’s advance could have been a result of reports that JPMorgan pitched a Bitcoin fund to wealthy clients.
A resumed selloff may be due to lingering concerns on increased regulation, after the new SEC chair, Gerry Gensler asked Congress for the authority to monitor the unregulated and volatile market, although senators moved to exempt crypto from tax rules.
Meanwhile, the digital coin is showing signs of another rally.
BTC is developing a bullish flag, whose upside breakout would cement a bottom, taking it higher.
Oil edged lower, extending a losing streak to its fourth day on concerns the pandemic will hamper summer demand. If the selloff endures, it may upend the uptrend.
After falling below its uptrend line—reinforced by the 50 DMA—since the Oct. 30 low, the price is heading toward the July 20 low, supported by the 100 DMA. If the price falls below it, it will establish a downtrend.