The Dow snapped an 8-day winning streak after interest rate expectations surged. An inline retail sales reading was sufficient to trigger a sharp move higher in 10-Year treasury yields, dampening demand for US equities whilst lifting the dollar to a 5 month high versus a basket of currencies.
Whilst the Dow closed over 190 points lower, the S&P shed 0.6% and the Nasdaq headed 0.8% lower as concerns over higher future corporate borrowing rates painted equities in an unattractive light. Traders are not looking at the bigger picture right now, the fundamentals say that the economy is strong which is why the Fed could be considering a more aggressive path to hiking; the irony is this is triggering a selling mentality in traders as the era of cheap money appears to be well and truly over.
Whilst Wall Street moved lower on rising interest rate expectations, the mood was solemn in Asia after North Korea suspended talks with South Korea and as Japanese economic growth suffered its first contraction since 2011, according to a preliminary reading. Japan’s economy experienced an annualised contraction of -0.6% in the first quarter, well short of expectations of a -0.1% contraction.
Burberry reports
Europe is pointing to a marginally higher start with embattled retailers expected to be in focus as Burberry (LON:BRBY) reports. No fireworks are anticipated in Chief executive Marco Gobbetti first full year results, with almost flat annual revenue but a steady growth in comparable sales forecast. The results comes amid a big change of names at the top and following news of the richest man in Belgium selling his 6.6% stake.
Gold Below $1300
Bond yields hitting the highest level in 7 years and the strengthening US dollar sparked a major sell off in gold, which finished the previous session 1.8% lower. Gold hit a low of $1288.3 and continues to languish at these levels. The next moves for gold are closely tied to where treasury yields, and the dollar go from here. Belief that the Fed will continue to tighten with more that three hikes this year has been a significant factor in gold’s recent decline. Strong US data will further fan the flames of optimism for 4 hikes, which could see gold fall steeply lower.
A tale of two central banks
The euro has been a noticeable victim of recent dollar strength, as the common currency hit a 5-month low versus the dollar in the previous session. As expectations of a more hawkish Fed grow, the ECB is looking particularly dovish in contrast. Inflation data and a speech ECB President Draghi this morning could serve to highlight the glaring and growing differences in monetary policy between the two central banks. Should Draghi mention the poor data coming from the eurozone since the beginning of the year, he could exasperate selling pressure on the euro pushing it below $1.182, before it targets $1.17.
Opening calls
FTSE to open 3 points higher at 7725
DAX to open 19 points higher at 12989
CAC to open unch. at 5553
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