Here are the latest developments in global markets:
- FOREX: The US dollar index is 0.2% higher today, hovering just below its four-month high posted earlier in the week, as the continued rise in longer-term US bond yields has breathed some life back into the world’s reserve currency. Both the aussie and the kiwi are 0.45% lower against the greenback, extending recent losses.
- STOCKS: US markets stumbled on Tuesday, pressured by concerns around rising borrowing costs, as well as discouraging signals from the industrial and technology sectors. The Dow Jones fell 1.74%, dragged lower by Caterpillar (-6.2%), whose CFO hinted the first quarter was probably the firm’s best for the year. Meanwhile, the Nasdaq Composite declined 1.7% as FANG shares (Facebook, Amazon, Netflix, Google-parent Alphabet) all dropped by more than 3.5%. The S&P 500 tumbled by 1.34%. Meanwhile, futures tracking the Dow, S&P, and Nasdaq 100 are all pointing to a negative open today. Asian indices were a sea of red as well. In Japan, the Nikkei 225 and the Topix edged down by 0.28% and 0.11% respectively, while Hong Kong’s Hang Seng pulled back by 1.09%. In Europe, futures tracking all the major benchmarks were in negative territory.
- COMMODITIES: Oil prices are practically unchanged on Wednesday, after retreating yesterday on the back of the broader sell-off in equity markets and a surprising build in the private API crude inventory data. Today, focus will likely turn to the release of the official EIA weekly stockpile data, though any major shifts in risk appetite also have the capacity to drive oil prices. In precious metals, gold is more than 0.4% lower today, currently trading near the $1323 mark. The yellow metal has struggled in recent days, as the rebound in the greenback is keeping a lid on any material advances in gold. With gold being denominated in dollars, an appreciation in the US currency makes the metal less attractive to investors using foreign currencies, thereby curbing its demand.
Major movers: Dollar index hovers near 4-month highs, no reprieve for antipodeans
The dollar index is 0.2% up on Wednesday, staying elevated near the four-month high of 91.10 it posted on Monday, supported by sustained advances in US Treasury yields. Earlier today, the yields on 10-year Treasuries broke above the widely touted 3.0% psychological level, and have remained above it since. Higher US bond yields tend to lift the dollar, as they induce investors to increase their exposure to that currency. It will be most interesting to see whether the dollar index can break above the 91.10 zone soon, as that is the upper bound of the sideways range it has been trading in since mid-January, and a move above it would turn the technical picture to cautiously positive.
Meanwhile, US stocks suffered as bond yields rose. Rising yields typically weigh on demand for equities, as bonds become more attractive to hold relative to stocks. The fact that the borrowing costs of companies rise as well in such an environment, diminishing their ability to buy back their own stocks, also plays a major role.
Elsewhere, the antipodean currencies – the aussie and the kiwi – continued to suffer. Both are 0.45% lower against the greenback today, extending the significant losses they posted recently. Fundamentally, both currencies appear to be battered by diminishing expectations for any rate increase by either the RBA or the RBNZ this year, following relatively soft data on inflation out of both Australia and New Zealand lately. The dollar’s latest rebound, combined with some key technical breaks to the downside, may have amplified the selloff.
Day ahead: Raft of corporate earnings and EIA oil report on the agenda
With the rest of the day practically empty of country-specific releases out of major economies, the focus might turn to corporate earnings and the Energy Information Administration’s weekly report on crude stocks.
On a busy corporate-earnings day, some of the big names reporting results include AT&T, Boeing, Comcast, eBay, Facebook, Ford and Twitter. Boeing and Comcast will publish their results before the US market open, with all other earnings reports scheduled for announcement after the closing bell on Wall Street.
Major US equity indices recorded a considerable drop on Tuesday, as warnings by perceived-bellwether companies – perhaps most notably Caterpillar – of higher costs on the back of rising yields weighed on equity market sentiment. It would be interesting to see to what extent this narrative plays out today, diverting to some extent the attention from corporate releases and into the bigger picture for the stock market. How Treasury yields evolve today, and in the days to come, can also add fuel or remove steam out of this story.
The EIA’s report on US crude oil inventories for the week ending April 20 due at 1430 GMT will be of interest to traders of the precious liquid which is trading around levels last seen in late 2014. Crude stocks are anticipated to decline by 2.0 million barrels, posting their second straight weekly drawdown. In the previously recorded week, they fell by 1.1m barrels.
An appearance before the Senate Standing Committee on Finance by Bank of Canada Governor Stephen Poloz and Senior Deputy Governor Carolyn Wilkins is on the agenda at 2015 GMT.
Technical Analysis: WTI oil futures retreat a bit from 3½-year high; bearish signal by stochastics in very short-term
WTI oil futures for June delivery have fallen a bit after touching a three-and-a-half-year high of 69.52 on Thursday (yesterday they came close to revisiting that peak). The positively aligned Tenkan- and Kijun-sen lines are projecting a bullish picture in the short-term, though notice that the former has flatlined and the latter is not as steeply sloped as previously; positive momentum may be easing. Moreover, the stochastics are giving a bearish signal in the very short-term: the %K line has moved below the slow %D one and both lines are heading lower.
Should today’s EIA report show a larger-than-anticipated drawdown in crude inventories, then the bullish bias in the short-term may be refueled. Resistance to advances could come around last week’s three-and-a-half-year high of 69.52 and the 70 round mark. A violation of the latter may pave the way for stronger gains.
On the downside and in case of a smaller-than-expected drawdown in crude stocks (or a buildup), support could come around the current levels of the Tenkan- and Kijun-sen lines at 67.54 and 65.66 respectively; the Tenkan-sen is tested at the moment. A couple of peaks – at 66.63 and 66.52 – lie between the two lines as well.