- Will CPI data settle the ongoing inflation debate?
- Oil recovers as China's COVID spread slows
- Bitcoin recovers
Key Events
On Wednesday, European stocks and futures on the Dow Jones, S&P 500, NASDAQ 100 and Russell 2000 continue to move higher ahead of key US inflation data which will be released ahead of the US open today.
Treasury yields slid.
Global Financial Affairs
All four US contracts were green, with NASDAQ 100 futures outperforming for the second straight day. Recently, the tech-heavy gauge and the Russell 2000 have led selloffs and advances.
Both indices have the most to lose with higher interest rates so when the market thinks that the US Federal Reserve will continue aggressively hiking rates, the interest-rate-sensitive gauges underperform. Conversely, when the view is that inflation is peaking, the indices enjoy a buying dip.
In Europe, stocks on the STOXX 600 extended a rebound to a second day after falling to a two-month low on the back of a rally in real estate stocks. However, the index found the same resistance as yesterday when the pan-European gauge closed well off its highs.
Most Asian indices rose, with Chinese shares taking the lead as COVID case numbers decline there. Investors are optimistic that the government will ease its coronavirus restrictions and this helped push the Shanghai Composite up 0.75%. However, from a technical perspective, we are less positive on the outlook.
The Chinese benchmark closed well off its highs, forming a bearish Shooting Star, reinforcing the May 5 high resistance. The gauge appears to be developing a Rising Flag, bearish after the preceding double-digit decline in a week. Finally, the flag's position confirms the Falling Channel.
South Korea's KOSPI was the only primary regional index in the red. The Korean gauge fell for the seventh consecutive session, its longest losing streak in 9 months.
The KOSPI dropped to a 17-month low amid stagflation concerns. Stagflation is when there is high inflation at the same time as shrinking economic growth and high unemployment. This economic environment is difficult for policymakers, as raising interest rates to rein in inflation would further damage unemployment.
The Korean benchmark completed a bearish triangle, confirming an H&S top.
On Tuesday, the S&P 500 Index rebounded from a decline that wiped out $9 trillion from the US stock market this year. Still, persistent supply pushed the index to close well off intraday highs.
The S&P 500 may have completed a Downward Sloping H&S top. That variation occurs when demand is too weak to support the price enough to form a right shoulder symmetrical to the pattern's left one.
The price closed below the neckline for the second day, having provided a decisive downside breakout to a bearish pennant, including a breakaway gap. The price, however, may find support at the bottom of a falling channel.
Treasury yields on the 10-year note fell for the third day, for the first time since Apr. 26, as investors have been rotating into bonds from stocks. Yields slipped as inflation fears gripped the bond market.
The dollar fell, but we expect it to return to a rally.
The greenback remained bullish after the preceding sharp advance for the fifth day above a Falling Flag.
In a mirror image of dollar weakness, gold rose. However, there is also a technical impetus for the yellow metal's rebound from its two-day rout.
The price found support above the uptrend line since the August low. However, the real test will be whether the preceding triangle will retain its bearish stronghold.
Bitcoin advanced after finding support yesterday at the $30K level.
If the cryptocurrency breaks it, it could complete a massive Double Top, potentially putting the experiment out of business.
Oil rebounded from a two-day selloff on China's declining coronavirus cases which improved the economic outlook from the commodity's largest global importer.
The price found support above the triangle, as we expected.
Up Ahead
- San Francisco Fed President Mary Daly speaks Thursday
- On Thursday, PPI figures are published.
- US initial jobless claims are released on Thursday
Market Moves
Stocks
- The MSCI Asia Pacific Index rose 0.1%
- The MSCI Emerging Markets Index rose 0.4%
Currencies
- The euro rose 0.3% to $1.0557
- The Japanese yen fell 0.5% to 129.77 per dollar
- The offshore yuan was little changed at 6.7427 per dollar
- The British pound rose 0.43% to $1.2374
Bonds
- Britain's 10-year yield fell two basis points to 1.83%
Commodities
- Brent crude rose 3.3% to $105.78 a barrel
- Spot gold rose 0.7% to $1,850.27 an ounce