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Opening Bell: Futures Mixed As Commodity Rally Stokes Recovery Confusion

By Investing.com (Pinchas Cohen/Investing.com)Market OverviewMay 10, 2021 07:21AM ET
www.investing.com/analysis/opening-bell-futures-mixed-as-commodity-rally-stokes-recovery-confusion-200578857
Opening Bell: Futures Mixed As Commodity Rally Stokes Recovery Confusion
By Investing.com (Pinchas Cohen/Investing.com)   |  May 10, 2021 07:21AM ET
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  • Copper and lumber hit records
  • Pound outperforms as Scottish independence vote less likely
  • Oil rallies

Key Events

Soaring commodity prices stoked new inflation worries, confusing traders about the outlook for the economic recovery, denting domestic firms and as well as large cap technology stocks. Futures on the NASDAQ and Russell 2000 were trading in the redon Monday morning while futures on the Dow and S&P were slightly higher.

European shares were broadly flat. Bitcoin was up marginally. 

Global Financial Affairs

Global stocks hit fresh records last week as an extremely disappointing US jobs report on Friday eased worries of higher interest rates. With a rate hike off the table for the immediate future, the narrative says the economy will now be allowed to resume its recovery.

And herein lies the market cognitive dissonance. On the one hand, commodity prices, such as copper and lumber are setting records, converging with the narrative that inflation is accelerating which explains why NASDAQ and Russell 2000 futures are down.

So spiking inflation will hurt small companies. This makes sense. But how can a market narrative that explains a fall in small cap stocks also be the reason that global stocks are hitting new all-time highs.

Investors have been going back and forth on inflation:

  • Is there inflation?
  • Will inflation slow down the recovery?
  • Are asset prices rising because the economy is expanding or amid slower growth but continued stimulus?

Of course, there are no clear answers yet. However, investors keenly await the upcoming US CPI report on Wednesday which is expected to demonstrate continued price pressures in April. However, a series of Fed speakers is likely to further muddle the outlook as they provide their interpretation of the data, with the magic word likely to be “transient.”

Serving to confuse traders further, gasoline jumped as much as 4.2%, to a three-year high, before trimming the spike, as US operator Colonial Pipeline failed to provide a timeline to restarting operations after shutting down Friday in response to a cyberattack.

Yields on the 10-year Treasury note retreated from the 1.6% level, as traders sold off Treasuries ahead of a busy week of auctions, back-ending a rally after data on US jobs was almost three quarters lower than the anticipated number. 

10-year Treasuries Daily
10-year Treasuries Daily

Yield are up at 1.59% but we expect them to continue falling along the falling channel, having completed a top.

The dollar struggled to return above the uptrend line, before falling toward the base of a bearish rising wedge.

Dollar Index Daily
Dollar Index Daily

As long as the price remains above that level, we expect the bullish falling wedge since the 2020 peak to prevail and set the uptrend.

China’s onshore yuan reached the highest level since 2018, and the pound sterling hit a ten-week high after the Scottish National Party, which is seeking a second referendum on Scottish independence, failed to win an outright majority in parliamentary elections over the weekend. 

Gold benefited from dollar weakness and traded in the green, albeit slightly.

Gold Daily
Gold Daily

The precious metal found resistance at the top of its falling channel.

Bitcoin edged higher, but lost its grip on a more meaningful advance to its highest level since Apr. 17. The cryptocurrency is developing an intraday shooting star, confirming the resistance of a rising wedge, bearish after the preceding decline.

Bitcoin Daily
Bitcoin Daily

The wedge itself makes up the right shoulder to a potential H&S top, whose right shoulder and head were also made up of a larger rising wedge, which we also deem bearish, following a climactic rally—two rising wedges following opposite moves.

With the news focusing on the Colonial pipeline shutdown, oil resumed an advance.

Oil Daily
Oil Daily

WTI is challenging its highest level since October 2018.

Up Ahead

Market Moves

Stocks

Currencies

  • The Dollar Index was little changed.
  • The euro declined 0.2% to $1.2143.
  • The British pound jumped 0.6% to $1.4066.
  • The onshore yuan strengthened 0.1% to 6.429 per dollar.
  • The Japanese yen weakened 0.3% to 108.93 per dollar.

Bonds

  • The yield on 10-year Treasuries increased one basis point to 1.59%.
  • The yield on two-year Treasuries dipped less than one basis point to 0.14%.
  • Germany’s 10-year yield gained one basis point to -0.21%.
  • Japan’s 10-year yield decreased less than one basis point to 0.087%.
  • Britain’s 10-year yield jumped two basis points to 0.799%.

Commodities

  • West Texas Intermediate crude gained 0.7% to $65.33 a barrel.
  • Brent crude increased 0.7% to $68.73 a barrel.
  • Gold strengthened 0.2% to $1,835.08 an ounce.
Opening Bell: Futures Mixed As Commodity Rally Stokes Recovery Confusion
 

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Opening Bell: Futures Mixed As Commodity Rally Stokes Recovery Confusion

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Comments (4)
Hosein Solati
Hosein Solati May 12, 2021 2:32PM ET
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its a good
Patrecia Sapulette
Patrecia Sapulette May 10, 2021 10:41AM ET
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I thought that the market feels like a headless chicken. it's just too many aspects to jot down about the current volatility.
Riyan Indah Naya
Riyan Indah Naya May 10, 2021 8:17AM ET
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👍👍👍
JAMES CUNHA
JAMES CUNHA May 10, 2021 7:05AM ET
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Inflation is definitely a major concern. It is obvious that the Fed is downplaying inflation when its policies are clearly contributed to it.
 
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