- Ukraine worries subside slightly
- Treasury yields recover
- Oil is range-bound due to Russia and Iran
Key Events
On Wednesday, futures contracts on the Dow Jones, S&P 500, NASDAQ and Russell 2000 bounced back as traders' worries were calmed when the US imposed modest sanctions on Russia after it yesterday moved troops into the eastern regions of Ukraine. European shares traded higher for a second day.
Gold and the US dollar slipped.
Global Financial Affairs
After posting one of the weaker performances among the four major US indices on Tuesday, contracts on the tech-heavy NASDAQ 100 led the rebound this morning. Meanwhile, futures on the Dow Jones lagged, even though the underlying index was the worst performer yesterday.
European stocks on the STOXX 600 opened higher and extended their advance, bouncing off a support line.
The pan-European benchmark found support by the potential neckline of a top.
On Tuesday, during the New York session, the S&P 500 slumped 1.01%, extending its total decline to 10.26% from its record on Jan. 3. This pushed the index into correction territory.
The benchmark closed on the brink of a top.
The S&P 500 found support by the lows of July, October, and January, where traders can draw the neckline of an H&S top.
With its blue-chip value stocks, the Dow Jones declined 1.42% but was only 8.07% off its Jan. 4 record.
The NASDAQ 100 also slipped on Tuesday, as traders cashed out of growth stocks, extending the selloff from its Nov. 19 record to 16.31%. The Russell 2000, which lists smaller firms that are not as well equipped as larger cap companies to manage higher borrowing costs, declined 1.08%; the small cap index is 18.94% off its Nov. 8 record. The small-cap benchmark had already fallen 20.94% by Jan. 27, putting it into a bear market.
As we predicted, yields on the 10-year Treasury note bounced back into the rising channel on the support of a bullish pennant, itself an upside breakout of a sizeable bullish triangle.
Rising yields will likely weigh on stocks, because that signals higher rates plus they now offer an attractive alternative to stocks during tumultuous times.
The dollar declined slightly for a second day. While the greenback remains bullish over the long term, its short-term movement is raising concerns.
The greenback has remained above the rising channel, for now, but it might be forming a Diamond pattern, which tends to develop at tops.
Gold fell for a second day, but at this point, the presumption is that the primary trend is rising.
The yellow metal broke out of a large triangle that developed during 2021. A decline may now provide a buying dip.
Bitcoin rose for the second day.
We expect the digital currency to decline again, toward the $30,000 level, after completing a large H&S top.
Oil fell slightly but remained in a range as traders weighed the possible effects of a disruption to supplies from Russia, due to the situation in Ukraine, while also expecting Iranian exports to resume once the ongoing negotiations on a nuclear pact conclude.
The price might be producing a pennant, whose upside breakout would determine a return to a rally. We're not overly excited about this pattern because the bullish interest would be more potent if it developed after a sharper rise. The long shadows that preceded the pattern demonstrate a lack of consensus.
Up Ahead
- On Thursday the EIA reports crude oil inventories.
- The US reports quarterly GDP figures on Thursday.
- US initial jobless claims are printed on Thursday.
Market Moves
Stocks
- The STOXX 600 rose 0.8%
- Futures on the S&P 500 rose 0.8%
- Futures on the NASDAQ 100 rose 1.1%
- Futures on the Dow Jones Industrial Average rose 0.7%
- The MSCI. Asia Pacific Index rose 0.3%
- The MSCI Emerging Markets Index rose 0.4%
Currencies
- The Dollar Index fell 0.2%
- The euro rose 0.2% to $1.1343
- The Japanese yen was little changed at 115.03 per dollar
- The offshore yuan rose 0.2% to 6.3101 per dollar
- The British pound rose 0.2% to $1.3616
Bonds
- The yield on 10-year Treasuries advanced four basis points to 1.98%
- Germany's 10-year yield fell to 0.239%
- Britain's 10-year yield rose to 1.46%
Commodities
- WTI crude fell 0.7% to $91.67
- Spot gold fell 0.2% to $1,895.60 an ounce