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Opening Bell: Global Yields Jump, Stocks Slump Ahead Of Rising Rates; Oil, USD Up

Published 01/18/2022, 08:50 AM
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  • Surging yields indicate rising interest rates
  • Oil touches highest level since 2014
  • Bitcoin slips further
  • Key Events

    US bonds and Wall Street equity index futures, including for the Dow Jones, S&P 500, NASDAQ and Russell 2000, slid in trading on Tuesday as concerns grew that liquidity will thin as central banks reduce monetary easing in an attempt to battle spiking inflation. As a result, Treasury yields have hit a 2-year high.

    Earnings season continues today with major banks Goldman Sachs (NYSE:GS) and Charles Schwab (NYSE:SCHW) reporting ahead of today's open.

    Global Financial Affairs

    With the Fed cutting stimulus and poised to raise rates, investors are readjusting portfolios to take into account the increasing cost of money for the first time since the 2008 financial market crash caused liquidity to dry up as banks refused to provide loans, fearing defaults.

    All four US contracts were in negative territory, with NASDAQ 100 futures dropping as much as 1.80%, followed by Russell 2000 futures which slid 1.3% before recovering slightly. The Dow Jones, whose blue-chip listings represent value, fell the least as investors seem to be favoring mega cap corporates that are not as sensitive to coronavirus lockdowns and can withstand a slowdown in US economic growth.

    In Europe, the only sector in the green on the STOXX 600 Index today was energy, as the pan-European gauge slumped.

    STOXX 600 Daily

    If the price falls below the 480.64 low registered on Jan. 10, the European stock benchmark will complete an hourly falling trend. Beneath the 466.00 level, we see the rising trend since the March 2020 bottom.

    Earlier Tuesday, most Asian markets moved lower as well. MSCI's broadest index of Asia-Pacific shares excluding Japan declined 0.45%, extending a selloff to its fourth straight day for the first time in over a month.

    MSCI Asia Pacific Ex-Japan Daily

    Technically, the Asian index is falling after hitting the top resistance of its falling channel since its February 2021 record peak. However, the benchmark may have completed a small H&S bottom, which might be the head of a larger H&S bottom.

    Rising 0.8%, the Shanghai Composite was the sole significant regional gauge in positive territory. China is the only major economy that is resisting the global tightening shift. On Monday, President Xi Jinping called on major economies to manage the ongoing economic risks from COVID but ironically, on the same day, data illustrated the world's second-largest economy was losing momentum.

    US markets were closed yesterday in celebration of the Martin Luther King Jr. holiday.

    As investors dump bonds, global bond yields surged. Increased selling allows their relative payouts to grow. Climbing yields are a leading indicator of shifting central bank rate policies.

    2-year Treasury yields jumped over 1% for the first time since the start of the global pandemic. Meanwhile, 10-year yields reached their highest level since Jan. 6, 2020. and German 10-year yields neared positive territory for the first time since early 2019 as tightening US policy is having an effect on European bond markets.

    German 10-Year Treasuries Daily

    The German yield completed a falling, bullish flag, suggesting yields may indeed turn positive.

    The US dollar climbed for the third straight day for the first time in a month.

    Dollar Index Daily

    The question is whether this is part of a return-move and if the descending triangle has paved a downward path for the greenback or whether the rising channel will endure.

    Gold dropped for the third day out of the last four amid dollar strength.

    Gold Daily

    The yellow metal may be forming a double-top.

    Bitcoin slid for the second day.

    Bitcoin Daily

    The cryptocurrency may have completed a return-move in a rising flag within a falling channel that finished a massive H&S top.

    A combination of easing concerns on further Omicron-related lockdowns and shrinking inventories boosted oil to its highest level since Oct. 10, 2014, with some analysts forecasting it will hit $100 per barrel.

    Oil Daily

    The price of WTI has retreated from session highs to potentially form a hanging man and a possible evening star after today's rising gap, at the resistance of the previous peak in October. The sideways range since April puts a potential massive top on the table.

    Up Ahead

    Market Moves

    Stocks

    • The STOXX 600 fell 1.1% as of 8:48 a.m. London time
    • Futures on the S&P 500 fell 0.9%
    • Futures on the NASDAQ 100 fell 1.6%
    • Futures on the Dow Jones Industrial Average fell 0.6%
    • The MSCI Asia Pacific Index fell 0.2%
    • The MSCI Emerging Markets Index fell 0.2%

    Currencies

    • The Bloomberg Dollar Spot Index rose 0.1%
    • The euro fell 0.2% to $1.1390
    • The Japanese yen was little changed at 114.70 per dollar
    • The offshore yuan was little changed at 6.3555 per dollar
    • The British pound fell 0.3% at $1.3601

    Bonds

    • The yield on US 10-year Treasuries advanced four basis points to 1.83%
    • Britain's 10-year was at 1.19%

    Commodities

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