- Yields steady but remain on an upward trajectory
- Futures signal higher US open
- More volatility still likely
Key Events
Contracts on all four major US indices, the Dow, S&P, NASDAQ and Russell 2000, jumped and global stocks advanced on Monday as Treasuries stabilized. The recovery indicates a return of investor confidence after last week’s bond market turmoil.
Steadying yields is the narrative for the current segment of the rally, in complete contradiction to the start of this rally, when rising yields was cited as the impetus.
Safe haven, industrial commodities rose in unison, despite a strengthening dollar.
Global Financial Affairs
Russell 2000 futures were up 1.3% at the time of writing, double the contracts on the S&P and the Dow Jones, suggesting a continued reflation trade, which is based on optimism that an economic recovery will favor value stocks that underperformed during the coronavirus pandemic.
Contracts on the NASDAQ 100 were 1.5% in the green, signaling that some investors prefer the tried and tested tech sector and are less confident that the economy will recover just yet. However, as we have repeatedly pointed out recently, these are makeshift guideposts and they can turn with a gust of wind.
Case in point, stocks are said to be returning to a rally today after Treasury yields stabilized. In the last two weeks, rising yields were making investors nervous, because the leading indicator for higher rates was signaling that investors were concerned about escalating inflation and therefore a rate hike, as the economy recovers. However, in the two weeks before that, rising yields were heralded as a sign on confidence by Federal Reserve Chairman, Jerome Powell, as bond investors had been forced to park their capital in equities, due to the absence of yield in the bond market, thus boosting stocks.
We can expect more of such market inconsistencies as investors attempt to find their footing after the seismic activity from the worst global pandemic in a century, a polarized US where a mob stormed the Capitol in early January, some eroding of confidence in the Federal Reserve's infinite Quantitive Easing program, the worst recession since the Great Depression as well as the fastest bear and bull market in history.
Throw into the mix new age assets, such as cryptocurrencies and Tesla (NASDAQ:TSLA) shifting the market paradigm, and it is understandable why investors may struggle to find their footing, or even an available seat.
The MSCI World Equity Index, tracking stocks in 49 nations, recovered 0.5% of value, after falling to multi-week lows last Friday.
In Europe, the STOXX 600 Index tracked Asian session gains, opening higher and continued rising in trading on Monday, erasing Friday’s losses.
Asian indices rallied on the same theme, a steadying bond market. The MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.34%. Even a slowdown in China's factory activity growth, slipping near the 50 level that separates expansion from contraction couldn’t spoil the mood. China’s Shanghai Composite gained 1.2%.
Japan’s Nikkei roared back from a near-4% drop on Friday to close up 2.4%.
If the current theme dictates that rising yields are weighing on stocks, we can expect another selloff, as yields are on a trajectory to continue higher. Despite assurances from Federal Reserve Chairman, Jerome Powell that interest rates will not be going higher.
Rates, including for the 10-year benchmark found support after nearing the bottom of the third, consecutively steeper rising channel, which also has the support of the second channel top (purple).
The dollar rose along with yields today, but it also strengthened on Thursday and Friday of last week, when yields were falling. So, the US currency appears to have decoupled from the country’s debt, for now.
Technically, the USD found support after providing a topside breakout to a wedge since the March high. A price registered above the Feb. 5, 91.60 peak would reestablish the short-term uptrend.
Gold rebounded despite the fact that both its major drivers—the dollar and equities—strengthened, leaving technicals as the explanation. The gold trade is currently caught in a web of confusion.
The yellow metal found support near the bottom of its falling channel.
Bitcoin rallied.
The cryptocurrency is trading at the top of the session, confirming yesterday’s hammer, having neared the 50 DMA that has joined the bottom of a rising channel.
Oil, along with precious and base metals jumped despite the strengthening dollar, showing how excited investors are to buy anything after the demonized yield eased.
Up Ahead
- Reserve Bank of Australia sets monetary policy Tuesday.
- US Federal Reserve Beige Book is due Wednesday.
- OPEC+ meeting on output Thursday.
- Federal Reserve Chairman, Jerome Powell to discuss the economy at a Wall Street Journal event on Thursday.
- The February US employment report on Friday will provide an update on the speed and direction of the nation’s labor market recovery.
Market Moves
Stocks
- Futures on the S&P 500 Index gained 1.2%.
- The STOXX Europe 600 Index climbed 1.7%.
- The MSCI Asia Pacific Index gained 1.5%.
- The MSCI Emerging Markets Index advanced 1.2%.
Currencies
- The Dollar Index rose 0.25% to 91.10.
- The euro decreased 0.2% to $1.2055.
- The British pound increased 0.1% to $1.3943.
- The Japanese yen weakened 0.1% to 106.67 per dollar.
Bonds
- The yield on 10-year Treasuries advanced two basis points to 1.42%.
- The yield on two-year Treasuries dipped less than one basis point to 0.12%.
- Germany’s 10-year yield dipped four basis points to -0.30%.
- Britain’s 10-year yield fell four basis points to 0.779%.
Commodities
- West Texas Intermediate crude gained 1.6%.
- Gold strengthened 0.9% to $1,750.53 an ounce.