Major US indices have been struggling to hold onto their gains lately as a relentless rise in US Treasury yields continues to keep risk sentiments in check.
Major US indices have been struggling to hold onto their gains lately as a relentless rise in US Treasury yields continues to keep risk sentiments in check. Yesterday, an attempt to ride higher on resilient corporate earnings was overturned mid-day, with ongoing comments from Fed officials giving markets little break from the higher-for-longer rate outlook ahead. Overnight, Fed official Patrick Harker indicated a ‘disappointing lack of progress’ in curtailing inflation, so higher rates are likely to stay in place for an extended period. The Fed funds futures revealed that rate expectations remain well-anchored from a week ago, but the upward reaction in bond yields remains the pressure point for the equity markets.
After-market sentiments saw little reprieve from SNAP’s third-quarter results, which reflected an ongoing slowdown in ad growth, and probably what came as a negative shock was a flat growth being guided for the usually-busy fourth quarter. The knock-on impact was felt by other platform advertisers as well. Meta Platforms (-3.8%), Alphabet (-1.7%) and Pinterest(-7.1%) were all down after-market, while SNAP share price pointed to a 26% plunge. This adds to the ongoing weakness in the US Tech 100futures, coming after a 7% fall in Tesla’s share price overnight.
For the S&P 500, hopes for a rebound may not be totally lost yet. Previous bear market rallies were somewhat preceded by a period of consolidation after a bullish divergence on MACD, so we may have to see some ranging moves ahead. The 3,580 level will be closely watched as a line of key support in the near term, where previous dip-buying was seen.
Developments in the UK saw the resignation of Prime Minister Liz Truss, paving the way for new leadership. The GBP/USD reacted strongly to the upside on the news but failed to hold onto its gains, driven by a rebound in the US dollar. Thus far, the pair has not broken above its early October peak, with the 1.145 level standing as a strong resistance to overcome. A break below the ascending triangle pattern may leave a retest of the 1.090 level on the cards, where previous dip-buying formed a bullish hammer last week.
Asian stocks look set for a muted open, with Nikkei -0.46%, ASX -0.68% and KOSPI -0.54% at the time of writing. The overall mood remains cautious, with the paring of gains in Wall Street and yields trending higher on a more hawkish policy outlook. This morning saw the release of Japan’s inflation figure, with the core reading hitting the 3% mark as expected and indicating a further shift away from its 2% inflation target. That said, another round of bond-buying announced by the Bank of Japan (BoJ) yesterday reiterates its ongoing commitment to its yield curve control policy and seems to push back against any hopes of a hawkish policy shift. The USD/JPY remains on close watch, having way towered above the 145.90 level, which marks the level of intervention from the BoJ in late September. Since then, the rise in US Treasury yields continues to drive the yield differential narrative, pushing the pair to trade above 150 currently. The question will be when the central bank will step in once more to support the currency from weakening, but going by the upside risks to inflation in the US, the upward trend for the pair may seem to remain intact.
Other than that, today seems to be a relatively quiet day on the economic calendar, with sentiments potentially taking their cue from corporate earnings. A key event to watch over the weekend will be the announcement of the new Chinese leadership team on Sunday, which will highlight China’s key priorities over the next five years. The Hang Seng Index continues to lose traction over the past few days, with a bullish divergence on MACD and RSI failing to play out after a short-lived attempt to rebound. Overall bias seems to remain to the downside, with recent downward move driving a retest of the lower trendline of a descending channel pattern and its 2011 bottom. The 15,500 level could be on watch next.
On the watchlist: Silver remains stuck in a range but hanging above support for now
Despite another multi-year high in US Treasury yields, silver prices thus far have been holding above its key support level at the US$18.00-$18.40 level. Having largely traded in a consolidation pattern since July this year, the $18.00 level marks the lower base of the range, which has supported prices on three previous occasions. Silver prices seem to track the US dollar movement more closely, and a close below last week’s low (111.50 level) for the dollar may be needed in order for silver prices to see revived upside. Any upward move will likely see a retest of resistance at the US$20.50 level, while a failure for the US$18.00 level to hold on US dollar strength may drive a move lower towards the US$16.50 level next.
Thursday: DJIA -0.30%; S&P 500 -0.80%; Nasdaq -0.61%, DAX +0.20%, FTSE +0.27%