Jump to content

Relationship between bond yields and stocks


Recommended Posts

US Dollar Charges Higher as Treasury Yields Surge and Crude Oil Soars. Where to Next?

 

US Dollar, DXY, Nasdaq, Gold, Crude Oil, WTI, PBOC, CAD, NOK - Talking Points

  • The US Dollar has found some legs as Treasury yields soared to new heights
  • APAC equities tank while crude oil leaps higher on more supply issues
  • US real yields rise on hawkish Fed bets. Will it boost USD through resistance?
Why the U.S. Dollar Is More Robust Than It Looks - Bloomberg

The US Dollar appears to have shrugged off recent weakness with Treasury yields continuing higher, underpinning the greenback. The 10-year note hit 1.89% while the 2-year traded at 1.076%, levels not seen since the pandemic began.

The increased expectations of higher rates across the curve have seen equities tank. The Nasdaq was down 2.6% in the cash session overnight and the futures contract has continued lower after the close. The S&P 500 and the Dow are lower but to a lesser extent.

APAC equites have also been hit, with the Japanese indices taking the brunt of the downturn, falling over 2% today.

Hong Kong shares were the best performing, close to flat on the day after the PBOC pledged more policy easing is on the cards after Monday’s rate cuts. Iron ore and other ferrous metals moved higher on the news.

The uptick in US rates is occurring at a time when inflation expectations are steady, driving up real yields. This has seen gold drift lower this week and it is currently trading near USD 1,811 an ounce, just above the week’s low of 1,806.

Conversely, oil continues to appreciate, making an 8-year high today. Crude was already bubbling higher on supply concerns emanating from the Houthi attack on the UAE yesterday.

Then Goldman released an upgrade to their outlook for black gold. They are predicting USD 105 a barrel in 2023 citing limited spare capacity.

Further adding to the squeeze, overnight there has been an explosion of a pipeline connecting the northern Iraqi oil fields to the Turkish port of Ceyhan. It had been hit previously in 2012.

It is estimated that the pipeline delivers more than 450k barrels a day, roughly 10% of Iraq’s output. Iraq is the second largest producer in OPEC+.

It’s being reported that the fire has been extinguished but it’s unclear when it will come back online.

The WTI futures contract has traded as high as USD 86.41 a barrel in Asian trade. The Canadian Dollar has been supported today but the Norwegian Krone is yet see a reaction at the time of going to print.

The US Dollar index (DXY) rose 0.5% in the North American session, reflecting appreciation against EUR, GBP, CHF, SEK, flat against JPY and weaker to CAD. These currencies make up the basket in the DXY index.

Looking ahead, The US will see a series of housing data released as well as the Canadian CPI numbers for December.

 

US Dollar Index (DXY) Technical Analysis

The DXY index broke key support at 95.518 last week before rallying back through it this week. This could now be pivot point support.

Support could also be at the previous lows and pivot points of 94.629, 94.561, 93.875 and 93.278.

Above the market, resistance might be at the 61.8% Fibonacci retracement level of the move down 96.938 to 94.629, currently at 95.06.

The previous highs at 96.462, 96.689 and 96.938 may also offer resistance.

US Dollar Charges Higher as Treasury Yields Surge and Crude Oil Soars. Where to Next?

Chart created in TradingView

 

Written by Daniel McCarthy, Strategist for DailyFX.com. 19th Jan 2022.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • General Statistics

    • Total Topics
      21,208
    • Total Posts
      90,775
    • Total Members
      41,322
    • Most Online
      7,522
      10/06/21 10:53

    Newest Member
    caldwelk
    Joined 01/02/23 08:55
  • Posts

    • Early Morning Call: currency market little changed ahead of Fed rate decision tonight Watching USD ahead of the US rate decision at 7pm UK and BoE and ECB tomorrow.  Jeremy Naylor | Writer, London | Publication date: Wednesday 01 February 2023  Indices overview European indices opened higher on Wednesday, following the lead of US and APAC equity markets. In China, Caixin factory activity continued to shrink in January, although more slowly, according to the Caixin survey. China's Caixin/S&P Global manufacturing purchasing managers' index (PMI) rose to 49.2 in January from 49 in December, staying below the 50 mark for a sixth straight month. This is a contrast with Official NBS data earlier this week, that showed factory actvity's return to growth. Forex There is very little movement on the currency market this morning. The dollar is broadly flat as investors await the conclusion of a Federal Reserve (Fed) policy meeting. The US central bank is expected to raise interest rates by 25 basis points later today, to a range of 4.5% to 4.75%. Also expected today, Eurozone consumer price index is expected to rise 9% year-on-year (YoY). In the US, ADP employment change is expected at 1.15pm. The private sector is expected to have created 170,000 jobs in January. ISM manufacturing PMI is forecast to fall to 48 in January, after 48.4 the previous month, and JOLTs job openings are expected to fall to 10.23 million in December. Equities On the equity market, Vodafone reported a slowdown in its group service revenue growth to 1.8% in the third quarter (Q3) from 2.5% in the second, driven by declines in continental Europe. GlaxoSmithKline posted higher-than-expected Q4 profit and sales and forecast a 6% to 8% rise in sales for 2023 and a 10% to 12% increase in operating profit. And Swiss pharma group Novartis expects that core operating income will grow in a "mid-single digit" percentage range in 2023, following stagnation last year. In the US, Advanced Micro Devices shares rose in extended trading, after posting marginally better-than-expected earnings and revenue for the fourth quarter and expressing confidence in the outlook for 2023. The chip maker earned 69 cents per share. Adjusted fourth-quarter revenue rose 16% to $5.60 billion. AMD's data centre segment revenue grew 42% to $1.7 billion, offsetting a 51% drop in revenue of the client segment. AMD CEO Lisa Su said she was confident AMD would keep gaining market share this year, adding that the second half of the year would be stronger than the first. The company forecasts a current quarter revenue of $5.3 billion, plus or minus $300 million. Analysts on average expected revenue of $5.48 billion, according to Refinitiv. Snap shares tanked as much as 14% in extended trading last night, after the owner of the photo messaging app SnapChat warned that the headwinds the company faced over the past year would persist throughout the current quarter. Revenue for the fourth quarter ended December 31 was $1.3 billion, flat from the prior year and in line with analyst expectations. Snap posted a net loss was $288 million, versus net income of $23 million the previous year. On an adjusted basis, it reported earnings of 14 cents per share, beating Wall Street estimates of 11 cents. In a letter to investors, Snap said it suffered from a weakening economy, and increased competition from other social media platforms, adding that current quarter revenue could decline by as much as 10%. Tonight, after the US closing bell, Meta Platforms, the parent company of Facebook, is expected to post earnings of $2.26 per share, which would correspond to a 40% decline on Q4 2021. Revenue is likely to decline by 6% to $31.53bn. Meta lost roughly two-thirds of its value last year, leading the group to part with 13% of its workforce.   This is here for you to catch up but if you have any ideas on markets or events you want us to relay to the TV team we’re more than happy to.
    • Investors are bracing themselves for a busy three-day period ahead. Today's big event will be the Fed decision, at which a 25bps hike is expected, though we also have the monthly ADP private payroll report at 1.15pm. From there the action intensifies, with two more central banks tomorrow lunchtime, followed up by a trio of big tech earnings after the bell, and then the monthly US jobs report on Friday. The Fed's move will be the smallest in ten months, and marks a distinct slowdown from its aggressive tightening of late last year, but we are not yet at a point where the Fed feels a pause in rate hikes is appropriate. An air of caution hangs over markets, unsurprisingly, with the next few sessions likely to be a major determinant in whether the rally in stocks continue, and whether the dollar's retreat from last year's highs will intensify. Also on the calendar today is the earnings release from social media giant Meta, which has seen its stock price fall precipitously over the past year.   
    • For more up to date news on how markets will open, the latest earnings and economic news, watch IGTV live in the platform at 07:30am UK. Today’s coverage: Indices: Europe expected up at the start ahead of the Fed rate decision FX: Watching USD ahead of the US rate decision 7pmUK today and BoE & ECB tomorrow Equities: Earnings – GSK VOD NOVN. Last night AMD up 5% on Q4. Last night SNAP down 12% on a poor outlook. Tonight META. INTC cuts salaries for snr mgrs incl CEO  Commods: Gold slightly higher after the small gains yesterday. Oil up off 3wk lows         
×
×
  • Create New...