Dow Jones Under Pressure as Ukraine Tensions and Fed Hikes Undermine Equities

[MongiIG]

DOW JONES, UKRAINE, FED, GOLD, CRUDE OIL, US DOLLAR, AUD/USD - TALKING POINTS

• The Dow Jones is at the mercy of sentiment around Ukraine for now
• The Fed’s Bullard keeps up the hawks fight for rate hikes and credibility
• Geopolitical risk and imminent Fed hikes. What can save the Dow Jones?

The Dow Jones remains under pressure amid tensions around the Ukraine situation and imminent tightening from the Federal Reserve, which continue to roil markets going into Tuesday.

Wall Street finished only slightly lower after a volatile session and futures markets are looking relatively steady through the Asian session into Europe.

Ukrainian President Volodymyr Zelenskiy kicked off a bout of volatility with remarks that were intended to be sarcastic but were interpreted by a twitchy market to hit the panic button.

Additionally, St. Louis Fed President James Bullard re-enforced his hawkish credentials overnight. His stood by his call for 100 basis points by July 1st in order to maintain the Fed’s credibility.

An aggressive tightening of policy by the Fed could create problems for equity markets in general.

Treasuries were relatively stable given the melee in other markets. They have held their recent gains in yield with the 10-year note near 1.98%, while the 2-year remains around 1.56%.

Gold made an 8-month high in the Asian session today as all these geopolitical tensions support the precious metal. Eclipsing the November peak, it is trading near US$ 1,878 per ounce at the time of going to print.

Iron ore prices fell dramatically today on news that Chinese government officials have been visiting ports and exchanges to check on procedures.

Iron ore has seen a significant run up since the November low of US$ 88.45 a tonne on the Singapore Exchange (SGX). That contract is now trading near US$ 132 a tonne, down from last week’s high of US$ 155.65.

Not surprisingly, AUD/USD is under pressure today. The Kiwi and CAD joined the Aussie lower, but to a lesser degree. The Japanese Yen was the best performing currency today while the USD was steady

Chinese stocks have been buoyed today by the PBOC adding liquidity, although they left lending rates unchanged. The other main indices in region were in the red, generally around -1%.

Oil climbed to prices not seen since 2014. The Brent crude futures contract traded at a peak of US$ 96.78 bbl, while the WTI contract hit US$ 95.82 bbl. Both contracts are slightly softer in Asia today.

Later today the US will see the release of the producer price index (PPI). This will be watched more closely than usual, given the potential of it to feed into the consumer price index (CPI) down the line.

DOW JONES TECHNICAL ANALYSIS

The Dow Jones futures contract has moved lower in the last few sessions to be trading below the short and medium term simple moving average (SMA).

It has paused at the 260-day SMA. A close below this SMA could signal that bearish momentum is evolving.

Support could be at the pivot point of 33928 or the previous low of 33031. On the topside, resistance could at the SMAs or the prior highs of 35752, 36390 and 36833.

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com. 15th Feb 2022