Yesterday was all about a spike in bond yields which took them to the highest level in 12 months. This has caused analysts to speculate that the Fed might not be able to keep the rates low thus causing increased uncertainty and worry among the investors. US Treasury yields rose sharply in yesterday’s trading, sending the equities, gold and even bitcoin lower. Yields rise as investors believe there is rising inflation ahead and that the Fed might not be able to keep the rates down. The Fed has also said they will target average inflation over a longer period of time, a policy that allows inflation to shoot well above the previous 2% target. Big technology shares endured sizeable losses. By reading further you agree with our disclaimer at the bottom of this page and acknowledge that we do not provide investment advice.
TSLA (-8.06%), Facebook (-3.64%), AAPL (-3.48%) and GOOG (-3.05%) were all sold following the yield spike. Valuations in some of these stocks had risen to record levels. AAPL price to book ratio for instance peaked at 33.71 (the highest level in 14 years) after ranging between 3.32 and 11.40 in 2006 – 2019. The current P/B of GOOG at 6.16 is also the highest seen in the last 14 years but the valuation, when compared to recent averages, isn’t as extreme.
As bonds lose value in inflationary environment investment managers are selling bonds sending the yields higher. Increasing bond yields diminish the yield difference between stocks and bonds making the more risky asset class (stocks) less attractive. Gold and bitcoin took a beating as they don’t have yield at all and all the value in them is based on investor expectations of their future price moves. Open a VIP Black account with us. There are no per trade execution or monthly fees on our VIP Black accounts.
The preliminary growth figures (GDP) from the US disappointed slightly. The official number was confirmed at 4.1% versus the 4.2% consensus estimate. Today’s main risk event in the economic calendar is the Chicago PMI (61.0 expected) due at 2:45 PM GMT. For more details on macroeconomic releases see our economic calendar.
DJIA is trading at a support level but the bearish engulfing candle put in yesterday causes some worry. If we don’t get a rally today and close near this week’s highs, the resulting candle is a weekly shooting star that has clear near-term bearish indications. The next significant support is at 29620, a level that coincides with the September 2020 high. The current price level has support from January 8th high (at 31254) and coincides roughly with the 20-day SMA and the 38.2% retracement level. The other key support and resistance levels are 29655, 31157 and 32079.
S&P 500 is trading at one of the key support zones highlighted in our latest Bullish & Bearish Markets video. This level is near to the rising trendline. There is now a new resistance level and a lower reactionary high at 3937.50 which is a negative for this market and could together with the bearish engulfing candlein DJIA and spiking bond yields cause traders to question this support. However, it is worth remembering that a support is a support until it is broken. Therefore, it makes sense to pay close attention to small timeframe price action at this key support area. Always follow what you can see the price action telling you. The key supports and resistances are 3664 – 3687, 3793 – 3808 and 3937.50 and 3964. Open a VIP Black account with us. There are no per trade execution or monthly fees on our VIP Black accounts.
The head of the RBNZ said today that the bank is not looking to reduce the monetary stimulus for a long time to come. USD started rallying yesterday as the yields spiked. This has caused the NZD to sell off together with the EUR, GBP, AUD and CAD. We said earlier (here) that we expected to see buyers in NZDUSD at 0.7315, now traders stepped in right at the support level and try to bid the price higher. The pair is in an uptrend above the channel low (currently at 0.7186). The other key support and resistance levels are 0.7096, 0.7247, 0.7315 and 0.7464. See the Bullish & Bearish Markets video for more analysis on NZDUSD and other trending markets.
Recent macroeconomic data releases
- German ifo Business Climate 92.4, 90.5 expected
- New Zealand Retail Sales -2.7%, -0.5% expected
- UK Claimant Count Change -20.0K, 13.8K expected
- US CB Consumer Confidence 91.3, 90.2 expected
- RBNZ Official Cash Rate 0.25%, 0.25% expected
- Crude Oil Inventories 1.3M, -6.5M expected
- New Zealand Final ANZ Business Confidence 7.0, 11.8 previous
- Australian Private Capital Expenditure q/q 3.0%, 1.1% expected
- US Prelim GDP 4.1%, 4.2% expected
Important macroeconomic data releases today
- RBNZ Gov Orr’s Speech
- Swiss KOF Economic Barometer 96.5 expected
- Chicago PMI 61.0 expected
- G20 Meetings
You may access the times and dates in the economic calendar here.
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Chief Market Analyst
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