Opening Bell: Stock, Yield Slide Struggles To Cool; Turkish Lira Plunges

Key Events

The yield on 10-year Treasurys pared losses this morning, suggesting the risk-off momentum was easing and helping futures on the S&P 500, Dow and NASDAQ 100climb into green territory. Initially, European shares gained ground for a third day, as benchmark yields in the region were also on the rise. However, by late European morning price moves reversed once again, with yields resuming their slide and both the STOXX 600 and U.S. futures slipping into the red.

UST 10-Year Weekly Chart

Technically, Treasury yields found support at levels that were beset with congestion throughout 2017. The next major support is the 2.00 levels. That’s a long way down, from 2.38, but it doesn’t mean the decline will be a straight line, especially considering the aforementioned congestion, suggesting considerable interest on both sides of the supply-demand balance at these levels.

In the earlier Asian session, stocks sold off tracking tumbling yields. Australia’s S&P/ASX 200 (+0.65%) bucked the trend, with Consumer Discretionary, Metals & Mining and Resources helping it to rebound from an initial slide alongside yields.

Japan’s Nikkei 225 (-1.61%) underperformed, with the safe-haven yen heading to its highest price since early February—in line with a plunge in 10-year Japanese yields to the lowest level since mid 2016. The strengthening yen increased headwinds to the country’s export-sensitive economy, amid a precarious global trade situation.

USD/JPY Daily Chart

The pair is now developing a pennant, bearish after it fell below the uptrend line since the beginning of the year, foretold by the death cross in late January.

Meanwhile, pound sterling edged lower after the U.K. Parliament voted down eight different options on a new Brexit strategy, while Prime Minister Theresa May made a last-ditch attempt to win support from Tory MPs for her proposal by pledging to resign in exchange.

USD/TRY Daily Chart

The Turkish lira plunged 5% against the dollar on Thursday, tumbling for a second day despite efforts by President Recep Tayyip Erdogan to avert market chaos ahead of a crucial round of local elections. Moves by the country's central bank to withhold lira liquidity spooked investors further, boosting selling. Technically, the USD/TRY pair may be bottoming out.

Global Financial Affairs

In yesterday’s U.S. session, a persistent yield slump kept roiling financial markets, as investors were caught in a vicious cycle of rotating out of equities into Treasurys, exacerbating the very signal that originally unnerved them.

The S&P 500 inched 0.46% lower, mainly dragged down by Health care (-0.83%) after President Donald Trump threatened to undo Obamacare’s coverage of 20 million U.S. citizens. Energy shares (-0.71%) tracked the drop in oil prices. Surprisingly, defensive stocks in Utilities (-0.7%) were the third worst performing assets on a markedly risk-off day—a day after the sector ETF posted a fresh record high.

XLU Daily Chart

After opening higher, the sub-index closed below Tuesday’s opening price, forming a rare bearish engulfing pattern, for the first time this year and the second time since May last year. Here, the second red candle is both higher and lower than the initially bullish green candle. The extent of the price reversal may suggest more than mere profit-taking. However, volume was not exceptional, curbing the pattern’s pessimistic outlook.

Overall, Industrials (+0.11%) was the only SPX sector closing in the green.

Dow Daily Chart

The Dow Jones Industrial Average retreated 0.13% off Tuesday’s rally. From a technical standpoint, the industrial index is in the most favorable position among U.S. majors—though we are aware that the following analysis bucks the broader bearish stance. The Dow is forming a symmetrical triangle, suggesting a bullish bias after the 20% post-Christmas rally, as it develops the pattern on top of the major moving averages, after a golden cross. An upside breakout would suggest the index will take on the September peak. On one hand, for the bullish signal a decisive upside breakout is required above 26,000. On the other, conflicting signals may serve to project the indecision typical of major market turning point.

The NASDAQ Composite slid 0.63%, underperforming.

The Russell 2000 gave up 0.17%, slipping below its 50 DMA.

In commodities, gold was heading lower today, due to the strengthening dollar.

Oil dropped for a second day after a surprise increase in U.S. inventories. Meanwhile, three fundamental headwinds threat to impact global supply in the near future.

Up Ahead

• Canadian GDP for January is released Friday.

• Canadian IPPI and RMPI for February are released Friday.

• Canadian Budget Balance for January is released Friday.

• High-level U.S.-China trade talks resume today, with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin arriving in Beijing.
• Also today, final fourth-quarter GDP figures are coming out in the U.S., with expectations of 2.4%, from 2.6% in the previous quarter.
• Fed official Randal Quarles will speak on Friday to the Shadow Open Market Committee on “Strategic Approaches to the Fed’s Balance Sheet and Communications.”

Market Moves

Stocks

• Canada’s S&P/TSX Composite closed down 0.14 percent Wednesday.

• The U.K.’s FTSE 100 advanced 0.4% to the highest in a week on the largest gain in a week.
• Germany’s DAX increased 0.2% to the highest in a week.
• The MSCI Emerging Market Index declined 0.2% to the lowest in more than two weeks.
• The MSCI Asia Pacific Index fell 0.4%.

Currencies

• The Canadian loonie was down 0.03 percent against the U.S. greenback early Thursday, trading at 0.7454.

• The Dollar Index climbed 0.23%, for the third day and a total 0.43% climb to the highest in more than two weeks.
• The euro fell 0.1% to $1.1236, the weakest in almost three weeks.
• The British pound slid 0.4% to $1.3141, the weakest in a week on the largest fall in a week.
• The Japanese yen gained 0.3% to 110.14 per dollar.

Bonds

• Canada’s 10-year yield was down early Thursday at 1.528, a 0.26-percent decrease.

• The yield on 10-year Treasuries dropped one basis point to 2.36%, the lowest in more than 15 months.
• Germany’s 10-year yield was unchanged at the lowest in more than two years.
• Britain’s 10-year yield fell three basis points to 0.987%.
• Italy’s 10-year yield gained three basis points to 2.482 percent.

Currencies

• West Texas Intermediate crude edged 0.6% lower to $59.04 a barrel.
• Gold fell less than 0.05% to $1,309.47 an ounce, the weakest in a week.