Opening Bell: Dollar Surges, Bitcoin Plunges As Global Equities Sell Off

Key Events

The dollar surged and Bitcoin plunged on Monday as US futures contracts, including on the Dow, S&P, NASDAQ and Russell 2000 slipped from records posted by underlying benchmarks, while European stocks retreated from 10-month highs.

Traders attribute the selloff to profit-taking amid spiking coronavirus cases in Europe, as well as China reporting its biggest daily increase in cases in five months, which hit energy and mining shares.

Global Financial Affairs

The seesawing market narrative once again swung from optimism on COVID-19 vaccines and US fiscal stimulus to pessimism of unsustainable valuations amid a global pandemic that seems to only get worse with time.

In Europe this morning, the STOXX 600 Index dropped 0.4% but was off earlier 0.6% lows, after Germany—the continent’s economic steam engine—suffered 40,000 deaths despite imposing some of the harshest pandemic restrictions. Oil producers BP (LON:BP), Royal Dutch Shell (AS:RDSa) and Total (PA:TOTF) sold off after China—the world’s biggest oil importer—announced a lockdown in Shijiazhuang, the Hebei province's capital and the epicenter of the new outbreak.

The dollar rallied after US yields, including on the 10-year Treasury note, jumped, rewarding savers, but weighing on dollar-denominated commodities and mining stocks.

Bitcoin suffered a free-fall of nearly 16% from Friday’s close.

The digital asset rebounded from almost $34,000 to the mid-$35,000 after nearing the minimum level considered a correction on a Fibonacci scale.

Earlier today Asian shares were also selling off. China’s Shanghai Composite (-1.1%) underperformed, ending sharply lower after data revealed that the country’s factory prices fell to the slowest pace in ten months.

The renewed risk-off sparked a race into Treasuries, causing a falling gap, as there were only buyers at these levels. Still, after last week’s deep selloff, yields are still well above the 1.00% psychological marker, at 1.109%.

The dollar posed a rising gap—in a mirror image of the falling gap seen in yields—but has seen little movement since.

While having jumped last week above the most recent downtrend line since the early November high, the dollar is expected to face the blowback of going against the downtrend since the March highs.

Gold surprisingly pushed higher despite a dollar surge, presumably on its safe haven status amid an equity selloff.

While it found resistance by the 200 DMA, the yellow metal is forming a hammer, though the 200 DMA’s resistance formed a small upper shadow, diluting some of the bullish impact. After the small H&S achieved most of its implied target, gold may be forming a large H&S bottom.

Oil retreated from the $52 level, as fears of continued lockdowns hampered demand.

Up Ahead

• The EIA crude oil inventory report is due Wednesday.
• European Central Bank President, Christine Lagarde speaks at an online conference Wednesday.
• US consumer-price inflation figures are due Wednesday.
• President-elect, Joseph Biden plans to lay out proposals for fiscal support on Thursday.
• Federal Reserve Chairman, Jerome Powell takes part in a webinar on Thursday.
• US initial jobless claims data prints on Thursday.
• On Friday, JP Morgan Chase (NYSE:JPM) Citigroup (NYSE:C) and Wells Fargo (NYSE:WFC) report earnings.
• US retail sales and PPI figures are due Friday.

Market Moves

Stocks

• Futures on the S&P 500 Index decreased 0.6%.
• The European STOXX 600 Index fell 0.4%.
• The MSCI Asia Pacific Index dipped 0.2%.
• The MSCI Emerging Markets Index gained 0.2%.

Currencies

• The Dollar Index rose 0.3% to 90.35.
• The euro declined 0.2% to $1.2188.
• The British pound decreased 0.4% to $1.3508.
• The Japanese yen weakened 0.1% to 104.08 per dollar.

Bonds

• The yield on 10-year Treasuries decreased one basis point to 1.11%.
• The yield on two-year Treasuries gained less than one basis point to 0.13%.
• Germany’s 10-year yield fell less than one basis point to -0.52%.
• Britain’s 10-year yield was unchanged at 0.288%.

Commodities

• West Texas Intermediate crude declined 1.3% to $52.06 a barrel.
• Gold strengthened 0.1% to $1,850.47 an ounce.