- Markets debate the likelihood of rising inflation
- Dollar rebounds from further losses
- Gold confirms resistance
Key Events
Global equities extended their rally for an eighth straight session on Wednesday, thanks to US President Joseph Biden’s fiscal stimulus initiative, strong earnings releases and falling coronavirus cases. This morning, futures on the , , and are all pointing to a higher US open.
Bitcoin is attempting to reach $50,000 once again, a level it's been struggling to hit, so far without success. The oil rally continued.
Global Financial Affairs
The rose 0.2% today, its longest winning streak since November. The trading pattern emerging, however, opens the possibility of a top.
MSCI World Index Daily
The global benchmark is struggling against the top of an ever-expanding pattern known as the Broadening or Megaphone pattern. Its development demonstrates irrational behavior, suggesting a loss of leadership, a potential sign for a top.
While prices rise with both highs and lows, as buyers and sellers expect the trend to continue rising, declines are marked by falling highs and lows, as both supply and demand are on the same page about that as well.
A broadening pattern however, posting higher highs but at the same time lower lows shows that investors are unsure. However, the pattern needs to break to the downside in an obvious way in order to top out. On the other hand, a catalyst could create new leadership and move the market higher. The RSI shows that for now momentum supports the move up, which, if continues, will catapult prices upward.
All this technical conflict reflects investors’ indecision on whether the current, largest, combined monetary and fiscal policies in history will spark reflation, a healthy rise in prices that helps the economy grow or destabilizing inflation, that will upend the delicate economic recovery from the worst recession since the Great Recession.
Investors are also concerned that inflation rising for the first time in 12 years will disrupt financial markets, as even a healthy reflation can siphon demand away from equities in favor of rising Treasury yields.
Even as US futures were well in the green today, stocks in Europe struggled for traction amid mixed earnings results from a variety of companies including , Societe Generale (PA:) and , AP Moeller-Maersk (CSE:).
It’s noteworthy that contracts on the NASDAQ 100, representing an economy in lockdown, are up 0.5% at the time of writing while futures on the Russell 2000, which represents a return to an open economy are lagging, up just 0.2%. This dichotomy of growth stocks leading the rally, while value shares lag, shows the disagreement among investors on the impact of rising inflation on markets.
Earlier, major Asian indices were in the green, overcoming Tuesday's lackluster US session, on the narrative that US fiscal stimulus and slowing growth in coronavirus cases infused regional investors with vigor. China’s leaped 1.4% despite falling buoyed by the first rise in a year in . Signs of continued recovery in China received an even more positive reaction in Hong Kong where the surged 1.9%, to a three-week high.
US stocks paused yesterday, ending a six-day rally on profit taking. Traders are trying to assess if rising inflation will help boost companies' profits, causing a ripple effect and buoying economic growth or if it will further damage an already fragile economy and drive equity prices lower.
The Index stepped back from an all-time high, on the heels of a 5.4% gain this month. As opposed to growth vs value projected in today’s futures, Tuesday’s trade helped it notch the longest rally since December 2019, while the had to struggle to register a gain.
Investors are waiting for US data for January, as well as a speech from Federal Reserve Chairman Jerome Powell on the labor market later today.
Yields on the Treasury are holding at 1.9% after crossing the 2% threshold earlier this week.
After hitting a high on Jan. 12, yields on the Treasury note have been in retreat.
But the congested downward tilt appears to be a falling flag, as Treasury investors pause amid a selloff. An upside breakout will take rates above 1.2 percent and higher.
The has matched the decline in yields. The greenback fell back below the neckline of a H&S bottom, its rising channel since the Jan. 6 bottom and back into a falling wedge since the March high.
While this puts our bullish to the test, we still anticipate the USD will rebound, especially if yields complete their bullish flag.
has been rising on dollar weakness.
However, it has proven for the second day amid a confluence of technical signposts on the chart, creating a dream short from a risk-reward perspective.
extended gains for the third day, struggling against a doji—when traders stopped for a breather—after Tesla's (NASDAQ:) SEC filing revealed the carmaker bought $1.5 billion worth of Bitcoin as an investment and to allow its products to be bought with the cryptocurrency.
Once the digital currency overtakes Tuesday’s high, we it to continue and retest the psychological $50,000 level.
pushed higher for the eighth straight day, its longest winning streak in two years, a sign of hopefulness of reopening economies, as oil to $60
Up Ahead
- Lunar New Year public holidays begin in nations across Asia, with China breaking for a week.
- US s are released on Thursday.
- Bank of Russia’s policy comes Friday.
Market Moves
Stocks
- Futures on the S&P 500 Index gained 0.2%.
- The Index increased 0.1%.
- The Index rose 0.7%.
- The Index rose 0.9%.
Currencies
- The Dollar Index was little changed at 90.43, having rebounded from a 0.2% drop.
- The rose 0.1% to $1.2131.
- The gained 0.1% to $1.383.
- The was little changed at 104.57 per dollar.
Bonds
- The yield on 10-year Treasuries declined less than one basis point to 1.16%.
- The yield on Treasuries was unchanged at 0.12%.
- Germany’s yield rose less than one basis point to -0.44%.
- Britain’s yield climbed one basis point to 0.473%.
Commodities
- West Texas Intermediate crude dipped 0.1%.
- Gold strengthened 0.3% to $1,843.12 an ounce.
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