Wall Street Retreats as Higher Yields, Tesla Dampen Sentiment

Central Bank

Stocks

Summary:

Strong economic data raised doubts about Fed rate cuts, leading Wall Street stocks to drop. Tesla's missed delivery target added to the decline. Investors are now waiting for Friday's jobs data to see if it confirms a slower pace of rate cuts.

Wall Street's main indexes dropped on Tuesday, dragged down by rising Treasury yields and Tesla, as recent strong economic data fueled uncertainty about the timing of interest rate cuts from the Federal Reserve.

Shares of rate-sensitive growth stocks including Nvidia (NVDA.O), opens new tab, Microsoft (MSFT.O), opens new tab and Amazon.com (AMZN.O), opens new tab fell 0.7% - 1.4% as the U.S. Treasury 10-year yield rose to 4.365%, its highest this year.

Tesla (TSLA.O), opens new tab also tumbled 5.0% after the automaker missed market expectations for first-quarter deliveries.

The Dow (.DJI), opens new tab and S&P 500 (.SPX), opens new tab closed lower on Monday after stronger-than-expected manufacturing data from the Institute for Supply Management (ISM) raised doubts over the Fed's three interest rate cuts it had outlined at the last policy meeting.

"ISM creeped above 50 for the first time in 17 months and that should be a good thing, it shows resiliency of the U.S. economy," said Hugh Anderson, managing director at HighTower Advisors in Las Vegas, but since it diminishes hopes of rate cuts in June, "the market is taking it in a negative fashion."

"Right now, the fundamentals are supportive of rates staying where they are and possibly even nudging higher."

The CBOE Volatility index (.VIX), opens new tab, also known as Wall Street's 'fear gauge', touched an over two-week high.

Data on Tuesday showed new orders for U.S.-manufactured goods rebounded more than expected in February, while U.S. job openings held steady at higher levels.

Now the focus is on Friday's U.S. non-farm payrolls data, which is likely to show job additions slowed in March although average earnings ticked higher compared to the previous month.

U.S. stocks edged mostly lower on Monday, dragged down by investor worries over the timing of interest rate cuts by the Federal Reserve.

Traders are pricing in a near 57% chance of the Fed cutting interest rates by at least 25 basis points in June, down from 64% just a week ago, as per CMEGroup's FedWatch tool.

A slew of Fed officials including New York Fed President John Williams, Cleveland Fed President Loretta Mester and San Francisco President Mary Daly are scheduled to speak later in the day.

Shares of UnitedHealth (UNH.N), opens new tab, CVS Health (CVS.N), opens new tab and Humana (HUM.N), opens new tab fell between 7.5% and 14.1% as the U.S. government kept reimbursement rates for providers of Medicare Advantage health plans unchanged, in a setback to insurers.

At 11:56 a.m. ET, the Dow Jones Industrial Average (.DJI), opens new tab was down 469.83 points, or 1.19%, at 39,097.02, the S&P 500 (.SPX), opens new tab was down 52.53 points, or 1.00%, at 5,191.24, and the Nasdaq Composite (.IXIC), opens new tab was down 216.89 points, or 1.32%, at 16,179.95.

Nine of the 11 major S&P 500 sectors were trading lower, with the health care index (.SPXHC), opens new tab, down 1.9%, on track for its biggest percentage drop of the year.

Calvin Klein-parent PVH Corp's shares (PVH.N), opens new tab tumbled 23.3% after the retailer forecast an about 11% drop in first-quarter revenue. Peer Ralph Lauren (RL.N), opens new tab dropped 5.1%.

Cryptocurrency and blockchain-related stocks dropped, tracking an over 6% fall in bitcoin . Exchange operator Coinbase (COIN.O), opens new tab, bitcoin investor MicroStrategy (MSTR.O), opens new tab and crypto miner Riot Platforms (RIOT.O), opens new tab fell between 3.5% and 8.0%.

Declining issues outnumbered advancers for a 3.77-to-1 ratio on the NYSE and for a 3.40-to-1 ratio on the Nasdaq.

The S&P index recorded 22 new 52-week highs and 3 new lows, while the Nasdaq recorded 39 new highs and 93 new lows.

Source: Reuters

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Chandan Gupta

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Forex

GBP/USD Plunges Amid Strong US Manufacturing Data

The GBP/USD pair took a sharp nosedive following the release of robust manufacturing figures from the United States on Monday, triggering a notable resurgence in the US dollar. The pair plummeted to a low of 1.2545, marking its lowest level since Valentine’s Day.

US Dollar Index Surges

The US dollar index witnessed a significant surge on the first trading day of the month and quarter, propelled by impressive manufacturing data from S&P Global. Soaring by nearly 50 basis points to $104.7, the index reached its highest level since November last year, registering gains for the fifth consecutive day.

This rally in the dollar coincided with a parallel uptick in US bond yields, with the yield on the 10-year rising to 4.33% and the 30-year climbing to 4.34%.

Strong Manufacturing Figures

The Institute of Supply Management (ISM) report revealed that the US manufacturing Purchasing Managers' Index (PMI) climbed from 47.8 in February to 50.3 in March, surpassing the median estimate of 48.5. This uptick signaled the first expansion in the manufacturing sector since 2022.

Additionally, data from S&P Global indicated that the country's manufacturing PMI surged to 51.9 in March, indicating growth as any reading above 50 signifies expansion.

Impact on USD Index

The robust manufacturing data prompted investors to scale back their expectations for the number of interest rate cuts by the Federal Reserve. Economists now anticipate that the Fed will implement two rate cuts this year, compared to the three initially forecasted.

Key Catalysts for GBP/USD

The GBP/USD pair is poised to react to several significant catalysts on Tuesday. In the US, statements from several Fed officials including Loretta Mester, Michele Bowman, John Williams, and Mary Daly will be closely monitored. Additionally, market sentiment will be influenced by the upcoming JOLTs job openings report from the Bureau of Labor Statistics (BLS) and US factory orders data, alongside the UK house price index (HPI) report.

Technical Analysis for GBP/USD

Following the robust US manufacturing PMI data, the GBP/USD pair experienced a bearish breakout, slipping below the psychological level at 1.2600 and the Woodie pivot point at 1.2680. Furthermore, it dipped beneath the 50-day Exponential Moving Average (EMA), while the Relative Strength Index (RSI) dipped below the neutral threshold. Notably, the pair is approaching a critical support level at 1.2518, its lowest swing observed on February 5th.

Anticipated Market Movement Given the prevailing technical indicators, the GBP/USD pair is likely to witness a bearish breakout in the coming days as sellers aim for the initial support level at the Woodie pivot point of 1.2465. GBP/USD Plunges as DXY Index Recovers_1

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Chandan Gupta

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Forex

USD/JPY Surges as Yen Nears 34-Year Low

At the start of the week, the USD/JPY currency pair saw a notable uptick, reaching the resistance level of 151.77. This surge pushed the yen to its lowest point in 34 years, prompting traders to closely monitor the situation. With the pair hovering around the crucial resistance level of 152.00, speculation about potential intervention by Japanese authorities intensified, particularly fueled by robust US factory data that strengthened the dollar.

Yen Weakening Against Dollar Amid US Factory Data

The yen experienced a decline against the dollar following unexpected growth in US factory activity. This development reinforced expectations that the Federal Reserve would not rush into lowering interest rates. Consequently, the USD/JPY pair traded around 151.65, further highlighting the yen's vulnerability against the dollar. Japanese Finance Minister Shunichi Suzuki emphasized the authorities' vigilance, stating their readiness to take appropriate actions against any excessive movements in the yen. Forex analyst Brad Bechtel noted the significance of the 152 level as a resistance point, suggesting potential market reactions to sharp movements beyond this threshold.

Japanese Authorities' Intervention Stance

Japanese officials emphasized their preparedness to intervene in the forex market to prevent further depreciation of the Japanese yen. Despite losing approximately 7% against the US dollar in 2024, the yen remains under close scrutiny, especially given its weakest performance among G10 currencies over the past year. The interest rate gap between Japan and the United States continues to influence investor sentiment, even after the Bank of Japan's recent policy adjustments.

Impact of US Economic Data

Bond traders adjusted their expectations for US monetary policy easing after March's ISM manufacturing data exceeded economists' estimates. This unexpected strength in US economic indicators provided support for the US dollar and Treasury bond yields, while simultaneously exerting pressure on the Japanese yen and other G10 currencies.

Looking Ahead: US Economic Data and Market Expectations

Investors are eagerly anticipating upcoming US data, particularly concerning job openings, non-farm payrolls, and inflation figures. These data releases are expected to shape market expectations and influence trading dynamics in the coming days.

USD/JPY Technical Analysis and Future Outlook

From a technical perspective, the bullish trend of the USD/JPY pair remains intact, driven by disparities in central bank policies and economic performance between Japan and the United States. However, concerns about potential Japanese intervention may arise as the pair approaches the critical resistance level of 152.00. Traders are advised to exercise caution and consider selling positions above this level to mitigate risks. Ultimately, market sentiment towards the USD/JPY pair will likely hinge on the reaction to the upcoming US job numbers at the end of the week. Yen Approaches 34-Year Low Against USD_1

Yen Approaches 34-Year Low Against USD_1

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Chandan Gupta

Traders' Opinions

Forex

AUD/USD Rebounds Amidst Dollar Weakness

On Tuesday's trading session, AUD/USD saw a modest recovery, bouncing back from recent four-week lows near 0.6480. This rebound coincided with an uptrend in copper prices, reaching levels last seen in late April 2023, and a minor bounce in iron ore prices after hovering near the crucial $100.00 mark per tonne. Additionally, market focus remains on China's economic situation, with potential stimulus measures from the government and the PBoC offering temporary relief for the Aussie dollar. However, sustained improvements in economic indicators are necessary to bolster the Australian currency and potentially initiate a significant uptrend in AUD/USD.

RBA Minutes Affirm No Rate Hikes

The recent RBA Minutes from its March meeting reiterated the central bank's stance on monetary policy. Unlike the February meeting, there was no discussion regarding a possible cash rate target increase at the March gathering. Instead, policymakers agreed that predicting future adjustments to the cash rate target is challenging. RBA cash rate futures currently imply a projection of under 50 basis points of policy rate cuts in 2024. Notably, the RBA is among the last G10 central banks expected to consider interest rate adjustments this year.

Differing Monetary Policy Timelines

With differing timelines for monetary policy adjustments between the RBA and the Fed, the Australian dollar may gain momentum later in the year, potentially leading to further appreciation in AUD/USD. A break above the December 2023 peak of 0.6871 could signal a move towards the significant level of 0.7000 in the short term.

AUD/USD Short-Term Technical Outlook

In the short term, AUD/USD is likely to challenge the key 200-day SMA at 0.6544 before targeting the provisional 100-day SMA at 0.6596. Clearing this region could pave the way for a revisit of the March peak of 0.6667 and the December 2023 high of 0.6871. On the downside, a break below the April low of 0.6480 may lead to further declines towards the March low of 0.6477 and the 2024 low of 0.6442. AUD/USD Eyes 200-Day SMA Resistance_1

Non-Farm Payroll Impact

With Non-Farm Payroll data scheduled for release later in the week, the market may experience heightened volatility. The 0.6450 level is a significant support level that many traders will closely monitor, with potential resistance at the 50-day EMA and the 200-day EMA. However, the market currently faces a ceiling at the 0.6650 level.

Australian Dollar and Risk Appetite

The Australian dollar's performance is heavily influenced by risk appetite. Strong risk appetite typically benefits the Aussie, while weak risk appetite favors the US dollar. Market participants continue to navigate the currency pair amidst fluctuating risk sentiment, akin to playing a game of tennis.

Short-Term Outlook

In the short term, AUD/USD is poised for a potential bounce, but significant directional movements may be limited. Traders should exercise caution and avoid overcommitting to positions amid ongoing market uncertainty.

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Chandan Gupta

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Forex

In Asian session, the EUR/USD pair experienced downward momentum, reaching its lowest level since mid-February, dipping below 1.0750. The possibility of the pair testing 1.0700 looms unless it can stabilize above 1.0760.

US Manufacturing Data Boosts Dollar

The latest data from the US revealed a positive uptick in the ISM Manufacturing Purchasing Managers' Index (PMI), rising to 50.3 in March from 47.8 in February. This marked the first expansion in business activity within the manufacturing sector since September 2022, with the report also indicating heightened input price pressures. Consequently, the likelihood of the Federal Reserve maintaining its policy rate in June surged above 40%, up from 30% prior to the PMI release. This bolstered the US Dollar against its counterparts, driving the EUR/USD pair downward. Euro Eyes 1.0700 if 1.0760 Not Regained_1

Euro Eyes 1.0700 if 1.0760 Not Regained_1

Euro's Performance Against Major Currencies

The Euro (EUR) exhibited varying degrees of strength against major currencies this week, with notable weakness observed against the US Dollar.

Upcoming Events and Market Sentiment

Looking ahead, the US Bureau of Labor Statistics is set to release the JOLTS Job Openings data for February on Tuesday, with forecasts indicating a relatively stable figure below 9 million. Additionally, several Federal Reserve policymakers are scheduled to deliver speeches. Market positioning suggests that if Fed officials hint at a potential rate cut in June, the US Dollar may face selling pressure. Conversely, hawkish comments could bolster the USD and contribute to further declines in the EUR/USD pair.

EURUSD Technicals

During Tuesday's trading session, the Euro initially experienced a slight decline, hovering just above the 1.07 level, a zone that has been under discussion for some time. While a modest bounce seems plausible in the near term, the overall outlook remains largely unchanged. The market is currently in a phase of anticipation, with the non-farm payroll report due on Friday followed by an ECB rate announcement the following week. This period of waiting has led to some overselling, prompting a minor rebound. The 200-day EMA, situated around the 1.0825 level, could serve as a potential target if the upward momentum continues. However, encountering significant resistance at the 1.10 level is likely, marking the upper boundary of the current consolidation phase.

Technical Analysis Insights

Analyzing the Relative Strength Index (RSI) on the 4-hour chart, we observe a slight uptick after dipping below 30, indicating that the bearish sentiment persists despite a brief correction attempt. Immediate resistance is anticipated around 1.0760, corresponding to the Fibonacci 78.6% retracement of the latest uptrend. Failure to reclaim this level could empower sellers to maintain control, potentially driving the pair towards 1.0700, the starting point of the uptrend, followed by 1.0650, a static level established in November.

Potential Scenarios and Trading Strategies

Stabilization above 1.0760 may pave the way for further gains, with resistance levels expected at 1.0800 (Fibonacci 61.8% retracement), 1.0830 (Fibonacci 50% retracement), and 1.0850 (200-period Simple Moving Average). However, a breakdown below the 1.07 level, particularly after the release of the jobs report, could signal a deeper decline towards the 1.05 level. It's worth noting that both the Eurozone and the US are likely to implement rate cuts this year, as they grapple with economic uncertainties. Consequently, it remains challenging to favor one currency over the other in the long term. Currently, the charts suggest a potential buying opportunity, resembling a game of tennis with price movements bouncing back and forth. Euro Eyes 1.0700 if 1.0760 Not Regained_2

Euro Eyes 1.0700 if 1.0760 Not Regained_2

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JPMorgan

Economic

Despite recent strong housing completions, homeowner and rental vacancy rates have hardly budged off their multi-decade lows.

The housing sector was one of the hardest hit areas of the economy when the Fed began raising rates, but there are signs activity has turned a corner.

The “mortgage lock” effect, where households that had locked in low mortgage rates are disincentivized to move and assume higher rates, has severely limited the supply of existing homes for sale in the market, shown on the right-hand chart. This supply is beginning to thaw, with our measure of seasonally adjusted existing homes for sale showing a steady upward trend since last Spring. Some relief should also come from new home supply underway, with 1.6M units currently under construction and housing completions hitting their highest level in 17 years in February. Improved homebuilder sentiment, strong hiring and a chronic undersupply of housing should support strong construction activity in the years ahead.

The demand side has also proven resilient. Despite recent strong housing completions, homeowner and rental vacancy rates have hardly budged off their multi-decade lows. A surprising immigration boom may be contributing to this, raising the bar on housing units needed for population growth, but modest declines in rates have seemed to help stimulate activity and improve home affordability. The 30yr fixed mortgage rate is currently at 6.9%[1], off its peak of 7.8%, and while mortgage rates will remain elevated relative to pre-pandemic levels, Fannie Mae sees further inches down to 6.4% by end-2024 and 6.2% by end-2025. Over the longer term, the recent NAR settlement on realtor commissions may also lower home prices by reducing transaction costs.

For the average household, the “mortgage lock” has been an important layer of immunity to higher rates. The average effective mortgage rate in the economy is at 3.8%, just 0.5% above its historic low in mid-2022. This immunity will gradually fade, but alongside improving real wages and strong balance sheets, consumers should be able to weather incremental exposure. Moreover, while the recovery in housing market activity will be gradual, resilient supply and demand dynamics underscore that it is not a source of vulnerability for the economy. While we don’t expect a recession this year, whenever one occurs, the lack of private sector imbalances suggest that it is unlikely to be a severe one. Has The Housing Market Turned A Corner?_1

Has The Housing Market Turned A Corner?_1

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Economic

China has dethroned the US to become the top alignment choice for Southeast Asians as Washington loses ground on a range of key issues from regional economic engagement to the Israel-Hamas War, according to a new survey.

A survey of 1,994 Southeast Asians by the ISEAS-Yusof Ishak Institute published Tuesday shows China’s popularity in a head-to-head race with the US climbing from 38.9% last year to 50.5% in 2024. Among individual nations, Beijing garnered some three out of four votes in Muslim-majority Malaysia, Indonesia and Brunei.

“Confidence in the US has waned,” the survey states. “This could be attributed partly to the escalating rivalry between China and the US, which led to an uptick in anxiety about the US’ growing strategic and political influence.”

Southeast Asian nations have largely embraced the US as a necessary security presence as the Biden administration ramps up military-to-military cooperation in a bid to counter Bejing’s growing defense prowess. But the region also counts on China as a key financier and trading partner at a time regional leaders seek new investments to bolster their own economies.

Part of the issue for the US are concerns over economic engagement. Southeast Asians are “increasingly unsure” about the effectiveness of the Indo-Pacific Economic Framework for Prosperity, a US-led endeavor to increase trade that’s been criticized for its lack of meaningful market access.

China is once again seen as the most influential economic and political-strategic power in the region, “outpacing the US by significant margins in both domains,” it says.

The latest poll also puts the Israel-Hamas conflict at the top of the list of the region’s geopolitical concerns, with a large proportion of respondents worried “Israel’s attack on Gaza has gone too far.”

Nearly a third of respondents were wary that the Middle East war would catalyze the rise of extremist activities, while diminished trust in international law and a rules-based order was the second-top concern.

“The ongoing Israel-Hamas conflict has emerged as a contentious issue in Southeast Asia, commanding significant attention in the region’s domestic politics,” the survey says. “Despite its geographical distance, the conflict has reverberated strongly across this diverse multi-racial and multi-religious region.”

Whether those sentiments are responsible for the US’ drop in standing among regional nations is unclear, said Bonnie Glaser, the head of the Indo-Pacific program at the German Marshall Fund. “Without more data it’s impossible to answer that,” she said during a presentation of the results.

The US has diplomatically and militarily backed Israel in its quest to destroy Hamas, in the aftermath of the group’s Oct. 7 attack.

While sentiments have broadly shifted towards China, tensions in the South China Sea was the second-biggest geopolitical concern in the latest study. In a hypothetical choice between the US and China, Washington still commands majority support from the Philippines at 83.3% and Vietnam at 79%, which are at the forefront of the territorial disputes with Beijing.

Broadly, “there is a growing sense of optimism among Southeast Asians regarding their future relations with China,” the report states. “The Philippines emerged as the most cautious.”