Wall Street Rebounds Amid Rising Yields on Nasdaq 100, Dow, S&P 500

Traders' Opinions

Stocks

Summary:

Uncertain U.S. stock market sways with fluctuating Treasury yields. Rising 10-year Treasury notes reshape Fed rate cut expectations. Tech and crypto stocks flourish; Wells Fargo predicts high year-end S&P 500 target.

Interest Rate Speculation Amid Economic Strength

The U.S. stock market presents a mixed outlook on Monday as the S&P 500 and Nasdaq struggle for direction in response to rising Treasury yields. These movements reflect growing trader speculation regarding the Federal Reserve’s potential delay in interest-rate cuts.

The background to this sentiment is a string of positive economic reports, including robust manufacturing and jobs data, suggesting a resilient economy. This reduces the urgency for the Fed to lower interest rates. According to the CME FedWatch Tool, there’s now about a 51% chance of the Fed announcing its first rate cut in June, a decline from 58% at the start of the previous week.

Treasury Yield Trends and Equity Markets

The yield on 10-year Treasury notes has risen, reaching its highest point since the previous November, exerting pressure on equity markets. This uptick in yields is a reaction to the stronger-than-expected economic indicators, leading to a shift in market expectations regarding the Fed’s rate cut timeline. Investors are also adjusting their forecasts for the number of rate cuts this year, with the market now less inclined to expect more than three reductions.

Sector Performances and Stock Highlights

Notably, technology and cryptocurrency stocks have displayed significant activity. Tesla shares climbed 4.6% following Elon Musk’s announcement about the Robotaxi, set to be unveiled in August. Cryptocurrency-related stocks, such as Coinbase Global, Marathon Digital, and MicroStrategy, also saw substantial gains, driven by an uptick in bitcoin prices. Wells Fargo raised its year-end target for the S&P 500 to 5,535, marking the highest prediction among Wall Street brokerages, which may indicate underlying confidence in market resilience despite prevailing uncertainties.

Looking Ahead: Economic Indicators and Fed Decisions

Market focus now shifts to the March reading of the U.S. Consumer Price Index (CPI) and the release of minutes from the Fed’s latest meeting. These documents are anticipated to provide crucial insights into inflation trends and the central bank’s policy outlook. Comments from Federal Reserve officials like Austan Goolsbee and Neel Kashkari are also awaited for further policy cues.

Short-term Market Outlook

Considering the interplay of rising Treasury yields, resilient economic indicators, and varying sector performances, the short-term market outlook is cautiously optimistic. This perspective hinges on the upcoming CPI data and Fed communications, which will be pivotal in shaping investor sentiment and guiding market directions in the near term.

The strength of the U.S. economy, coupled with anticipated Fed policy adjustments, suggests a cautiously bullish stance for U.S. equities. However, investors should be prepared for volatility following the release of the CPI report.

Technical Analysis

Wall Street Rebounds Amid Rising Yields on Nasdaq 100, Dow, S&P 500_1

E-mini S&P 500 Index futures are edging higher but still in a weak position after crossing to the bearish side of the long-term rising wedge formation late last week.

The nearest resistance is 5305.75. This uptrending line is likely to act like a pivot this week.

On the downside, the sellers are eyeing the 50-day moving average at 5159.97. Look for a technical bounce on the first test of this trend indicator. However, if it fails as support then look for the start of an acceleration to the downside.

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Chandan Gupta

Traders' Opinions

Forex

Technically speaking, price action on the EUR/GBP cross has been rangebound since late 2016, which is evident on the monthly chart.

However, what this ranging action has offered technical eyes is a potential Head and Shoulder’s Top pattern to work with between £0.9306, £0.9504 and £0.9066 (if you wanted to be more technical, you might also refer to this as a complex Head and Shoulder’s Top given the two left shoulders). The pattern, as you can see, has yet to be completed as the right shoulder is still forming, but a neckline has been drawn in anticipation of pattern completion, extended from the low of £0.8313.

Nevertheless, drilling down to the lower timeframes on the daily chart, you will note that price action is in the process of chalking up an inverted Head and Shoulder’s Top pattern between £0.8513, £0.8498 and £0.8528, with a neckline drawn from the high of £0.8572.

What Does This Mean?

Should the daily chart’s pattern complete—rupture the neckline—this could see a moderate move to the upside. However, knowing that there is a possibility of the monthly timeframe eventually targeting a break of the Head and Shoulder’s Top pattern’s neckline, any upside move could be weakened on the daily timeframe.

The ECB kept borrowing costs at record highs on Thursday, but took a first, small step towards lowering them, saying inflation was easing faster than it anticipated only a few months ago.

Markets latched onto that, with traders pricing in 100 bps worth of rate cuts this year, versus 90 bps before the decision.

June is still seen as the most likely start date for ECB easing, market pricing suggested.

While the Bank of England is one to watch. It's currently expected to ease rates later than the Fed and the ECB, but some investors reckon a weaker growth outlook could prompt an early move, while others note the BoE could deliver larger rate cuts overall.

UK rates are at nearly 16-year highs and the BoE has softened its stance about when it might cut them, while one of its policymakers cast the first vote for a reduction in borrowing costs since 2020. Traders anticipate a first cut in August, having pushed that back from June at the start of 2024.

Resistance on the Daily Timeframe?

Assuming we do indeed witness a breakout higher on the daily timeframe and price tests the projected inverted Head and Shoulder’s Top pattern’s profit objective at £0.8658, this, combined with the resistance zone located above it between £0.8671 and £0.8664, could be an area where the chart welcomes a sell-on-rally scenario based on what is being shown on the monthly timeframe. Intriguing EUR/GBP Scenario Unfolding_1

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Chandan Gupta

Traders' Opinions

Cryptocurrency

Forex

Overview

The U.S. Dollar Index (DXY) is trading lower on Monday after giving back earlier gains against major currencies, impacted by mixed U.S. economic data and global economic events. The anticipation of upcoming U.S. inflation data and the European Central Bank (ECB) policy meeting are pivotal factors influencing the index’s movements.

Market Analysis

The DXY showed a downward trend, influenced by contrasting U.S. economic indicators. The unexpected surge in U.S. employment was offset by a slowdown in service sector growth, leading to reduced expectations for Federal Reserve rate cuts this year. Meanwhile, U.S. Treasury yields, mirroring interest rate expectations, have edged higher.

Inflation and Policy Meetings

The market is closely monitoring the U.S. Consumer Price Inflation report due on Wednesday. An “upside inflation surprise” could prompt a reassessment of Federal Reserve policies, potentially strengthening the dollar. Additionally, the ECB’s policy meeting on Thursday will be significant for major global currencies.

Yen and Euro Movements

The Japanese yen hovered near 34-year lows, with potential interventions by Tokyo authorities to support the currency. The Bank of Japan’s stance remains cautious, with no clear indications of policy changes. The euro showed a slight decline, influenced by the ECB’s possible rate hold and future easing measures.

Cryptocurrency and Sterling Performance

In the cryptocurrency realm, Bitcoin experienced a significant surge. Sterling, on the other hand, recorded a marginal decrease.

Market Forecast

Given the imminent U.S. inflation data and the ECB meeting, the market appears poised for volatility. The possibility of higher-than-expected U.S. inflation could lead to a hawkish reassessment of the Federal Reserve’s interest rate policies, potentially bolstering the dollar. Consequently, a short-term bullish outlook for the U.S. Dollar Index seems probable, contingent on the inflation report and global central bank decisions.

Technical Analysis

DXY Index Trades Both Ways Ahead of Inflation Figures_1

The US Dollar Index is nearly flat on Monday, in a move largely influenced by trader indecision ahead of Wednesday’s major US consumer inflation report.

The market continues to be well-supported by the uptrending 50-day and 200-day moving averages at 103.904 and 103.801, respectively. They represent the intermediate and long-term trends.

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Chandan Gupta

Traders' Opinions

Commodity

Oil Market Gaps Lower

Light crude oil futures are displaying notable movement on Monday, starting with a sharp 3% drop, followed by a partial recovery. This volatile movement is being primarily influenced by global events and economic data releases.

Geopolitical Tensions and Supply Outlook

The oil market is currently sensitive to the ongoing geopolitical situation, notably in the Middle East and the Russia-Ukraine conflict. Brent crude saw a pullback from its five-month high after Israel’s decision to withdraw troops from Gaza. Despite this easing of tensions, the possibility of future conflicts involving Iran continues to add a layer of uncertainty to the supply outlook. Additionally, factors like OPEC+ production cuts and regional disruptions, such as those in the Red Sea, are crucial in shaping supply perceptions.

Technical Analysis and Investor Focus

Brent crude’s recent ascent to high levels now encounters technical resistance, indicated by its overbought status on the 14-day relative strength index. However, the market sentiment stays largely positive, supported by significant market indicators and increased investment in crude oil. Upcoming reports from entities like the US Energy Information Administration (EIA) and the International Energy Agency (IEA) are eagerly anticipated for deeper insights into the global oil balance.

Economic Data and Market Projections

The oil market is also reacting to expectations surrounding US inflation data, which could impact the Federal Reserve’s interest rate decisions. The blend of ongoing geopolitical concerns and potential supply limitations suggests a continued interest in the oil market’s direction. The short-term projection appears bullish, but it is subject to change based on the unfolding geopolitical landscape and key economic reports.

Short-Term Market Outlook

Considering the mix of geopolitical developments, OPEC+ production strategies, and current supply challenges, the short-term outlook for oil prices leans towards bullish. However, investors should be prepared for possible changes influenced by new geopolitical developments or economic data, particularly relating to inflation and interest rate paths.

Technical Analysis

Crude Oil Gains Limited Amid Easing Tensions in the Middle East_1

Light crude oil futures are in an uptrend, but today’s weaker price action has produced a new minor top at $87.63. A trade through this level will signal a resumption of the uptrend with October 20 top at $89.49 the next upside target.

The short-term trend will change to down on a trade through $80.30. Given the current price, there is room to the downside, but change in the short-term trend is not likely. Additonally, any test of the 50-day moving average at $78.77 and the 200-day moving average at $77.77, will likely bring in another round of fresh buyers.

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Alex

Economic

Chinese tourists spent more per trip over a holiday than in 2019 for the first time since the pandemic started, adding to signs that consumption is recovering in the world’s No. 2 economy.

Travelers spent nearly 54 billion yuan ($7.5 billion) on 119 million trips within the country during the recent three-day break, the Ministry of Culture and Tourism said in a statement.

That works out to some 453 yuan per trip, up 1.1% from 2019. Goldman Sachs Group Inc. and Citigroup Inc. said this marks the first time that per-trip holiday spending has topped pre-pandemic levels.

The travel data adds to signs that recovering consumption sentiment may give the economy some extra help after three years of harsh rules intended to curb the spread of Covid-19. Before the break, China reported data that showed factory activity exceeded expectations in March, boosting optimism the country can achieve its ambitious growth goal of around 5% this year.

“This indicates that household tourist consumption potential and willingness were released fully,” China Greatwall Securities Co. analysts including Jiang Fei wrote in a note dated Monday. “We expect services expenditure as a share of total consumption will increase further this year, driving the recovery of household consumption to some extent.”

\Chinese shares listed in Hong Kong fluctuated on Monday after a two-session slide, and China’s CSI 300 Index slipped 0.4% as it trades near the highest since mid-March.

To be sure, a full recovery in Chinese travelers’ spending has yet to materialize. The number of domestic trips during the recent holiday rose 11.5% compared to 2019 versus the 19% jump seen over the Lunar New Year break in February, Goldman Sachs economist Hui Shan wrote in a note on Sunday.

That indicated the “unusual strength” during the Lunar New Year spending was partially driven by pent-up demand for family reunions, she said.

The Tourism Ministry said in its statement on Saturday that travelers favored short jaunts to city suburbs and tourist spots close to home. Local authorities tried to make the most of their opportunities, providing special public transport, organizing events such as food festivals and extending the hours of scenic spots.

Tianshui, a city in northwestern China that’s become known for its street food, was among the most popular tourist destinations over the recent Qingming Festival, also known as Tomb-Sweeping Day. Tongcheng Travel Holdings, a travel website, said the city of 2.9 million people topped a gauge that incorporated a range of factors, including hotel bookings and searches.

Chinese tourists also stepped up foreign travel over the recent holiday. They made 2.42 million cross-border trips, up 102% from 2023, according to National Immigration Administration. The break last year was just one day.

Foreigners made 500,000 trips across the border, it said, a surge of 163%. China has been trying to attract foreign visitors recently, allowing visa-free entry for travelers from a growing list of countries and making digital payments easier to use.

Source:Bloomberg

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

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Chandan Gupta

Traders' Opinions

Commodity

Silver Market Outlook Amid Economic Data

The silver market, exhibiting resilience, maintains a bullish trend despite challenges like rising yields and a strong US Dollar. This positive sentiment is underpinned by key economic data and central bank activities.

Global Central Bank Influence

A significant driver for silver’s bullish trend is the ongoing purchase of gold by central banks in Asia, particularly the People’s Bank of China and the Reserve Bank of India. China’s gold reserves, now at 72.74 million fine troy ounces, exemplify this trend. These purchases are instrumental in bolstering silver prices, as silver often follows gold’s market trajectory.

US Economic Data and Treasury Yields

Despite a robust US jobs report suggesting potential bearish pressures, the silver market has sustained its upward momentum. The market is closely watching the upcoming CPI and producer price index, as well as Federal Reserve officials’ statements, for cues on the economic outlook and monetary policy.

CPI Report and Fed Policy

The Consumer Price Index report is particularly pivotal. Bank of America predicts a moderation in the CPI for March, which could signal easing inflation pressures. A subdued inflation report might influence the Federal Reserve to adopt a more dovish stance, potentially leading to a rate cut in June. This scenario could bolster silver prices, as lower interest rates typically decrease the opportunity cost of holding non-yielding assets like silver.

Short-term Market Forecast

Considering these factors, the short-term forecast for silver remains bullish. The market is poised to react to the CPI report, which will provide crucial insights into the Federal Reserve’s policy direction. A dovish tilt in response to moderated inflation could further fuel the upward momentum in silver prices. Investors should stay alert to the implications of this key economic data and central bank policy decisions in shaping the market’s path.

Technical Analysis

Silver Prices Tilt Bullish Amid Economic Uncertainty_1

XAG/USD reaffirmed its uptrend on Monday in a volatile trade. A move through $28.09 will signal a resumption of the uptrend, while a trade through $26.28 will change the minor trend to down.

Nonetheless, given the position of the 50-day moving average at $23.94 and the 200-day moving average at $23.48, any short-term weakness is likely to be attractive to new buyers.

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Warren Takunda

Commodity

Economic

The Canadian dollar (CAD) stumbled on Monday, slipping to its lowest level in four months against its US counterpart (USD). This weakness comes on the heels of a disappointing jobs report released by Canada on Friday, which contrasted sharply with robust employment data from the United States.

Canada's Job Market Falters

Canada's employment figures for March fell short of expectations, with a meager decline of 2,200 jobs. This follows a robust gain of 40,700 jobs in February and falls considerably short of the market estimate of 25,000 new positions. This marks the first decline in employment in eight months, raising concerns about the health of the Canadian labor market.

The unemployment rate also climbed slightly, rising from 5.8% to 6.1%, exceeding market predictions of 5.9%. This 0.3% increase is the largest in nearly two years and reflects a growing population that is outpacing job creation.

US Jobs Boom Casts Shadow on Loonie

Across the border, the US economy painted a starkly different picture. US non-farm payrolls surged to a whopping 303,000 in March, exceeding expectations by a significant margin and highlighting the resilience of the American labor market. This robust number follows a revised gain of 270,000 jobs in February.

The unemployment rate in the US also dipped lower, falling to 3.8% from 3.9%, defying market forecasts of 3.9%. Wage growth, however, remained steady at 4.1%, down slightly from the previous reading of 4.3%.

Rate Cut Expectations on Hold

The contrasting job reports have cast some doubt on the timing of potential interest rate cuts by both central banks. While the Bank of Canada (BoC) is still widely anticipated to hold rates steady at 5% during its meeting this week, the strong US data might prompt the Federal Reserve to delay its own rate cuts.

Prior to the jobs report, markets anticipated an initial rate cut from the Fed in June or July. However, these expectations have been trimmed, with an 88% chance of a cut priced in for September. The Fed is still expected to maintain rates at its May 1st meeting.

Technical Outlook: A Tug-of-War at the Support Level

The USD/CAD pair currently finds itself caught in a tug-of-war between resistance at 1.3606 and support at 1.3505. The stochastic indicator, which measures price momentum, is currently flashing negative signals, suggesting a potential downward move in the near term. However, a clear break above resistance could lead to a surge in the USD/CAD, potentially reaching 1.3700.

For the bulls to regain control, they'll need to see a reversal of the negative stochastic signal and a decisive break above the resistance level. This could be fueled by positive surprises from the BoC meeting or a broader weakening of the US dollar. Conversely, a breach of the crucial support level at 1.3505 could trigger a correction, potentially pulling the pair down to 1.3440 initially, with a possible extension to 1.3390. This scenario would likely be supported by continued negative signals from the stochastic indicator and a sustained strengthening of the Canadian dollar.

In the absence of major surprises, the USD/CAD pair is likely to remain range-bound in the near term, with the outcome of the tug-of-war at the support level ultimately determining the next directional move.

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

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