Asian Open Implied volatility for bonds spook equity markets
The 3-month implied volatility for 10-year treasury note has risen to its highest level since June, which suggests yields could march higher from here.
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Just as improving US macroeconomic figures began making the case for the latest records in US equities, today’s unexpectedly poor non-farm payrolls capped a week of disappointments in US data (jobless claims and services ISM). NFP fell to 88K in March (lowest since June 2012) vs expectations of 150K, while the unemployment fell to 7.6%– lowest since December 2008. Shockingly bad poor jobs figures from Canada; a 54.5K plunge — biggest since Feb 2009; and the rise in unemployment rate to 7.2% from 7.0% will finally eliminate any signs of hawkishness from the next bank of Canada policy statement.
Watch Gold & Yields for Stocks Clarity
These poor jobs figures were so disappointing to the extent of delaying expectations of any tapering in the Fed’s asset purchases. This was best highlighted in today’s $30 jump in gold to 1581 and the 23-bps decline in US 10-year yields to 1.68%–lowest of the year. Gold, whose short-lived rally during the Cyprus-Deposits surprise reflected disappointment in the metal, shows the most enthusiasm during disappointing US figures, rather than event risk from the Eurozone. We continue to expect gold rallies to fade near 1600, before 1520 is retested anew. US yields will likely test the next low at the 1.63 channel support. A close below 1.63 would delay the much anticipated gold sell-off.
Those preparing for the seasonal decline in global equities may be getting what they wanted. Add a few arguments from upcoming earnings season such as negative impact of foreign exchange translation and poor visibility from Europe and we may see 1,525 and 6,100 in the S&P500 and FTSE-100 respectively.
SP500 starts its pullback off the top of the 5-month channel, eyeing preliminary support at 1545 (Jan 4 trendline), followed by the next major target at 1502 (channel support). This would be signalled by a close below the 55-DMA of 1525. But current stochastics suggest stabilization near 1500 for now.
FTSE-100 appears to begin its first monthly decline after 10-straight monthly increases. This is starting with a break of the November trendline, which will likely extend into a retest of 6,100, translating into a 5% drop from the March peak. Unlike the S&P500, which appears to show relative resilience, the FTSE-100, lacks suggests the ultimate support to emerge neat 5,860.
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