Asian Open: Don’t Fight the Fed (Unless Yellen Says Otherwise)

US Treasury Secretary (and former Fed Chair) Dr Janet Yellen spooked markets overnight, saying we could see slightly higher rates. Tech stocks in particular were not happy.

Downtrend 1


Asian Futures:

  • Australia's ASX 200 futures are down -26 points (-0.37%), the cash market is currently estimated to open at 7,041.90
  • Japan's Nikkei 225 futures are down -20 points (-0.07%), the cash market is currently estimated to open at 28,792.63
  • Hong Kong's Hang Seng futures are down -308 points (-1.08%), the cash market is currently estimated to open at 28,249.14

UK and Europe:

  • UK's FTSE 100 index fell -46.64 points (-0.67%) to close at 6,923.17
  • Europe's  Euro STOXX 50  index fell -75.45 points (-1.89%) to close at 3,924.80
  • Germany's DAX  index fell -379.99 points (-2.49%) to close at 14,856.48
  • France's CAC 40 index fell -56.15 points (-0.89%) to close at 6,251.75

Tuesday US Close:

  • The Dow Jones Industrial rose 19.18 points (0.06%) to close at 34,133.03
  • The S&P 500 index fell -28 points (-0.67%) to close at 4,164.66
  • The Nasdaq 100 index fell -255.051 points (-1.85%) to close at 13,544.67

Tech stocks not happy with the prospects of (slightly) higher rates

Yellen may not be in the driving seat at the Fed anymore, but Wall Street still respects her opinion on where rates could be headed. And that could be up, according to her comments overnight. In recorded comments, Yellen said that it “"may be that interest rates will have to rise somewhat to make sure that our economy doesn't overheat”. Whilst she has no direct impact on Powell’s decision on timing, Fed-fighters no doubt feel vindicated as bond yields fell.

Wall Street began to fall right after the open, with US indices down around -0.5% and catching may off guard. The Nasdaq 100 fell over -2% to a one-month low during its worst session in six weeks, the Russell 2000 closed -1.3% lower whilst the S&P 500 fell -0.68% by the close.

[Video] Double Top on Tech Stocks, Gold Bugs Gun for 1800

And European bourses were not spared wither. The DAX led the way and closed -2.5%, and confirmed a head and shoulders top, which projects a pattern around 14,600. The STOXX 600 fell -1.4% and the CAC was -0.9%.

[Video] DAX to Top Out? Silver Shaken, Copper Probes 10yr High

ASX 200 Market Internals:

By yesterday’s close, we had mixed feelings on the ASX 200 chart. On one hand, it is holding above 7,000 and produced a three-bar bullish reversal (Morning Star Reversal) above its 20-day eMA. Yet, on the other hand, it is struggling to re-test the February (Pre-pandemic highs) let along break above them. There is clearly a battle around current levels which can be frustrating for trend traders until a breakout occurs. But, with index futures, Europe and US broadly lower, we’re in for a soft open today. Although bears need to see a break beneath 7,000 before they can assume control.

ASX 200: 7067.9 (0.56%), 03 May 2021

  • Materials (2.21%) was the strongest sector and Information Technology (-1.96%) was the weakest
  • 9 out of the 11 sectors closed higher
  • 4 out of the 11 sectors outperformed the index
  • 5 hit a new 52-week high, 0 hit a new 52-week low
  • 71.5% of stocks closed above their 200-day average
  • 51.5% of stocks closed above their 20-day average

Outperformers

  • + 7.90%   -  Ramelius Resources Ltd  (RMS.AX)  
  • + 7.65%   -  Silver Lake Resources Ltd  (SLR.AX) 
  • + 7.37%   -  Resolute Mining Ltd  (RSG.AX) 

Underperformers:

  • -4.61%   -  Flight Centre Travel Group Ltd  (FLT.AX) 
  • -4.20%   -  Megaport Ltd  (MP1.AX) 
  • -3.66%   -  NRW Holdings Ltd  (NWH.AX)

Forex: Dollar catches a bid

The US dollar index (DXY) was the strongest currency yesterday, and briefly rose to a two-week high on the back of Yellen’s comments and risk-off trade. In true risk-off fashion, AUD and NZD were the weakest majors.

AUD/USD touched a three-week low but found support at the 0.7677 high. NZD/USD fell in tandem but respected trendline support, projected from the April low.

The Canadian dollar was weaker as Canada’s trade balance surprised traders with a deficit, fuelled by a surge in imports (most notably energy). Yet this could just be a minor blip and CAD still looks desirable against its commodity FX pees AUD and CAD.  

CAD/JPY is holding above 88.30 support and now provided a two-day pullback, and a small retracement channel is forming on the four-hour chart. A break above 89.22 assumes bullish continuation.


AUD/CAD reached our 0.9460 target on Friday before printing a (sympathetic) bullish candle on Monday. However, CAD once again proved its appeal over AUD during risk-off trade to print a two-bar bearish reversal pattern (dark cloud cover) just above its recent lows. Given the strength of the trend, we suspect a downside break could be on the cards.

  • A break below 0.9457 assumes bearish continuation
  • The bias remains bearish below 0.9535
  • Given the strength of bearish momentum overall, we’d also consider fading into low-volatility counter-trend retracements towards 0.9535

Commodities: Oil leaves metals behind.

Oil continued to climb as more states eased lockdown restrictions and US crude stockpiles fell yesterday. WTI futures are over $66 for the first time in seven weeks and just shy of 66.40 resistance. Brent printed a bearish outside candle and is just 60c below $70.

Copper prices were set to close to their highest level since March 2011. Yet sold off just before the close bac below resistance to form a Doji at its highs. Still, the trend remains bullish above 4.435 so any low volatility retracements above this level should be appealing to bulls. But even better would for bullish momentum to pick up from here.

Gold rolled over from 1800 once more, scuppering our hopes for an imminent breakout. Whilst the bias remains bullish above 1760, we’d prefer to step aside until volatility subsides.

Silver closed back below 26.63 support (prior resistance), pouring cold water on its strong bullish close above this key level the day prior. Still, it remains above the 20 and 50-day eMA, po perhaps this is a minor scuffle before its trend resumes. We shall see.

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