On Monday (March 8) the market at the start of the week was hit hard, the Asian market Central Asian stocks jumped higher after falling across the board, the dollar remained strong to break through the 92 mark, spot gold gave up early gains to close to the 1700 mark.
By the close of trading, Australia’s S&P/ASX200 was up 0.43%; The Nikkei 225 closed down 0.42%; South Korea’s Kospi index closed down 1.00%.
The decline in China’s stock markets has been brutal. The Shanghai Composite Index fell 2.30%, the Shenzhen Component Index fell 3.81% and the ChiNext Index fell 4.98%. The FTSE China A50 index extended losses to 4%. Hong Kong stocks extended their losses, with the Hang Seng Index down more than 2 percent.
Over the weekend, a $1.9 trillion U.S. pandemic stimulus package passed the Senate, good news for the global economic recovery but also putting new pressure on U.S. government debt.
Treasurys continued to sell off, with the 10-year Treasury note yield continuing to move higher and hitting the 1.6 percent mark again in the session, reversing risk sentiment and sending stocks lower across the board.
Friday’s data showed the U.S. economy added 379,000 nonfarm jobs last month; At the same time, the unemployment rate fell to 6.2 percent, a positive sign for income, spending and corporate profits. The data sent the yield on the 10-year Treasury note to a one-year high of 1.625 percent on Friday, after a weekly jump of 16 basis points last week.
Better economic data, the coronavirus vaccination and the coming fiscal stimulus in the US have boosted confidence in the economic recovery and boosted expectations of higher inflation.
“As the economy restarts, we’re starting to see a lot of room in the reflation story. “Strong non-farm payrolls support this story, which could prompt the Fed to raise rates sooner,” said Justin Hoogendoorn, managing director of fixed income at Piper Sandler Financial Strategies in New York.
In currency markets, major currencies were mostly little changed, with the dollar generally holding steady after last week’s steady gains, rising above 92, its highest level of the year, as Treasury bond selling continued.
Bank of America analyst Athanasios Vamvakidis said the combination of the U.S. stimulus bill, faster economic restarts and greater consumer firepower is clearly positive for the dollar. “Including the current proposed stimulus package as well as additional spending on the infrastructure bill in the second half of the year, the total US fiscal support is six times that of the EU recovery fund. The Fed is also providing support and the money supply in the US is growing at twice the rate of the eurozone.”
Ned Rumpeltin, head of European FX strategy at TD Securities in New York, said the euro’s break below technical support of $1.1950 was bearish, with a target of $1.1800. “Strong US jobs data provided the last piece of weakness for the dollar-bullish view,” he added. “This should further support the dollar against other major currencies.”
Analysts said there was little follow-on after the knee-jerk reaction to Friday’s non-farm payrolls report, but sentiment was still tentative for the start of the week. Risk sentiment has tempered the tech sell-off, and if the 10-year Treasury yields start to move up to 1.60% again, you could start to see a broader market reaction.
Treasury yields will remain the focus of attention this week, and will get no help from Fed officials on this point, as this is a “hush period.” The key risk event to watch will be the US Treasury auctions tomorrow and especially Wednesday.
The Fed signalled it would not be disturbed by rising yields, which once again worried markets. The sale of 10 – and 30-year Treasury notes, scheduled for Wednesday and Thursday, will be what TD Securities calls a “litmus test of potential market failure.”
In commodities, oil prices continued to surge as Brent crude surged above $70 on news of an attack on Saudi oil facilities. Have oil prices moved too far, too fast in the past two months? Some analysts say that while the long-term outlook still bodes well for oil, it is certainly a bit frothy.
Gold briefly breached $1,710 earlier in the day on fresh U.S. stimulus news, but retreated under pressure as Treasury yields recovered and fell below the key 1,700 mark in late trading.
Trend analysis of major currencies:
EUR: EUR/USD extended its three-day losing streak, breaking the 1.19 mark on the day and diving as low as around 1.1880. Technically, the MACD green momentum pillar turns expansive again on the 4-hour chart, the RSI indicator touches oversold levels, and the KDJ indicator trades within oversold levels, indicating that there is still downward pressure on prices in the short term, but the decline may slow. Initial short-term support stands at 1.1850, initial resistance is seen at 1.1950.
GBP: GBP/USD is in a choppy downtrend, trading around 1.3800. Technically, the MACD green momentum column is basically stable on the 4-hour chart, with the RSI below 50 and the KDJ below the oversold level, suggesting that prices still face downward pressure in the short term, but the decline may slow. Initial short-term support stands at 1.3760, initial resistance is seen at 1.3880.
JPY: USD/JPY continued to climb, closing in on the key year high of 108.63 for the day. Technically, on the 4-hour chart, the MACD red momentum column weaks slightly, the RSI indicator touches overbought levels upward, the KDJ indicator trades within overbought levels, and prices are expected to consolidate in the short term. Initial short-term support stands at 108.00, initial resistance stands at 108.65.