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US Stocks Tumble After a Surge in Treasury Yields

The news shaping the markets today

Australia’s Consumer Sentiment Index fell 2% from a month ago to 102.2 in January. Despite this, the AUD/USD pair rose in forex trading this morning.


New Zealand’s electronic card transactions grew 0.4% in December, following a 9.5% surge a month ago, providing support to the NZD/USD forex pair.


Russia’s current account surplus widened to $41.8 billion in the fourth quarter, from $7 billion in the year-ago period. Despite this, the RUB/USD forex pair came under pressure after the news.


Eurozone’s ZEW Indicator of Economic Sentiment improved by 22.6 points to 49.4 in January, lending support to the EUR/USD forex pair.


 

What’s happening: US stocks recorded sharp losses on Tuesday, following a surge in Treasury yields.

What happened: Most of the tech majors declined as US Treasury yields jumped to a 2-year high.

A decline in the shares of banking majors also weighed on markets, despite these companies reporting strong earnings.

Why it matters: Wall Street started the week in the red zone on Tuesday, as markets were closed on Monday for Martin Luther King Day.

US equities came under pressure on a sharp rise in Treasury yields, which have been on an uptrend after the release of hawkish minutes from the Federal Reserve’s meeting last month suggesting that the central bank may hike interest rates earlier than projected.

Benchmark US Treasury yields climbed to a two-year high on Tuesday with markets expecting the Federal Reserve’s tone to remain hawkish during its policy meeting next week. The two-year Treasury yields surged above 1% for the first time since February 2020. The benchmark 10-year note also climbed to 1.86%, reaching its highest level since January 2020. The US dollar also spiked to a six-day high.

Big tech stocks, including Microsoft, Amazon, Tesla, and Meta Platforms, fell sharply on Tuesday on rising Treasury yields. Microsoft’s stock declined by around 2.5%, after the company announced plans to acquire videogame firm Activision Blizzard in a deal valued at $68.7 billion.

The rate-sensitive financial sector was among the biggest losers, shedding around 2.5% on Tuesday. Shares of Goldman Sachs plummeted around 7% after the bank reported downbeat earnings for its fourth quarter.

Although the energy sector remained in positive zone for most of the session, it closed the session in the red.

Markets are pricing in around four rate hikes by the Fed this year and at least one by the European Central Bank. Market sentiment was also hurt by a massive decline in the New York Empire State Manufacturing Index to -0.7 in January, from 31.9 in December.

The Dow Jones lost about 543 points to settle at 35,368.47 on Tuesday, while the S&P 500 declined 1.84% to 4,577.11. The Nasdaq 100 settled at 15,210.76, down 2.57%.

What to watch: Investors await earnings results from Bank of America, UnitedHealth and Netflix this week. Markets will also keep an eye on the spread of Omicron, which has raised concerns over the economic rebound.

 

The markets today

The Canadian dollar will be in focus today ahead of a couple of major economic reports from the country.

 

Context: The CAD/USD forex pair remained range bound on Tuesday, despite a rise in crude oil prices.

Details: Price for crude oil, which is one of Canada’s major exports, jumped to its strongest level since 2014 on Tuesday as attacks in the Mideast Gulf trigged speculations of supply disruption. WTI crude rose sharply to settle at $85.43 per barrel on Tuesday.

Markets expect the Bank of Canada to increase interest rates at its meeting scheduled for Wednesday next week. Money market data showed the probability of the central bank hiking rates had climbed to around 70%.

On the economic data front, Canada’s housing starts tumbled 22% to 236,106 units in December, missing the consensus estimate of 270,000 units.

The CAD/USD forex pair settled almost flat at 1.2514 on Tuesday. Canada’s government bond yields surged following a rise in US Treasury yields. Canada’s 10-year bond yield jumped to its highest level since April 2019 on Tuesday.

What to watch: Traders await data on inflation rate and wholesale sales from Canada today. Headline inflation in the country is expected to accelerate to 4.8% in December, from 4.7% in the previous month. Wholesale sales are projected to grow by 2.7% in November.

Other Markets: European indices closed lower on Tuesday, with the FTSE 100, DAX 40, CAC 40 and STOXX Europe 600 down by 0.63%, 1.01%, 0.94% and 0.97%, respectively.

Support & resistances for today

Technical Levels News Sentiment
Nasdaq 100 – 15,181.57 and 15,257.76 Positive
S&P 500 – 4,576.22 and 4,597.76 Positive
Dow Jones – 35,318.54 and 35,431.16 Positive
USD/CAD – 1.2501 and 1.2509 Negative
AUD/USD – 0.7180 and 0.7188 Positive

 

Market snapshot

What else to watch today

Germany’s consumer price inflation rate, UK’s consumer price inflation rate, core producer prices, retail price inflation and headline rate of input prices, South Africa’s inflation rate and retail sales, Eurozone’s current account and construction output, US MBA mortgage applications, housing starts, building permits, Redbook index and API crude oil stocks, Australia’s new home sales, as well as South Korea’s producer price inflation.


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