Stocks Wobble As Yields Rise

STATE OF THE MARKETS

Stocks wobble as yields rise. US stocks tried to rally but wobbled after treasuries’ yield crossed above 3% on Monday. Dow (+0.05%), S&P (+0.31%) and Nasdaq (+0.40%), including Russell (+0.36%) eked minor gains as the 10Y benchmark reached 3.04% with the Dollar index piercing the 102.80 barrier. However, inversion between the 7Y (3.06%) and the 10Y (3.03%) remains at writing.

In the commodities market, crude was under selling pressure even after Saudi raised its selling price. The black gold settled lower around $117.78/bl as New York closed. Dollar strength continued to put gold under pressure as the metal closed below $1841.10/oz while China re-opening continued to strengthen iron ore demand and the commodity climbed higher to close above $144.80/tn.

In the FX space, sentiments turned bearish as demand for Kiwi, Aussie and Loonie faded while Sterling, Euro and Dollar gained. Short and medium term accounts were quick to short the overbought commodity currencies while continuing to bid the Sterling and Euro.

On Tuesday, China’s reopening continues to give hopes to bulls but rising yields might keep the gains in equities limited. Markets will be watching earning reports from JM Smucker (SJM), Casey Stores (CASY), Guidewire (GWRE), Smartsheet (SMAR), Verint (VRNT), Academy Sports & Outdoors (ASO) and United Natural Foods (UNFI) as well as the latest figures on US trade balance and consumer credit.

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OUR PICK – EUR/USD

Long term remains bearish. Recent talk of ECB potentially raising rates soon boosted the Euro but the medium term outlook remains bearish. Rising yields differential with the Dollar make shorts more attractive at this time. Long term, however, the Dollar can only get stronger if the Fed continues to raise rates beyond expectation.

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