Major milestones loom for markets in flux
WITH all the focus on the 10year Treasury yield, it’s easy to overlook the tumult that may await global investors across other asset classes.
The US government’s decadelong borrowing costs crossed the three per cent threshold for the first time in four years on last Tuesday. That’s not just any round number, but one that marked the highs of its doubletop formation back in 2013 and 2014. That matters, according to Matt Maley, an equity strategist at Miller Tabak & Co., because the last time yields broke through a double-top, earlier this year, the February correction in equities ensued.
“A potential break above the three per cent level has a lot of investors walking on eggshells,” he said.
But three per cent is hardly the only pivotal point for financial market participants. Across the landscape, there’s a plethora of assets nearing round-number milestones and technically significant levels, any breach of which could signify a seachange. • Talk swap: As long-term Treasury yields edge higher and threaten to unmoor from historically low levels, a normalisation has been underway in a more exotic locale: US derivative markets.
The gap between swap rates and Treasury yields of the same maturity is positive for most all maturities now as President Donald Trump’s focus on easing the regulatory burden on banks, and signals of the same from the Federal Reserve, have boosted the relative appeal of Treasuries. • Dollar drama: The greenback’s resurgence prompted the US Dollar Index to poke its head above the 100- day moving average this week for the first time in 2018. It’s less than two per cent away from reclaiming its 200- day moving average of around 92, a pivotal technical level, as rising real yields offer support for the beleaguered currency. • Tech specs: The Philadelphia Semiconductor Index fell in the four sessions through Monday, bringing its losses over that time period to about seven per cent. Chip stocks can’t seem to catch a break, getting whacked by weak earnings, trade skirmishes and growth concerns. The gauge is now approaching its 200- day moving average, which is about 1,244.
Meanwhile, Apple kicked off the week by closing below its 200day moving average – something it never did in 2017.
The company is set to report earnings May 1. • Going global: Australian equities are also approaching a round-number threshold, with the S& P/ASX 200 Index a little more than a per cent shy of 6,000, a level it was unable to breach when tested in March.
The EuroStoxx 50 Index just posted its first close above its 200- day moving average since Feb 1. The rally in energy prices has given companies such Total SA and Eni SpA a key role in propelling the gauge higher this month.
It’s a different story for foreign exchange in the developing world. The MSCI Emerging Markets Currency Index fell below its 100- day moving average of 1,702.47, seen as a harbinger for more losses.
• Commodity watch: Brent and West Texas Intermediate crude prices are right around US$ 75 and US$ 70 dollars a barrel, respectively.
These milestones would be fresh three-year highs for the gauges, with rebuilt stockpiles of petro- dollars poised to provide a meaningful bid for financial assets. Amid a raw-material rally that’s expected to fuel headline inflation, there’s one commodity going against the grain: The Bloomberg Grains Subindex has breached its 200 day moving average to the downside. — WPBloomberg