US Dollar Pops on US Rates Spike, JPY & Silver Drop - US Market Open
Equities: US-Sino relations are back in focus, after the FT reported that China is said to consider curbs on rare earth metals exports targeting the US defence sector with China wanting to know how bad US and European firms would be hit in the event of a ban. In turn, as we approach the expiration of China’s tariff waiver on certain US imports on Feb 27th, US/China tensions resurfacing will be on my radar throughout the next few weeks. That said, the initial gains across European bourses have begun to fade into the Wall Street opens and with equity markets approaching a seasonally weak period, risks are for a pullback in the short run.
Euro Stoxx 50 Sector Breakdown
Outperformers: Financials (0.6%), Basic Materials (0.4%), Industrials (0.2%)Laggards: Utilities (-1.0%), Energy (-0.5%), Consumer Staples (-0.3%)
Intra-day FX Performance
FX: The big today has been the move in the bond market with US yields pushing higher. 10yrs up a sizeable 6.9bps, which in turn has aided a recovery in the greenback to trade in the mid-90s. Alongside this, the Japanese Yen has continued to weaken against the USD with USD/JPY largely tracking US rates higher, putting the 106.00 handle in focus. Elsewhere, the rest of the G10 complex will provide its first opportunity for dip buyers, particularly in the high-betas (AUD) as well as GBP.
Commodities: A recovery in the USD and a pickup in US yields does not bode well for gold prices. To make matters worse, for those who look at the technicals, a death cross has formed with the 50DMA breaking below the 200DMA. Near term support at 1784 is in focus with 1764 below. The chart below shows the prior times a death cross has taken form. Alongside this, silver has also taken a hit with the precious metal testing $27/oz.
Looking ahead: Little on the data front, however, a raft of Fed speakers will be watched, particularly with yields on the march higher.
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