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Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Margaret Yang, CFA, Strategist

DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • Dow Jones, S&P 500 and Nasdaq 100 tumbled -1.75%, -2.45% and -3.56% respectively
  • 10-Year Treasury yield jumped 14bps to 1.525% after a poor seven-year Treasury auction
  • Rising yields may weigh on Asia-Pacific equities amid souring sentiment, tech rout
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Yields Surge, VIX Jump, Jobless Claims, Asia-Pacific at Open:

Wall Street equities had a bloodbath session on Thursday as Treasury yields jumped, with all 11 S&P 500 sectors ending lower. More than 90% of the stocks closed in the red, reflecting deep concern from investors in the face of a rapidly climbing longer-duration yields after a poorly-received Treasury auction. The 7-, 10- and 20-year Treasury yields advanced 26, 22 and 26 bps from a week ago to 1.199%, 1.525% and 2.191% respectively.

Rising bond yields not only offer an alternative to dividend yield, but they also reduce stocks’ intrinsic value when their future cash flows are discounted at a higher required rate of return. It also means corporates are bearing higher debt servicing. Therefore, higher yields may exert downward pressure over equities as they become less appealing when higher rates are taken into consideration.

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Source: Bloomberg, DailyFX

The VIX volatility index spiked 35% to 28.9 as the US stock market tumbled. The tech-heavy Nasdaq 100 index was the worst-performing major US indices, falling 3.56% and breaking down the trend-defining 50-day Simple Moving Average (SMA) line. Stretched valuations rendered the tech sector vulnerable to profit-taking activity. Prospects of a faster pace of economic opening-up with vaccine progress may encourage investors to look into reflation trades and rotate out from the tech sector.

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Source: Bloomberg, DailyFX

Asia-Pacific markets look set to retrace broadly, with futures across Japan, China, Australia, Hong Kong, Taiwan and Singapore pointing to open sharply lower. Australia’s ASX 200 index opened down by -1.89%, dragged by information technology (-6.06%), consumer discretionary (-2.88%) and communication services (-2.12%) sector. All 11 ASX 200 sectors were trading lower. Japan’s Nikkei 225 lost 3% in early trading hours and broke decisively below a key psychological level of 30,000.

On the macro front, data continued to support a brighter recovery outlook and may offer stock markets some sort of cushion. The latest US weekly jobless claims figure came in at 730k, better than the baseline forecast of 838k and lower. The previous week’s reading was revised down to 841k from 861k, reflecting an improving picture of labor market sentiment. The US durable goods order surged 3.4% MoM, far beating consensus of a 1.1% growth. Durable goods order refer to new orders placed with manufacturers for delivery of hard goods which meant to last at least three years, and thus is commonly viewed as a good indicator of the strength of the economy.

Looking ahead, US core PCE price index and Michigan consumer sentiment data headline the economic docket alongside Japanese housing starts. Find out more from DailyFX calendar.

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Source: Bloomberg, DailyFX

Looking back to Thursday’s close, all 9 Dow Jones sectors ended lower, with 90.0% of the index’s constituents closing in the red. Materials (-3.67%), communication services (-2.91%) and information technology (-2.73%) were among the hardest hit.

Dow Jones Sector Performance 03-02-2021

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Source: Bloomberg, DailyFX

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Dow Jones Index Technical Analysis

The Dow Jones indexretraced to the 61.8% Fibonacci extension level (31,300) for support, breaking which would probably intensify near-term selling pressure and bring 50-day SMA line (31,015) into focus. The overall trend remains bullish-biased as prices remain within the confines of an ‘Ascending Channel”. A daily close below the floor of the channel may signal a near-term trend reversal however. The MACD indicator is about to form a bearish crossover, suggesting that near-term momentum has turned bearish.

Dow Jones Index Daily Chart

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Nikkei 225 Index Technical Analysis:

The Nikkei 225 index failed to breach the 161.8% Fibonacci extension level (30,455) and has since entered a technical correction. An immediate support level can be found at around 29,380, where the 20-day SMA and the 127.2% Fibonacci extension intercept. A daily close below this level would probably intensify near-term selling pressure and bring the next key support level of 28,800 in to focus. The MACD indicator has formed a bearish crossover, suggesting that near-term momentum is tilted to the downside.

Nikkei 225 IndexDaily Chart

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble

Chart by TradingView

ASX 200 Index Technical Analysis:

The ASX 200 index broke down the floor of the “Ascending Channel” and traded lower, pointing to a potential bearish reversal. The 50-day SMA line (6,644) may serve as an immediate support, breaking down which may open the door to further downside potential.

ASX 200 Index – Daily Chart

Dow Jones Falls on Rising Yields, ASX 200, Nikkei 225 Tumble
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--- Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Comments section below or @margaretyjy on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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