Jump to content

European Stocks Drop as Yields Tick Higher, EU Stocks, DAX


Recommended Posts

EU STOCKS 50, DAX ANALYSIS:

  • Uptick in US -2 year yield has EU equities trading lower – in lead up to Fed meeting next week
  • Euro Stoxx Index weighed down by tech, real estate and financial sectors
  • DAX, EU Stocks technical analysis and key near-term levels to watch
 

European stocks followed the Asian market lower in early trade on Tuesday, as higher, short to medium term yields in the US and Germany reinforced the market expectation of a ‘hawkish’ Fed and multiple rate hikes in 2022.

The big mover was the US 2 year (most responsive to near term rate expectations) as it surpassed the 1% mark for the first time since the start of the pandemic. In fact, the US 2 year yield last traded around the 1% handle in February of 2020, just before the start of the global lockdowns. The German 10 year bund trades slightly lower this morning around -0.03 but largely continues on its upward path towards zero.

US Bond Yields (2 year. 10 year and 20 year)

European Stocks Drop as Yields Tick Higher, EU Stocks, DAX

Source: Tradingview, prepared by Richard Snow

Elsewhere, in the Euro Stoxx 50 Index, sectors such as tech, real estate and financials trade in the red this morning with the one unsurprising standout being the energy sector, trading up by nearly 0.5% on the day.

Euro Stoxx 50 Sector Summary

European Stocks Drop as Yields Tick Higher, EU Stocks, DAX

Source: Refinitiv, prepared by Richard Snow

EU STOCKS 50 TECHNICAL ANALYSIS

The broad-based equity sell-off thus far looks rather tame for the time being. There has already been a sizeable pullback from the daily low as it failed to break and hold below the zone of support (4245 – 4255) however, the daily close will ultimately reveal whether a bounce or break is most favored.

Support: (4245 – 4255), 4195, 4135

Resistance: 4322

Euro Stocks 50 Daily Chart

European Stocks Drop as Yields Tick Higher, EU Stocks, DAX

Source: IG, prepared by Richard Snow

GERMANY 40 (DAX) TECHNICAL ANALYSIS

The DAX witnessed a bounce off the 200 day SMA earlier today and currently tests the 15770 zone of support. Failure to break and hold below the 15770 level and 200 SMA, may suggest that the sell-off is a temporary response to the uptick in rates and represents an opportunity to rejoin the bull trend as opposed to a deep pullback.

Support: 200 day SMA, 15770, 15430

Resistance: 16032, 16300

Germany 40(DAX) Daily Chart

European Stocks Drop as Yields Tick Higher, EU Stocks, DAX

Source: IG, prepared by Richard Snow

 

Written by Richard Snow for DailyFX.com. 18th Jan 2022

Link to comment

image.png

The 10-year U.S. Treasury yield jumped to its highest point in two years on Tuesday morning, topping 1.83%.

image.png

The yield on the benchmark 10-year Treasury note soared 5 basis points to 1.8305% at 3:40 a.m. ET. The yield on the 30-year Treasury bond climbed 3 basis points to 2.1492%. Meanwhile, the 2-year rate topped 1% for the first time in two years, hitting 1.0364%.

Yields move inversely to prices and 1 basis point is equal to 0.01%.

The move, which comes after a market holiday in the U.S. Monday, indicates that investors are preparing for the possibility of more aggressive tightening by the Federal Reserve.

Last week, Fed Chair Jerome Powell told the U.S. Senate that he expected to see a series of interest rate hikes this year, along with a pullback in other pandemic economic support measures.

Philadelphia Fed President Patrick Harker told CNBC last week that the central bank could raise rates three or four times this year. He noted that inflation is “more persistent than we thought a while ago.”

James Athey, senior investment manager at Aberdeen Standard Investments, told CNBC that the sudden spike in yields couldn’t be explained by any one new piece of news.

“The reality is that the market is still adjusting to the Fed’s ongoing hawkish evolution,” he said via email.

Athey referred to JPMorgan CEO Jamie Dimon’s comments on Friday, when he said the Fed could hike rates as many as seven times this year, according to multiple reports.

These comments, along with speculation that the Fed may hike rates by 50 basis points as soon as March, “are driving the front end to reprice which is dragging all yields up – though notably still the curve is flattening,” Athey said.

“Technically we look a little bit stretched given the pace of this repricing so I expect to see some consolidation around here – especially as the Fed is in blackout and they are the main driver of higher yields at the moment,” Athey explained.

Fed officials have gone into a no-comment “blackout” period ahead of the next central bank meeting on Jan. 25-26.

In terms of data releases due out on Tuesday, the January National Association of Home Builders housing market index is expected out at 10 a.m. ET.

Auctions are scheduled to be held for $60 billion of 13-week bills and $51 billion of 26-week bills. CNBC

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • Posts

    • Sainsburys full year earnings and Unilever’s first quarter trading update both say the same thing, UK consumers are in for higher prices. The war in Ukraine, supply chain issues and the effects of ongoing Covid all to blame.      
    • US Dollar (DXY) Daily Price and Analysis US Q1 GDP may stall the greenback’s advance. A 20-year high nears for the US dollar. The multi-month US dollar rally continues with the greenback printing a fresh high today ahead of the first look at US Q1 GDP at 12.30 GMT. The US dollar basket (DXY) has been boosted by renewed weakness in the Euro and the Japanese Yen, as investors move from lower-yielding to higher-yielding currencies, while safe-haven flows continue to benefit the greenback. The US growth release later in the session is expected to show a sharp slowdown from the robust Q4 figure of 6.9%. The markets are currently pricing in growth of just 1% for the first three months of this year, with the slowdown mainly due to a reduction in inventory accrual over the quarter. This release is unlikely to move the greenback, unless there is a large miss or beat, as the Fed believe that 2022 US growth will be robust enough to let them tighten monetary policy sharply without damaging the economy. The latest US Core PCE data – the Fed’s preferred inflation reading – is released on Friday and this may have more effect on the US dollar than today’s GDP data. For all market moving economic data and events, see the DailyFX Calendar. The ongoing US dollar rally has been aided by weakness across a range of G7 currencies including the Euro, the Japanese Yen, and the British Pound. The Euro continues to battle with lowly growth expectations, exacerbated by energy concerns, the British Pound is mired by weak economic data, while the Japanese Yen is in freefall as the BoJ continues with its ultra-loose monetary policy.   The US dollar continues to press higher and looks set to break above 103.96, the March 2020 high. Above here the US dollar would be back at levels last seen nearly two decades ago. The March resistance will likely hold in the short-term, especially with month-end portfolio rebalancing at the end of the week, but US dollar strength is set to continue in the months ahead. USDOLLAR (DXY) WEEKLY PRICE CHART – APRIL 28, 2022 {{THE_FUNDAMENTALS_OF_BREAKOUT_TRADING}} What is your view on the US Dollar – bullish or bearish?   Apr 28, 2022 | DailyFX Nick Cawley, Strategist
    • While Tesla has nothing directly to do with Elon Musk buying Twitter - TSLA stock closed down 12% on news that Musk may have to sell stock and use other holdings to stand against the loan to finalise the purchase of the social media giant.        
×
×
  • Create New...