Daily updates on foreign exchange news

Novox 2.23 Reference of Fx market

Tech Rout, Yields, Commodities, Powell Speech, Asia-Pacific at Open:

Asia-Pacific markets are poised for a cautious start on Tuesday following a mixed session from Wall Street. The closely watched US 10-year Treasury yield climbed to a fresh 12-month high of 1.394 before pulling back to 1.367 this morning, setting a sour tone for risk assets. Yields across the globe are rising on inflation expectations and reflation hopes as vaccine progress and an impending fiscal stimulus package bolstered the likelihood of a post-Covid recovery. Higher yields may have undermined the appeal of stocks, resulting in profit-taking activity in the highly-valued technology sector in particular.

The Nasdaq Composite lost 2.46% to hit a three-week low, and the S&P 500 index was down 0.77%. Rising crude oil and metal prices propelled a rally in energy (+3.46%) and material (+2.70%) sectors, helping the Dow Jones Industrial Average to close marginally higher. A diverged sectoral performance suggests that investors are getting increasingly wary about tech stocks’ rich valuations as reflation trades appeared to gain traction.

With inflation and rising yields increasingly concerning traders, Fed Chair Jerome Powell’s testimony late today will be closely eyed for any clues about future tapering. In view of encouraging vaccine progress around the globe and robust US retail sales figures in January, it might be difficult to argue that the economy remains weak and risks are skewed to the downside. However, any hint about tapering may be illusive as the job market has a long path to achieve full employment and core PCE inflation is well below the Fed’s 2% target. Nonetheless, it would be critical to see how Powell addresses surging yields and inflation expectations, which might inhibit the central bank from carrying out further easing measures.

Nasdaq Composite

Commodity prices continued to trade higher as market participants attempted to price in rising demand for raw materials as the world recovers from the pandemic. Rising commodity prices may further strengthen the inflation outlook and lead longer-dated yields higher. WTI crude oil prices advanced 5.5% overnight, and copper prices leaped 4.17%. Agricultural products including coffee, cotton and sugar were all trading higher as well.

The US Dollar (DXY) index retreated for a third day to 90.07, falling below the 50-Day Simple Moving Average line and hit a six-week low.

Hong Kong’s Hang Seng Index (HSI) lost 1.06% on Monday as the technology sector suffered a broad selloff. With little change in the fundamental ground, recent retracement may be viewed as another technical pullback after tremendous gains were obtained over the last four months. The HSI is up more than 11% year to date, marking it one of the best performing major equity indices during this period.

Australia’s ASX 200 index opened marginally higher, led by energy (+2.23%), real estate (+1.11%) and industrials (+0.86%) sectors, while information technology (-2.97%) and consumer discretionary (-1.28%) were lagging. Japanese markets are closed for a holiday.

Looking back to Monday’s close, 6 out of 9 Dow Jones sectors ended higher, with 46.7% of the index’s constituents closing in the green. Materials (+3.46%), communication services (+3.38%) and energy (+2.70%) were among the best performers, whereas consumer discretionary (-1.47%) and information technology (-1.24%) were trailing.

Dow Jones Sector Performance 22-02-2021