US Stocks Drop as Yields Rally Again – Dow down 1.3%
US equity markets came under renewed pressure in trading yesterday as rising Treasury yields and escalating geopolitical concerns continued to weigh on risk appetite. The Dow Jones fell 1.32% to 52,759, while the S&P 500 declined 0.87% to 7,641. The technology-heavy Nasdaq also dropped 1.00% to 26,067, extending the recent weakness across US equities.
Treasury yields moved higher across the curve despite the US Treasury announcing an increase in its longer-dated bond buyback operations just one day earlier. The 2-year yield rose 2.5 basis points to 4.187%, while the benchmark 10-year yield climbed 5.9 basis points to 4.704%, highlighting the continued pressure on the US bond market. The US Dollar Index was largely unchanged, edging 0.04% higher to 98.87.
Oil prices continued to push higher as tensions surrounding Iran and its regional allies increased. Brent crude gained 1.67% to US$93.15 a barrel, while WTI jumped 2.89% to US$86.83, with both benchmarks now trading around one-month highs.
Gold remained close to key technical resistance despite the broader market volatility, with the precious metal edging 0.07% lower to US$4,517.87 an ounce.
Gold Poised for More Moves into the Weekend
Gold has held onto its recent gains overnight, with the precious metal trading largely steady around the $4,515 level after briefly giving back some of Wednesday’s sharp rally. The move higher had been driven largely by the sharp decline in US Treasury yields and the weaker US Dollar following the Treasury’s decision to increase its long-dated bond buybacks.
However, gold is now sitting directly on an important technical resistance level. Prices are trading around the 200-day moving average, which sits near $4,518, making the current area particularly important for the next directional move. A sustained break above this level would provide a significant technical boost and could open the way for a further recovery, while another rejection would suggest that sellers remain active around the recent highs.
After gaining more than 4% on Wednesday, the fact that gold has so far managed to hold above US$4,500 is encouraging for the bulls. The key question now is whether the market can build enough momentum to break decisively through the 200-day moving average. For traders, this technical level is likely to remain the key battleground in the sessions ahead.
Geopolitics Likely to Dominate Markets into the Weekend
The macroeconomic calendar is busier today; however, geopolitical developments are again likely to remain the key driver of sentiment as traders head into the weekend. There is little on the cards in the Asian session, but the calendar kicks into action once London opens, with UK Retail Sales (exp -0.5% m/m) the first cab off the rank, before a series of Flash Manufacturing and Services PMI releases from France (exp 50.1 and 49.4), Germany (exp 52.1 and 50.1) and the UK (exp 51.6 and 51.8). The US session will feature Canadian Retail Sales (exp +0.4% m/m, Core +0.2% m/m), followed by the US Flash Manufacturing and Services PMI numbers (exp 53.9 and 54.0). Despite the increased data flow, traders are expecting news on the situation in the Middle East to dictate moves in the final sessions of the week, with the final session of the day always the most vulnerable as liquidity fades.
