Stocks hit as geopolitical tensions simmer, gold shines

Headlines

* USD and Treasuries climbs to fresh five-month highs, yen weakest since 1990

* US retail sales top forecasts as consumers keep fuelling growth

* Tesla to cut over 10% of global workforce as some senior management leave

* Tech slides as 10-year US Treasury yields jump above 4.60%

FX: USD made a new five and a quarter month top after initially easing below 106. The mild sell-off came on the back of relief and safe haven selling that the Iran missile strike appeared to be contained. But buyers emerged after the stronger-than-expected retail sales data and lingering geopolitical tensions. Ex-auto retail sales figures showed the biggest increase in 14 months. The DXY is modestly in overbought territory.

EUR sold off for a fifth day. An ECB official suggested that the central bank could cut rates three times this year, with a higher than 50% chance of a fourth rate cut. President Lagarde speaks on Wednesday and is expected to stick to the script that European and US policy can diverge. There’s a minor Fib retracement level of the Q4 rally around 1.06.

GBP gave up gains to a high at 1.2498 after the US retail sales numbers. But sterling was a moderate outperformer on the day. Focus is on the usual mid-month data dump this week with wage growth and services inflation key for the BoE.   

USD/JPY broke to the upside and above 154 for the first time since 1990, as US Treasuries made new multi-month highs. The 10-year yield hit 4.66%. A media report said that BoJ members are wary of phasing out stimulus too soon. The bank may not be ready to raise interest rates even if inflation forecasts are upgraded.

AUD made new cycle lows, even though iron ore rebounded. The mid-February year-to-date low is at 0.6442. USD/CAD consolidated near its recent highs after initially selling off. Crude eased back on less threatening geopolitical concerns but found a bid on simmering middle East tensions. Metals were choppy in response to new sanctions on Russian supplies.

Stocks: US equities closed in the red extending losses from the previous week and touching seven-week lows. The broad-based benchmark S&P 500 finished 1.20% lower at 5061. The tech-heavy Nasdaq 100 lost 1.65% to close at 17,706. The Dow Jones lost 0.65% at 37,735 and lower for a sixth straight day. The Vix, Wall Street’s fear gauge, jumped sharply higher above its long-term average of 17 beyond 19. The S&P 500 and Nasdaq broke down through near-term support levels with tech getting hit. Tesla dropped 5.6% on news it will lay 10% of its global workforce.

Asian Stocks: APAC futures are lower. Markets mostly fell after the Iran missile strike on Israel. The Nikkei 225 was hit and briefly dipped through 39,000 but the softer yen helped attract buyers. The ASX 200 was pressured by underperformance in gold miners and tech. China indices were mixed after recent disappointing trade data.

Gold surged after initially pausing for most of the European session. This came after a near $100 correction on Friday and a new high at $2431. The major risk premium is priced in while the stronger dollar and rising yields are not supportive. But buyers are still active and seeking the safe haven qualities over the cost of holding the non-yielding precious metal.

Day Ahead – China data, UK Wages, Canada CPI

We get a plethora of Chinese data with the highlight being Q1 GDP.Consensus expects 5% y/y, two-tenths lower than the prior quarter. The prolonged real estate downturn remains a sharp contrast to the relatively strong tech manufacturing and infrastructure sectors. Retail sales are seen at 4.5% which means consumption is solid. Industrial production is forecast at 5.4%, with fixed asset investment at 4.0%.

This week’s UK data kicks off with jobs and wage data. The ex-bonuses wage figure could slide below 6%. This peaked near 9% last summer. The data will likely be impacted by helpful base effects going forward. That is due to the sharp acceleration in pay last Spring which means annual rates should fall further. Attention will quickly turn to Wednesday’s CPI.

Finally, Canada CPI has cooled in recent months with the latest BoC Q1 forecasts revised lower. A continuation of that trend in March could boost rate cut odds. That could add further pressure to the CAD. However, inflation risks remain, with shelter costs and other services prices remaining elevated, along with crude prices.

Chart of the Day – S&P 500 breaks down

Geopolitical tensions could trump solid earnings in the near term. The US results season picks up the pace this week. Goldman Sachs reported better than expected results yesterday. A recovery in underwriting and dealmaking boosted the investment bank. Other notable companies reporting this week include Morgan Stanley who report today, with ASML, the European chipmaker announces on Wednesday, Netflix on Thursday and Proctor & Gamble rounds off the week.

Technically, the benchmark index has broken down through near-term support at 5146. Prices also fell through the 50-day SMA at 5114. The first retracement Fib level of the October 2023 rally sits at 4990. The 100-day SMA is at 4916.

AUTHOR

Jamie Dutta >

Jamie Dutta is a Market Analyst for Vantage. He comes with extensive experience as a full-time trader and financial market commentator, having worked as a trader in top tier investment banks and trading houses.