High-flying value/cyclical stocks succumbed to profit-taking pressures yesterday ahead of the US Thanksgiving holiday that will kick-start today. The Dow Jones Industrial Average and Russell 2000 shed -0.6% and -0.5% respectively, as the Dow retreated from its significant milestone of 30,000 on Tuesday, to close at 29,872.
The tech-heavyweighted Nasdaq 100 outperformed with a gain of +0.4% (12,152), while the S&P 500 shed -0.2% (3,629). The outperformance of the Nasdaq was mainly attributed to Amazon (+2.15%) and Apple (+0.8%). In addition, the advance/decline ratios of the Nasdaq and NYSE were flat in yesterday’s US session.
S&P sectors performance painted a clearer picture that indicates some form of consolidation, where prior leaders from the value and cyclical-oriented theme plays underperformed; energy (-2.4%), materials (-1.1%) and industrials all fell (-0.8%). Information technology led but with only a meagre gain of +0.2%. Hence, yesterday’s gain in the Nasdaq does not have a clear indication of a rotation back into technology stocks yet.
In economic matters; the Federal Reserve's FOMC minutes for the November meeting were released yesterday, and indicated a debate among Fed officials on ways to enhance guidance for asset purchases to keep interest rates low; at moment the Fed is buying US$120 billion worth of bonds each month (since June) with a breakdown of US$80 billion in Treasury bonds and $40 billion in mortgage-backed securities. In a nutshell, the minutes did not have any clear hint for an immediate change on the current pace of asset purchases.
The US Treasury 10-year yield was flat yesterday at 0.88%, but the US dollar continued to weaken for a second consecutive session. The US Dollar Index broke below the 92.15 major ascending support in place since the April 2011 low, closing below it at 91.99 in yesterday’s US session. The US Dollar Index had a clear bearish break below 92.15, following a challenge on that key level on three prior occasions: 1 September, 9 November and 23 November.
Yesterday’s weakness in US dollar had been led by the euro, where EUR/USD managed to punched out with a daily close above a key resistance of 1.1900; also a long-term secular descending channel resistance from the April 2008 high, with a daily close at 1.1915 at the end of yesterday’s US session. Going forward, we may start to see a multi-month decline in USD, which is likely to translate to outperformance in non-US stocks and ignite inflationary pressures, which tends to benefit commodities over the medium- to longer-term horizon.
Chart of the day – EUR/USD
The EUR/USD is breaking above a key long-term secular resistance at 1.1900.
Source: CMC Markets
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