A sea of red across the board seen in the US stock market overnight where all major US stock indices suffered losses of more than -2%. The technology heavy weighted Nasdaq 100 took the most brunt that tumbled by -3.56% to 12,828 and broke below the 50-day moving average that acted as a support at 13100 in the past two days. The S&P 500 declined by -2.45% to 3,829 where it recorded its worst single day loss since 29 January and it is now just a whisker away from its 50-day moving average that is acting as an intermediate support now at 3805. Even the cyclical/value-oriented Dow Jones Industrial Average that has outperformed in the past four weeks was not spared from the carnage as it shed -1.75% to 31,402 after it printed a fresh all-time high close of 31,961 on 24 February. In additional, the small caps Russell 2000 took a hit of -3.69% to close at 2,200; its worst single day loss since 23 September 2020.
The performance seen in the 11 S&P Sectors have indicated a wide spread selling across the board, from the previous outperformers in the past three months; Energy, Industrials, Financials, Materials (cyclicals, value & commodities related theme plays) to big tech and even defensives such as Utilities and Health Care where losses ranged from -1% to -3.61%.
The main catalyst that has trigged this current “sell everything” sentiment is the steeping pace of rising long dated US Treasury yields despite Fed Chair Powell’s recent two days of “dovish” congressional testaments that has indicated that the Fed is in no hurry to taper its current bond buying programme as Fed’s inflation target may not be achieved in the next three years. Yesterday, the 10-year US Treasury yield has staged a clear bullish breakout above the 1.38% major resistance where it surged by 14 basis points to close at 1.52% in the US session, its biggest single day gain in terms of basis points since its medium-term uptrend that started in 4 August 2020 low of 0.50%. In addition, the 10-year US Treasury yield at 1.52% has surpassed marginally above the S&P 500’s dividend yield at 1.51%.
The carnage has spread to Asia stock markets as well; Japan’s Nikkei 225 (-2.39%), South Korea’s KOSPI 200 (-2.93%), China’s CSI 300 (-1.80%), Hong Kong’s Hang Seng Index (-2.06%), Hang Seng TECH Index (-4.22%), Australia’s ASX 200 (-2.03%) and Singapore’s Straits Times Index (-1.05%) at this time of the writing.
One “comforting” element for risk assets will be the movement seen in the foreign exchange market where past sell-off in stocks of such magnitude tends to see a strengthening of USD. But the US Dollar Index has not seen a significant rally and in fact inched marginally lower by -0.05% to 90.13 at the close of yesterday US session and remains below a key short-term resistance of 90.44. Also, the USD/CNH (offshore Yuan) recent bounce from its 6.40 major support has also been capped below a significant range resistance of 6.5110 in place since 18 January. Hence, the current movement seen in the foreign exchange market has not yet signalled a major topping process for global equities; perhaps what we are seeing now is likely a multi-week corrective decline unfolding within a major uptrend phase that remains intact since Mar 2020 low.
Chart of the day – USD/CNH
USD/CNH remains below 6.5110 key range resistance
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