Global equities retraced for a second day alongside with crude oil prices amid worries that the 10-year US treasury yield has climbed to 2.7% - the highest level observed since 2014.
Rising treasury yield serves as an alarm that the risk-free rate and thus required rate of return for risky asset is climbing. Theoretically, this will lead to lower asset prices when their future cash flows are discounted back.
Three major US indices lost around 1% overnight, registering their biggest intra-day drop in nearly a year. Volatility spiked up as market started to get a bit nervous, and many investors are not sure what is causing this drastic selloff. So far, this looks more like a technical correction as market participants have accumulated some huge unrealised profit since early December and there is a need for profit-taking. Another uncertainty arises from Apple’s earnings, which is expected to be weaker due to tepid demand for iPhone X.
Today, President Trump is going to give an important the State of the Union address, in which he is likely to layout a massive, 1.5 trillion dollars infrastructure plan. This could potentially serve as positive catalyst to cushion the technical correction that the market is currently suffering from. The Federal Reserve is likely to stay put at its interest rate decision tonight. Market is probably more interested to hear from Yellen’s last comment on monetary policy to find out clues on future policy shifts.
Technically, the S&P 500 index failed to stand above a key 161.8% Fibonacci Extension level of 2,846 and since retraced back to 2,825 area. Momentum indicator MACD has formed a ‘dead-cross’ which suggest more downside in the days to come. The upward SuperTrend (10, 3) is currently at 2,795 points, which is an immediate support level. Breaking down below this level would result in trend-flipping and thus a deeper correction.
US SPX 500 – Cash
Similarly, The Hang Seng Index lost over 2.5% over the last two days amid tumbling in China A-share market. The immediate support level for HSI could be found at around 31,855 (127.2% Fibonacci level).
In Singapore, the Straits Times Index is facing some selling pressure from overseas selloff and dropping oil prices. The immediate support level for STI could be found at around 3,500 points. A technical correction is happening but is unlikely to change the broader picture of the bull market. The immediate support level of STI could be found at around 3,500 points.
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