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FLASH NEWS
Thursday, January 28, 2021

Strain from Rising Yields, Stronger USD

DOW JONES, NIKKEI 225, ASX 200 INDEX OUTLOOK:

  • ASX 200, Nikkei 225 indexes face a souring day as US shares retreated from report highs
  • 10-year Treasury yield climbed to 1.15% on a rising inflation outlook, USD edged increased
  • Shares, commodities, EM currencies could battle to maintain their latest rally, eyeing a pullback
Equities Forecast

Equities Forecast

Advisable by Margaret Yang, CFA

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Dow Jones, Yields, USD, Commodities, Bitcoin, Asia-Pacific at Open:

Asia-Pacific equities face a troublesome day forward as US equities retreated alongside commodities costs in a wake of rising longer-dated US Treasury yields. The inflation outlook seems to be buoyed by stimulus and reflation hopes after Democrats gained management of the Senate, elevating the probability of additional spending that goals to lift demand and output in the long run. Over final week, the 10-year US Treasury yield surged greater than 20 bps to 1.147% – a big transfer that rippled throughout the monetary markets. The 20- and 30-year yields additionally climbed to 1.685% and 1.885% respectively.

Treasury bonds are deemed “risk-free” as they’re backed by the full religion and credit score of the US authorities. Rising yields elevate the risk-free price and subsequently the required price of return for holding equities, making shares much less interesting to traders as their intrinsic worth drops when future earnings streams are discounted again at the next required price of return. Apart from, increased actual yields may encourage capital to circulate into Treasuries as their risk-adjusted return turns into extra enticing. Additionally it is a transparent damaging to commodities, as the chance price of holding them turns into increased.

The DXY US Greenback index rebounded from a two-and-half 12 months low to 90.50, exerting downward stress on equities, commodities and EM currencies. The DXY and the S&P 500 index exhibited a damaging relationship, exhibiting a correlation coefficient of -0.86 over the previous 12 months.

S&P 500 Index vs. DXY US Greenback Index

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

Supply: Bloomberg, DailyFX

In Asia-Pacific, fairness futures throughout Japan, mainland China, Hong Kong, Taiwan, Singapore and Malaysia are pointing to a decrease begin, albeit Australia’s ASX 200 index opened mildly increased. Destructive sentiment from the US markets alongside a pause within the commodity rally could inhibit traders from taking extra threat for the time being and encourage profit-taking. Bitcoin costs tumbled as a lot as 20% on Monday earlier than bouncing 10% increased this morning.

Wanting again to Monday, 6 out of 9 Dow Jones sectors ended increased, with 40% of the index’s constituents closing within the inexperienced on Monday. Supplies (+1.12%), vitality (+0.57%) and financials (+0.41%) have been among the many greatest performers, whereas info (-1.11%) and industrials (-0.85%) have been trailing behind.

Dow Jones Sector Efficiency 11-01-2021

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

Supply: Bloomberg, DailyFX

Dow Jones High 10 Inventory Efficiency 11-01-2021

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

Supply: Bloomberg, DailyFX

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Dow Jones Index Technical Evaluation

The Dow Jones indexis hitting the higher ceiling of “Ascending Channel” and will face some promoting stress right here. Worth broke above a key resistance degree of 30,870 (the 100% Fibonacci extension) final week and thus has opened the door for additional upside potential. The general pattern stays bullish-biased, though a minor pullback in direction of the 100% Fibonacci degree is probably going earlier than making an attempt increased highs.

Dow Jones Index Each day Chart

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

Nikkei 225 Index Technical Evaluation:

The Nikkei 225 index has doubtless entered a technical correction as worth recedes from latest excessive. The formation of a bearish “AB=CD” sample factors to additional retracement in direction of a direct help degree of 28,000 after which 27,500. The general pattern stays bullish-biased as recommended by upward-sloped 20-, 50- and 100-Day Easy Transferring Common (SMA) traces, albeit a technical pullback seems to be underway.

Nikkei 225 IndexEach day Chart

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

ASX 200 Index Technical Evaluation:

The ASX 200 index stays inside its “Ascending Channel” as highlighted on the chart under, however upward momentum seems to be faltering because the MACD indicator developments decrease. A right away help degree will be discovered at 6,630 – the 161.8% Fibonacci extension degree. A agency break down under this degree could open the door for additional losses. A right away resistance degree will be discovered at 6,760 – the higher Bollinger band.

ASX 200 Index – Each day Chart

ASX 200, Nikkei 225 Outlook: Pressure from Rising Yields, Stronger USD

How to Use IG Client Sentiment in Your Trading

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— Written by Margaret Yang, Strategist for DailyFX.com

To contact Margaret, use the Feedback part under or @margaretyjy on Twitter

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