There is much to keep us occupied (and up at night!) in markets at the moment. Geopolitical tensions between Russia and Ukraine are coming to a decisive point. Commodities are bid with oil prices at multi-year highs. Bond yields are a keen focus of many market observers as the widely followed US 10-year Treasury yield climbed above 1.90% before moderating. Wall Street continued lower overnight, but US stock futures are in the green and Asian markets have broken a five-day slide, helped by a mortgage rate cut in China.
This rate move mirrors the policy cut earlier in the week. Most importantly, these actions show that the authorities are being proactive to support economic growth and comes along with news stories that Chinese regulators are considering measures to support struggling real estate developers.
Mixed bag in stock markets
Yesterday saw the US stock markets take out key support levels as the rotation between sectors continued. The tech-laden Nasdaq entered correction territory having fallen over 10% from a November high.
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The S&P 500 is down around 5% this year and broke below the 100-day simple moving average that has provided support for the index over the past sixteen months.
Key levels on the S&P500 include the September 2021 high at 4552 and the recent December low when prices fell to 4496. The daily RSI is not oversold currently though futures markets are pointing to markets trying to gain a foothold above September support.
Oil and commodities continue higher
Oil markets rose to yet another high in seven years though has eased slightly, after the International Energy Agency (IEA) said oil demand is on track to hit pre-pandemic levels. Industrial metals have also been rallying recently, aided by China’s pledge for more support and dollar weakness. Nickel is up more than 11% so far this year.
Commodities are regarded by some as a hedge against inflationary pressures and the current multi-decade highs seen in CPI data across the globe is certainly helping to fuel the rally. Supply chain bottlenecks have also done little to improve supply and demand dislocations.
Gold breaks out above key resistance
The shiny metal has risen to its highest level in two months as some investors bought in to hedge against higher inflation. Gold has been fairly rangebound recently caught between the rising dollar and surging real yields.
Yesterday’s breakout above the resistance area around the July and September 2021 highs at $1834 could see bugs push on the November top at $1877. As wages and energy prices continue to climb, increased stock market volatility and geopolitical concerns all support the potential for higher prices.
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