Market Summary:
- Rising bond yields and concerns that the Middle East conflict will spread continued to weigh on sentiment last week, whilst a soft Tesla earnings report helped intensify the selloff on Wall Street
- All three Wall Street indices formed bearish engulfing candles, with the Nasdaq 100 leading the declines at -2.9%, the S&P 500 was down -2.3% and the Dow Jones was off by -1.6% last week. The VIX (volatility index) also rose to a 7-month high and closed just beneath 22
- The US 10-year yield came within a cat’s whisker of touching 5% for the first time in 15 years on Thursday
- Whilst yields pulled back on Friday, the 5-year through to the 30-year yield still rose between 20-30bp last week as the bond rout continued during risk-off trade
- And whilst Jerome Powell warned that the UC economy could warrant another hike, he conceded that rising bond yields could also lessen the effect of any further hikes
- Gold’s returning as a safe-haven asset have been nothing short of impressive, rising 10% in 10 days and stalling just below 2,000
- Oil prices retreated a little on Friday on news that Hamas would release two hostages, but with the risk of a ground assault very much on the radar and the potential for the conflict to escalate, oil prices are likely to at least remain supported if not rally
- The oil volatility index (OVX) rose to a 7-month high on Friday
- AUD/USD has once again done well to hold above 63c, and it seems it could be a prime candidate for a big bounce should sentiment somehow turn around for the better (as unlikely as that seems)
- But with a quit economic calendar today, it is difficult to an immediate break lower if it could not manage it during the commotion last week
- Whoever was supporting China’s equity markets appear to have left the building, with the Hang Seng and China A50 indices closing to their lowest level since November
Events in focus (AEDT):
- Public holiday in Hong Kong and New Zealand
- 16:00 – Singapore CPI
- 23:30 – Chicago Fed National Activity
- 01:00 – Eurozone consumer confidence
ASX 200 at a glance:
- The ASX 200 formed a bearish engulfing week and came very close to closing beneath 6900 for the fist time in 12 months
- 10 of its 11 sectors were in the red, led by the info tech and consumer discretionary sectors
- The energy sector was the only one to gain, supported by energy prices due to the Middle East conflict
- Implied volatility rose to a 7-month high on Friday to show investors expect higher volatility over the next 30-days
- Looking at the daily chart, the only thing really going for it is that the index held above the March and October lows despite the broad risk selloff last week
- The 6900 is clearly an important focal point for investors, so we I’d either be looking for a bounce from current levels to fade into (whilst prices remain below 7,000) is simply wait for a break of new cycle lows
Gold technical analysis (daily chart):
Gold’s return as a safe-haven asset has been done is style, rising 10% in 10 days. But the fact it stalled just below the big round number of $2000 with a shooting star reversal day suggests its meteoric rise may at least be due a pause, if not a pullback.
Of course, the issue with trying to be cute with technical analysis when big macro or geopolitical drivers are behind the moves risks missed opportunities. Because if gold continues to rise, it can leave those seeking mean reversion on the sidelines. And sometimes that is just how it plays out. But at the same time, perhaps missing a move might be the better trade, as to avoid going long at highs or short at lows.
So from here on the daily timeframes, I would prefer to at least see a couple of days of consolidation or a retracement before seeking dips around support levels for an anticipated break above $2000. A break beneath 1950 assumes a deeper pullback and improved sentiment.
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