US Stocks Hit Hard into the Weekend – Nasdaq down 1.55%
Global equity markets finished sharply lower into Friday’s close as investors reacted to mounting inflation concerns and another aggressive move higher in global bond yields. Risk sentiment deteriorated throughout the session, with all three major US indices ending firmly in the red as rising yields continued to weigh heavily on growth and technology stocks.
The Dow Jones fell 1.07% to close at 49,526, while the S&P 500 lost 1.24% to finish at 7,408. The Nasdaq underperformed once again, sliding 1.54% to 26,225 as higher rate expectations pressured the tech sector.
US Treasury yields surged higher across the curve, reinforcing the view that the Federal Reserve may need to keep policy restrictive for longer amid persistent inflation risks. The US 2-year yield climbed 5.2 basis points to 4.069%, while the benchmark 10-year yield jumped 11.2 basis points to close at 4.593%, comfortably above the key 4.5% level.
The move in US yields helped underpin broad dollar strength, with the DXY rising 0.46% to 99.27. USD/JPY continued to push higher despite ongoing intervention threats from Japanese authorities, as yield differentials remained firmly in favour of the greenback.
Commodity markets were dominated by geopolitical concerns, with oil prices rallying strongly again as hopes for a ceasefire in the Middle East continued to fade. Brent crude rose 3.35% to settle at $109.26 per barrel, while WTI gained 4.20% to $105.42. Gold lost ground again on the back of the stronger dollar.
Gold Losing its Lustre to the Stronger Dollar
Gold came under heavy selling pressure on Friday as the combination of higher yields and a stronger US dollar triggered another wave of selling. The precious metal fell 2.40% to $4,540.08, breaking through a recent support level in the process. XAUUSD had started the day just above a strong trendline support level on the daily chart around $4,620.00, but further dollar buying soon saw that level break, and it was generally one-way traffic after that for the majority of the day. It found some support just above the key $4,500 level on Friday, where it had also found support on two previous occasions this month, and a clean break through there in the coming sessions could see a much deeper correction as the week rolls on, especially if US yields and the dollar remain supported. The next target on the downside is the 200-day moving average around $4,347, with any further weakness likely to challenge the annual low of $4,097.99.
Quiet Calendar Monday to Kick off the Trading Week
It is a relatively quiet start to the week on the economic calendar today, leaving markets likely to remain heavily driven by bond market moves and geopolitical headlines. Asian equities are expected to open under pressure following Friday’s sharp selloff on Wall Street, and we have so far been blessed with a relatively quiet start to the trading week, with no significant gapping or moves on the early FX open. There is a raft of Chinese data due out midway through the Asian session today, with Industrial Production data (exp. +6.0% y/y) the likely highlight, but traders are not expecting much market impact. There is little else due out in terms of data releases or central bank updates today, and liquidity may be affected later in the day by a Canadian bank holiday, so newswires are likely to be the main catalyst for any significant moves in the market.
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