Wall Street tumbles, spooked by rising bond yields; ASX to fall

February 26, 2021 - 2 months ago
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Wall Street experienced a violent sell-off in weeks as a steady rise in government debt triggered a wave of selling that began in the technology sector, which ended posting its worst day since October.

The ASX futures fell -91 points, or -1.4%, 6,699, with our local currency, the Australian dollar dropped -2%, and retreats from a three-year high of US$0.8007 and is currently buying US$0.7840 (as of writing).

On today’s reporting season schedule are Aristocrat (ALL), Afterpay (APT), BWX (BWX), Bubs Australia (BUB), Dalrymple Bay (DBI), Kogan (KGN), Harvey Norman (HVN), Resolute Mining (RSG), Reece (REC), Zip Co (ZIP), and Nuix (NXL).

All three major U.S. stock index tumbled rapidly as the 10-year Treasury note marked its biggest one-day advance since November after soaring as high as 1.6% in a sudden move that some described as a “flash” spike.

The yield later settled back down to around 1.52%, its highest level since February 2020.

The advance reflects expectations of higher inflation and higher borrowing costs for companies and individuals.

The five-year yield, which is more sensitive to monetary policy shifts, jumped 0.21 points to 0.82%, the second-largest one day rise seen over the past decade.

Yields added to their advance this week even after Federal Reserve Chair Jerome Powell emphasized the central bank’s commitment to easy policy and downplayed the risk of inflation, saying it could take three years or more before the Fed’s goals are reached.

At the finishing bell, on the New York Stock Exchange (NYSE) the Dow Jones Industrial Average dropped -559.85 points, or -1.75%, to 31,402.01, to mark its worst day since Jan. 29.

The broad-based Standard & Poor’s 500 Index lost -96.09 points, or -2.45% to 3,829.34 on its worst day since Jan. 27.

The rich-tech Nasdaq Composite index dropped -478-54 points, or -3.52% to 13,119.43, posting its biggest sell-off since Oct. 28.

Alphabet, Facebook, and Apple all fell more than -3%, while Tesla dropped -8.1% and Microsoft slipped -2%.

Meanwhile, investors shrugged off better-than-expected economic data out of the U.S. on Thursday.

First-time jobless claims totalled 730,000 for the week ended Feb. 20, versus a forecast of 828,000, while durable goods orders increased by 3.4% in January, compared to the consensus of 1.0% growth.

GameStop, the controversial meme stock whose massive, short squeeze shocked Wall Street last month, is on the rise again.

On Wednesday, their shares jumped a whopping +103%, with Thursday’s rise +18.6% in volatile trading to $108.73, while AMC Entertainment Holdings Inc. initially rose before trading down -8.8%, to $8.29.

Viewing the technical standpoint for the S&P/ASX 200 (XJO), the Relative Strength Index (RSI) 3-daily ‘lookback’ indicator has rejected the 50-midway point challenge and reversed the weak positive signal to negative.

Meanwhile, the Moving Average Convergence Divergence (MACD) holds a negative signal since breaking beneath the 0.00 axis.

The Average Directional Movement Index (ADX) trend indicator is sideways (trendless), though it needs to be monitored.

Developed by J. Welles Wilder, the Relative Strength Index (RSI) is an extremely popular momentum indicator (oscillator) that measures price movements’ speed and change.

RSI oscillates between zero and 100.

According to Wilder (depending on the period setting), the RSI is considered overbought when above 70 and oversold when below 30.

Signals can also be generated by looking for divergences, failure swings and centreline crossovers.

RSI can also be used to identify the general trend.

Gerald Appel developed the (MACD) technical indicator back in 1979, while in 1986, Thomas Aspray added the histogram.

The MACD is a tool used to identify moving averages that indicate a new trend, whether bullish or bearish.

(MACD) plots the distance between moving averages and helps traders identify trend direction and whether the bullish or bearish momentum in the price is strengthening or weakening.

Viewing the technical aspects to the (XJO), the sharp downturn overnight crushes the 6,770-75 support and exceeds the 6,710-25 target.

This has now opened the region of 6,600-35. Reassess from there.

The resistance is located at 6,705-25. Reassess from there.

Daily outlook on the benchmark S&P/ASX 200

The Australian sharemarket picked up its pace from the opening session as much encouragement from Wall Street after U.S. Federal Reserve Chair Jerome Powell’s comments soothe inflation fears.

Powell told lawmakers on Wednesday it may take more than three years to reach the central bank’s inflation goals, a sign the Fed plans to leave interest rates unchanged for a long time to come.

Yields came off their highs after Federal Reserve Chair Jerome Powell continued to downplay the threat of inflation, saying it could take threeyears to reach the central bank’s target consistently.

In Wednesday’s testimony in front of the House of Representatives Financial Services Committee, Powell added that inflation could be volatile as the economy reopens and there is increased demand.

But he does not expect inflation to run hot and said the central bank has the tools to fight it if it should.

The stock market posted a sharp reversal in the previous session after the Fed chief’s dovish remarks eased fears about a change in monetary policy in the face of a pickup in inflation and interest rates.

Powell said Tuesday that inflation was still “soft” and that the U.S. economy was “a long way from our employment and inflation goals.”

At the closing bell, the benchmark S&P/ASX 200 index rose +56.2 points, or +0.83%, to 6,834.0, while the All Ordinaries added +56.3 points, or +0.80%, to 7,105.7.

The Materials, Energy, Health Care, Telecommunication, Financials, Real Estate, Utilities, and Discretionary closed in positive territory while Staples and Industrials fell into the red.

Miners were strong with BHP Group leading the titans higher after hitting $50.78 intraday, and settled at +3.25%, to $50.45, Rio Tinto rose +1.92%, to $128.88, while Fortescue Metals Group climbed +3.1%, to $25.24, South32 added +2.14%, to $2.86 and Mineral Resources slipped -0.28%, to settle at $39.76.

Gold resources were weak, with Newcrest Mining falling from -2.45% to $24.68, Northern Star lost -3.92%, to $10.05, and Evolution dropped -3.26%, to $4.15.

The Financials sector were firmer, with Westpac Banking Corp leading the “Fab Four” banks higher after rising +1.29%, to $24.36, Commonwealth Bank rose +1.11%, to $83.70, while National Australia Bank added +1%, to $25.15, Australia and New Zealand Banking Group gained +0.53%, to $26.77, and Macquarie Group lost -1.08% and settled at $145.32.

Travel stocks were firmer with Webjet surging +4.36%, to $5.74, with Flight Centre rallying +8.87%, to $17.79, Qantas firmed +1.8%, to $5.10, Regional Express rose +2.15%, to $1.665 and Corporate Travel Management added +1.5%, to $20.99.

Flight Centre swung to a first-half $233 million loss compared with a $22 million profit in the year-earlier period.

Qantas Airways sunk a $1.1 billion interim loss, having reported a $445 million profit in the previous corresponding period. Revenue dived 75% to $2.3 billion in the six months ended December 31.

Qantas did not pay a dividend.

In the previous session, Helloworld told the market it would profit in the first half of financial 2022 and that it would sustain cash losses of $1 million to $1.5 million a month for the next six months.

Healthcare was firmer with Biotechnology giant CSL adding +0.85%, to $270.25, while ResMed rose +0.04%, to $25.05, Cochlear rose +2.09%, to $214.69, Ramsay Health surged +7.74%, to $68.18 and Mesoblast lost -3.15%, to $2.46.

Wesfarmers finished +0.1%, higher to $50.43, while Woolworths saw its share price end the trading session firmer +1.47%, to $40.09 while its rival Coles Group rose +0.19%, to $16.02.

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