Rising yields and energy shortages dampen sentiment
Key talking points:
- Energy shortages, rising price expectations, and higher yields weigh on global equities
- DAX 40, S&P 500 and FTSE 100 configurations
European stocks are trading a bit slower this morning after yesterday’s positive sentiment reversed. US futures are also trading lower this morning as US yields continue to rise for the fourth day in a row, with 10-year US yields trading at a 3-month high above 1, 54%, pushing up government borrowing costs after last week’s hawkish message. at the FOMC.
Inflation differentials are also rising, reflecting bond market expectations for future price increases, with the 5-year and 5-year UK hitting its highest levels since before 2008 at 3.9%. This is hardly surprising given that recent energy shortages have pushed up gas prices, spilling over into oil markets, with crude trading at $ 80 a barrel for the first time since October 2018.
But fears are also mounting about a spillover effect in other parts of the economy, with production lines in China already plagued by power shortages, which could further hamper the recovery of markets. global supply chains. So far, the higher yield rhetoric doesn’t seem strong enough to drive investors away from equities, but there is a lot of uncertainty to see last week’s pullback giving some more fuel.
The DAX 40 suffered another rejection from the descending trendline resistance yesterday, pulling it down to a two-month low just below the 15,400 mark. Momentum indicators are starting to show worrying signs of continuing the uptrend of the year, the SMAs starting to see bearish crosses and the RSI tilting lower, currently resting just below 45. Straight on, the 200-SMA which will be a good test support for the German index, which has only fallen below that line twice since it managed to stay above in June 2020 after the pandemic fell.
DAX 40 daily chart
The S&P 500 was unable to get back above its ascending trendline support despite a strong attempt by buyers last week. U.S. stocks have also increased pressure from Washington’s failed attempts to pass a new budget by the end of September, and tech stocks have been little affected by the rise in Treasury yields. The index is showing further signs of weakness, but there are some good areas of support ahead so I wouldn’t be too worried as long as the buyers are able to hold the price above 4,300 over the next few days. .
S&P 500 Daily Chart
The FTSE 100 has passed through key support and is now trading outside its recent confluence range. Ahead, the phycological level of 7000 is looming, which could offer some support in the short term, especially since it could be supported by the rise in oil prices. That said, the energy crisis and ensuing supply shortage in the UK are likely to dampen sentiment in markets, adding to the pressure from rising yields on UK bonds, so the FTSE 100 could experience a further decline towards 6,900, where the 76.4% Fibonacci level is held.
FTSE 100 Daily Chart
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— Written by Daniela Sabin Hathorn, Market Analyst
Follow Daniela on Twitter @HathornSabin