U.S. markets were choppy throughout Wednesday’s session and still jumpy over the inverted yield curve and what it’s implying in terms of global growth.
German 10-year bunds were sold below zero at auction which kept downside pressure on U.S. treasury yields.
A cautious tone ahead of the U.S. and China trade talks set to resume on Thursday also weighed on sentiment despite President Trump expressing renewed optimism.
Volatility was also jittery after testing prior resistance but levels that held into the closing bell.
The Nasdaq gave back 0.6% after trading to a low of 7,582.
Prior support at 7,650-7,600 was breached but held with a move below the latter signaling additional weakness towards 7,500-7,450 and the 200/50-day moving averages.
The S&P 500 fell 0.5% after trading to a midday low of 2,787.
Upper support at 2,800-2,775 was breached but held with a close below the latter likely leading to a continued backtest towards 2,750 and the 50/200-day moving averages.
The Russell 2000 declined 0.4% following the pullback to 1,505 and failure to clear and hold its 50-day moving average for the 3rd-straight session. Upper support at 1,500-1,490 held with risk to 1,485-1,475 on a move below the latter.
The Dow was down 0.1% following the intraday tumble to 25,425.
Upper support at 25,500-25,250 and the 50-day moving average held with risk towards 25,000 and the 200-day moving average on a move below the latter.
Industrials was the only sector that closed higher after adding 0.1%.
Healthcare paced sector laggards after dropping 0.8%. Communication Services, Utilities and Energy were lower by 0.7%.
Global Economy – European markets traded in tight ranges before closing mixed after Theresa May, the U.K.’s Prime Minister, told conservative members of Parliament she will resign once Brexit is delivered.
The Belgium20 was down 0.6% while France’s CAC 40 dipped 0.1%. UK’s FTSE 100 slipped 2 points, or 0.03% and Germany’s DAX 30 was off a half-point. The Stoxx 600 Europe edged up a tenth-point, or 0.02%.
Asian markets settled mixed as concerns over the outlook for the global economy lingered.
South Korea’s Kospi and Japan’s Nikkei fell 0.2%. China’s Shanghai rallied 0.9% and Hong Kong’s Hang Seng rose 0.6%. Australia’s S&P/ASX 200 was up less than a point.
MBA Mortgage Applications surged 8.9%, along with a 6.4% increase in the purchase index and a 12.4% jump in the refinancing index. The average 30-year fixed mortgage rate sank 10 basis points to 4.45%, helping re-ignite demand for mortgage financing.
International Trade deficit narrowed 14.6% to -$51.1 B in January, versus forecasts of -$57.3 billion. Exports rebounded 0.9% after December’s 1.9% decline.
Imports dropped 2.6% following the prior 2.1% increase.
The real goods balance was -$83.8 billion versus -$91.7 billion, with exports bouncing 2.1% from -1.5%, while imports fell 2% versus the prior 3.4% gain. Excluding petroleum, the trade deficit was -$50.2 billion from -$58.7 billion.
The deficit with China was at -$34.5 billion from -$36.8 billion.
Q4 Current Account deficit widened $7.8 billion to -$134.4 billion versus expectations of -$133.6 billion.
The balance on goods and services eroded to -$167.0 billion versus -$162.0 billion, with the goods deficit at -$233.1 billion from -$229.5 billion and the services balance at $66.1 billion from $67.5 billion.
The primary income balance was $60.4 billion from $60.3 billion and the balance on secondary income was -$27.8 billion from -$24.9 billion.
State Street Investor Confidence for February checked in at 71.3.
Market Sentiment – Dallas Fed Robert Kaplan said he’s not considering lower rates until there’s a curve inversion of some magnitude, and/or some duration, and that he is not currently seeing either.
The yield curve inversion would have to go on for several month.
Meanwhile, potential Fed nominee Stephen Moore said the Fed should cut immediately and by 50 basis points. He added that monetary policy should be pegged to commodity prices.
The iShares 20+ Year Treasury Bond ETF (TLT) was up for the 5th time in 6 sessions after trading to a 52-week high of $126.34.
Fresh and lower multi-year resistance from October 2106 at $126-$126.50 was cleared and held.
Rising support is at $125.50-$125 followed by $124.50-$124.
Market Analysis – The Russell 2000 ETF (IWM) had its 2 session winning streak snapped following the pullback to $149.48 and close back below the 50-day moving average.
Near-term support at $150-$149.50 was breached but held with a close below the latter opening up risk towards $148-$147.50.
Resistance is at $152-$152.50. Continued closes above the latter could lead towards a retest of $154.50-$155.
RSI is in a slight downtrend with support at 45-40 and the latter representing the monthly low.
A move below 40 would would be a bearish signal with additional weakness towards 35-30. Resistance is at 50.
The Financial Select Sector Spiders (XLF) showed a little strength on the open after trading up to $25.60. Near-term resistance at $25.50-$25.75 was split but held.
Continued closes above $26 and the 50-day moving average would be a more bullish development.
The fade to $25.30 afterwards held upper support at $25.25-$25.
A close below the latter would be a bearish signal with risk towards $24.50 and the prior breakout level from early January.
RSI is in a slight downtrend after failing resistance at 40.
Continued closes back above this level and would signal additional strength towards 45-50. Mid-month support is at 35 with risk to 30-25 on a move below this level.
All the best,
Roger Scott.