The pop in the USA100 to the 10k mark for the first time ever was a focal point. However, it was an uneven close on Wall Street yesterday as tech continued to outperform and news that Apple Inc is preparing to announce a shift from its own main processors in Mac computers helped the USA100 future to move higher overnight. Advanced Micro and Nvidia were also posting strong gains.
That gain helped the USA30 and USA500 pare initial losses, though the decline in the broader index knocked it back into the red for the year. Nevertheless, the 3200 level for USA500 was sustained so far. The slide for USA30 and USA500 came as profit taking after the long rally appears to be in play — for now. Technical indicators are suggesting a pull-back is due on Wall Street following the surprising, record breaking rally from March lows.
The slight erosion in risk appetite supported a recovery in Treasuries and reversed the bearish curve steepener. The recent bear steepening trades were reversed too, with a bull flattener knocking the long bond yield down 6 bps to 1.590%. The 10-year Treasury’s reopening went very poorly by every metric. The curve flattened to 61 bps after widening to 72 bps intraday late last week.
In the stock market, close attention should be given to the correlation between VIX Index and the US Futures. As the Dow and S&P sustain their 2-month rally with the NASDAQ fractionally firmer after setting a fresh record high yesterday, the VIX Index (Volatility Index) or otherwise, ‘fear index’ , has also turned higher. VIX represents the expected price fluctuations in the S&P 500 Index options over the next 30 days, and hence a negative correlation has developed between the two indices. Dating back the beginning of the VIX in 1990, the correlation between daily changes in the S&P 500 and VIX was more than -70%, while in the past 10 years the correlation has strengthened further.
Hence the recent reverse of the VIX Index higher as S&P500 is in a rally , has spread doubts over whether the asset will continue advancing. The turn of Volatility higher as per the Reuters picture below, suggest a potential risk appetite erosion that could limit the S&P500 incline and could potential imply to a pullback.
Today, markets remain cautious ahead of the FOMC announcement, although with no change to the rate band expected that also may not provide the catalyst investors seem to need to push stretched valuations further out.
Click here to access the HotForex Economic Calendar
Andria Pichidi
Market Analyst
Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distributed without our prior written permission.
