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Rising treasury yields and negative tech sector sentiment caused the Dow and the Nasdaq to finish lower on Monday as the S&P managed to eke out a flat close. Whilst the Dow skidded for the fourth straight session to a 7-week nadir, it, along with the broader US market finished off the lows as 10-year yields halted their ascent towards the psychologically important 3% level.
Alphabet beats expectations
Tech stocks were worst performing sector down 0.4%, dropping ahead of Google parent Alphabet’s reporting after the bell. Yet there was no need for investor nervousness ahead of the results, as Alphabet reminded the market why it is a top pick for any portfolio, reporting a surge in quarterly profits by 73%, thanks in part to gains in advertising revenue.
Yields rising towards the highest level since 2013 has dampened demand for US equities, as higher interest rates push up corporate borrowing costs. However, we have not seen the markets dump to correction level, as they did earlier in early February when yields approached the 3% mark, and this is thanks in part to timing. We are in the middle of a solid earnings season, with 82% of the S&P 500 companies that have reported so far surpassing expectations, consistent with outperformance in previous quarters.
A mixed session on Wall Street was followed by a mainly positive session in Asia overnight supported by the continued easing of geopolitical tensions and earnings optimism overshadowing tech sector concerns. European bourses are taking the lead from Asia, indicating a stronger start on the bell.
Dollar boosted by yields overnight
The dollar hit a 3-month high overnight, peaking at 91.08 versus a basket of currencies as US treasury yields looked to breach 3%. Yields have since ticked down to 2.96%, which has pulled the dollar a touch lower as we head towards the European open.
GBP/USD hit 5 week low
GBP/USD is seen edging marginally higher after dropping to a low 5 week low of $1.3918 overnight. With no high impacting data due and no news on the Brexit headline front, the pound could still struggle to capitalise on the softer dollar. Minor data prints will come in the form of government net borrowing and CBI business optimism figures.
EUR/USD looks to IFO Sentiment data
EUR/USD is also edging higher on the weaker US yields an ahead of German IFO Business sentiment data. The pair hit a 7.5 week low of $1.2185 overnight but has since recaptured $1.22. The pair still looks vulnerable with a potential downside break should IFO miss estimates, given that ZEW sentiment data surprised to the downside last week, the potential for disappointment is running high.
Brent aiming for $75 per barrel
Brent crude hit its highest level since 2014, supported by potential US sections on Iran. Aiming for $75 investors are pricing in a further tightening in supplies in addition to the OPEC led cuts. Higher oil prices are expected to boost the oil majors on the FTSE at the open.
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