Live Markets: Shakeout of dollar longs may be bullish for greenback
24/01/2022 18:50
* U.S. indexes down sharply, but well above lows
* S&P still on course to confirm correction
* Utilities, tech, healthcare down most among S&P sectors
* Dollar, gold rise; crude, bitcoin red but losses pared
sharply
* U.S. 10-Year Treasury yield falls to ~1.73%
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SHAKEOUT OF DOLLAR LONGS MAY BE BULLISH FOR GREENBACK (1345
EST/1845 GMT)
A large drop in speculative long dollar positions last week
has resulted in the U.S. currency being less overbought, which
may bode well for further gains as investors reestablish trades,
according to ING.
The value of speculators’ net long dollar position against
six major peers fell to $12.59 billion for the week ended Jan.
18, the lowest since mid-September, and down from $19.34 billion
the previous week. according to calculations by Reuters and U.S.
Commodity Futures Trading Commission data released on Friday.
urn:newsml:reuters.com:*:nL1N2U12SS
Versus reported G10 currencies, dollar longs shrank by
approximately 4% of open interest, moving close to its 5-year
average, Francesco Pesole, FX strategist at ING said in a note
on Monday.
“That corroborates our view that the dollar’s weakness at
the start of the year was largely due to some
position-squaring/profit-taking events around two major data
releases (the nonfarm payrolls and the inflation report), rather
than a structural shift away from bullish dollar sentiment,”
Pesole said.
Now, “the more balanced positioning likely allowed some of
those lost dollar longs to be built up again in the past week,
as the dollar recovered across the board,” he added.
The greenback dropped against a basket of its peers =USD
to a two-month low of 94.63 on Jan. 14, before rebounding to
95.88 on Monday. It is down from a one-and-a-half-year high of
96.94 reached in November.
The dollar is expected to benefit as the Federal Reserve
raises interest rates. The U.S. central bank is expected to hike
in March, and increase rates four times in total this year.
FEDWATCH
“Looking ahead, the lack of indication that the dollar
net-long positioning is overstretched suggests that there is
room for a further build-up in USD long positions into the start
of Fed tightening cycle, which is historically a period where
the greenback is well supported,” Pesole said.
(Karen Brettell)
****
WALL STREET BATTLES AGAINST BEARS AND CORRECTIONS (1309
EST/1809 GMT)
Wall Street appeared to be finding no other path but descent
on Monday with all three of its major indexes firmly in deep red
territory as investors watched over their shoulders at the
Russia/Ukraine situation and just policy tightening details to
look forward to at the Federal Reserve meeting this week. .N
Also in the mix was an earnings season that so far, has
failed to impress with the bank stocks falling sharply and
Netflix NFLX.O , the first of the major technology names
bitterly disappointing investors last week.
A little over 15 minutes after the open, the S&P fell more
than 10% below its Jan. 3 record close of 4,796.56 and since
then just made the briefest forays above 4,316.904, the level at
or below it would confirm a correction at the close.
This follows Nasdaq's confirmation of a correction last week
and the technology heavy index is last down more than 17% from
its Nov. 19 record close. If Nasdaq closes at 12,845.9496 or
below, this would confirm a bear market, which is a 20% decline
from the most recent record.
With the S&P's technology index .SPLRCT , consumer
discretionary .SPLRCD and communications services .SPLRL all
falling more than 3% at one point it wasn't hard to see why
Nasdaq was in trouble.
The Russell 2000 .RUT fell as much as 20.9% below its most
recent record, putting the small cap index on track to confirm a
bear market, depending of course where it closes Monday.
While some market commentators blamed Fed nerves for the
decline others were clearly anxious about international
politics.
Peter Cardillo, chief market economist at Spartan Capital
Securities talked about panic selling "based on a bad
combination of factors."
"The two factors that are really weighing on investor
sentiment are the geopolitical situation as winds of war surface
and fears that the Fed up may be overly aggressive this week,"
he said.
Here is a snapshot where markets stand shortly after 1300
EST/1800 GMT:
(Sinéad Carew, Bansari Mayur Kamdar)
****
NASDAQ: SUMMARILY SMASHED (1203 EST/1703 GMT)
The Nasdaq Composite .IXIC is sliding around 4% on Monday,
putting it down about 18% from its November-record close.
urn:newsml:reuters.com:*:nL1N2U10VB
Amid the ongoing weakness, one measure of overall Nasdaq
internal strength, the McClellan Oscillator (McOsc), which is
based on advancing and declining issues, is plunging to -480.
This is its lowest reading ever using Refinitiv data back to
mid-1995.
With this, the McOsc is taking out the prior all-time low of
-414 which was set during the market's February/March 2020
pandemic crash.
Meanwhile, the McClellan Summation (McSum), which is a
running sum of McOsc readings, is now hitting -6,140, which is
nearly as low as its -6,207 print reached on March 23, 2020.
The McSum's late-2008 trough was at -6,896 and its support
line from late-2012, which contained its late-2018 and
early-2020 weakness, now comes in around -7,100. The measure's
record low occurred in September 1998 at -8,905:
If the McSum takes out its 2020 trough, and maintains its
current rate of descent, it could easily hit its 2008 low, and
the support line by mid-week.
McSum troughs will not necessarily coincide with absolute
market lows. For example, in 2008 the measure hit its low in
late-November before converging bullishly into the market's
March 2009 low.
However, of note, the McSum did bottom just three trading
days after the market's December 24 2018 low, and in early 2020,
it hit its low, on March 23, or the day the pandemic crash
ended.
In any event, the current McOsc and McSum readings are a
testament to just how weak this market has become.
(Terence Gabriel)
*****
MARKIT PMI: OMICRON THROWS MONKEY WRENCH INTO U.S. BUSINESS
ACTIVITY (1041 EST/1541 GMT)
The U.S. economy kicked off 2022 with a deceleration in
business activity as it approached the hazardous turns and
slippery conditions caused by Omicron.
Global financial information firm IHS Markit's advance,
"flash" purchasing managers' index (PMI) for manufacturing
USMPMP=ECI and services USMPSP=ECI sectors both fell more
than expected, to respective readings of 55 and 50.9.
Combined, the indexes result in the lowest composite PMI
print in 18 months.
A PMI reading over 50 signifies increased activity over the
previous month.
Spiking infections due to the highly contagious Omicron
COVID-variant are the main culprit for sending customer-facing
services activity tumbling perilously close to contraction
territory.
Output stalled as the new wave of COVID infections
exacerbated existing supply and labor shortages.
"Soaring virus cases have brought the US economy to a near
standstill at the start of the year, with businesses disrupted
by worsening supply chain delays and staff shortages, with new
restrictions to control the spread of Omicron adding to firms’
headwinds," writes Chris Williamson, chief business economist at
IHS Markit.
But the good news is that Omicron doesn't appear to be
hitting demand so much as adding complications to the already
tangled supply chain.
"Output has been affected by Omicron much more than demand,
with robust growth of new business inflows hinting that growth
will pick up again once restrictions are relaxed." Williamson
adds.
Hinting at another silver lining, cost inflation pulled back
to its slowest pace since March, while selling prices for goods
and services registered the third-fastest rate on record, going
back to October 2009.
Wall Street is sharply lower in morning trading extending
its biggest weekly percentage plunge since March 2020, when
measures to contain the new pandemic sent the economy into its
steepest and most abrupt downturn in history.
The S&P 500 .SPX is on track to confirm a correction. It
is last down 10.1% from its January 3 finish.
(Stephen Culp)
*****
WALL STREET TUMBLES AS WORRIES PILE ON (0944 EST/1444 GMT)
Wall Street's three major indexes tumbled on Monday with
Nasdaq down 2% leading the declines as the prospect of a Russian
attack on Ukraine roiled global markets ahead of a Federal
Reserve policy meeting later this week. .N
Also on investors minds was a sell off last week with the
main indexes ending sharply lower Friday as Netflix shares set
the tone with a plunge after a weak earnings report, capping the
S&P 500 and Nasdaq's biggest weekly percentage drops since the
onset of the COVID-19 pandemic in March 2020. urn:newsml:reuters.com:*:nL1N2U12RJ
NATO said on Monday it was putting forces on standby and
reinforcing eastern Europe with more ships and fighter jets, in
what Russia denounced as an escalation of tensions over Ukraine.
President Joe Biden has begun considering options for boosting
U.S. military assets in the region, senior administration
officials said. urn:newsml:reuters.com:*:nL8N2U41TF
This week's Fed meeting is expected to shed more light on
the central bank's plans for policy tightening including
interest rate hikes.
The S&P's 11 major sectors are in the red with defensives
such as consumer staples .SPLRCS and utilities .SPLRCU
losing the least ground, while growth stocks and cyclicals are
among leading decliners with consumer discretionary .SPLRCD
and financials .SPSY sliding.
Here is your opening snapshot:
(Sinéad Carew)
*****
DOW INDUSTRIALS: SLIP TURNS TO SLIDE (0900 EST/1400 GMT)
After ending January 4 at a record close of 36,799.65, the
Dow Jones Industrial Average .DJI has now collapsed nearly 7%
in just 12 trading days urn:newsml:reuters.com:*:nL1N2U125U.
Much of this decline has come with a current six-day,
near-6%, losing streak. And with CBT e-mini Dow futures 1YMcv1
reversing an overnight gain of 253 points, and now pointing to a
loss of around 250 points at the open, the blue-chip average may
threaten a seventh-straight day of losses.
The Dow last fell seven days in a row in February 2020, in
the early stages of what would ultimately prove to be a 37%
meltdown on a closing basis. The Dow last declined
eight-straight days in June 2018.
Therefore, at least shorter-term, in terms of its streak,
the DJI may be getting stretched to the downside.
Of note, the DJI ended Friday essentially right on its
broken weekly log-scale resistance line from 1929, which has
been acting as support since it was overwhelmed early last year.
However, with opening weakness, the DJI will be below this line,
which will ascend to around 34,300 this week:
Additional Dow support can be found at its mid-to-late 2021
troughs at 34,006, 33,613 and 33,271.
The 23.6% and 38.2% Fibonacci retracements of the entire
March 2020 to January 2022 advance are found at 32,530 and
29,794. The Dow's February 2020 peak was at 29,568.
In the event of sudden strength, which puts the DJI back
over the line from 1929, it will still have work to do to repair
its recent damage. This, given that its 40-week and 10-week
moving averages are now resistance, and ended at 35,030 and
35,511 last Friday.
(Terence Gabriel)
*****
FOR MONDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EST/1400 GMT
- CLICK HERE: urn:newsml:reuters.com:*:nL8N2U43W0
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DJI01242022 https://tmsnrt.rs/35iBdme
Wall Street equities tumble https://tmsnrt.rs/3fUtyg2
Markit Flash PMI https://tmsnrt.rs/3FXRaLh
IXICMcSum01242022 https://tmsnrt.rs/3IxoASr
Wall St fighting off bears and corrections https://tmsnrt.rs/3FWszX9
Dollar https://tmsnrt.rs/3H13xY4
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(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)