US Markets Regain Composure After Rough Two Weeks

Encouraging Gains in US Futures

It would appear stock markets are starting to regain some of their composure following a couple of very volatile weeks in which US indices fell more than 10% from their record highs.

The Dow and S&P 500 both posted more than 1% gains on Wednesday and futures are seeing similar upside ahead of the open this morning. Volatility has remained quite elevated in recent sessions but we are slowly returning to more normal levels and are far from what we were experiencing last week. It would currently appear that last week’s plunge was just a sharp correction in an otherwise bullish market, although it may be too soon to say that with any real confidence.

Dollar Dives on Confidence, No Support from Fundamentals

US Yields Continue to Rise Which Could Make Traders Cautious

I imagine investors will still be somewhat cautious despite the encouraging rebound we’re seeing which will leave markets a little vulnerable to further drops. The fundamental backdrop remains strong but rising yields on the back of higher interest rate expectations does appear to be spooking investors and with the 10-year Treasury now nearing 3% for the first time in four years, any sharp rises may continue to weigh on equity markets.

US 10-Year Treasury Yield (Reuters) Daily Chart

We have a lot of economic data coming from the US today and while some of these are notable releases, none stand out as being as potentially market moving as the earnings number a couple of weeks ago or the inflation data yesterday. The Philly Fed and empire state manufacturing surveys stand out as notable releases, as does capacity utilization, jobless claims and industrial production but I would expect the impact of these will be minor compared to yesterday’s releases.

CAC Jumps on Strong Corporate Earnings

Bitcoin Nears Important $10,000 Hurdle

As ever, cryptocurrencies remain a hot topic and bitcoin came close to overcoming an important level earlier this morning, only to fall slightly short and pare its gains. The move above $10,000 may not make the headlines that it did back at the end of November and the reaction it sparks may not be quiet as aggressive as the first two weeks in December, but it could be very significant if it manages it.

Bitcoin (CME) Daily Chart

A break back above an important psychological hurdle – a level that only a few weeks ago was regarded as an important support zone – may signal an end to the sell-off in bitcoin, among others, and begin another more promising climb higher. I would be surprised if the move higher is as aggressive as last time as there isn’t the same euphoria this time around and many speculators will have been burned on the way down, but it could be more healthy if, of course, it happens.

Alternatively, this level could mark the peak in another corrective move in bitcoin and trigger more selling, piling more pressure on the cryptocurrency space. Whether this happens or not may depend on whether we can see a period of light negative news flow, with January producing a constant stream of it which weighed heavily on cryptocurrencies.

Economic Calendar