Nasdaq 100, Treasury Volatility, AU Retail Sales, Bank of Japan - Talking Points
- Nasdaq 100 sinks as investors adjust expectations following Wednesday’s FOMC
- Australia’s retail sales report and the Bank of Japan interest rate decision are on tap
- Technical picture on Nasdaq sees a hard path to regain its bullish footing
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The Nasdaq 100 index sank over 3% on Thursday as inflation concerns shifted back into the spotlight just a day after the Federal Reserve’s March interest rate decision. Volatility in bond markets cooled following remarks from Fed Chair Powell, but Thursday saw investors turn increasingly bearish on Treasuries, with the 10-year yield rising to its highest level since January 2020. Crude oil prices also sank in impressive fashion, dropping more than 7%.
Markets may be pricing in higher inflation with the expectation that even if inflation runs above the Fed’s target – even for a sustained period – accommodative policy will remain in place while the labor market and broader economy catch up. The Fed’s view is that a rise in inflation during the near-term will be transitory. That would put further upside pressure on yields, which is what the market may be reflecting today.
That said, the view on inflation being a transitory phenomenon isn’t contained to only central bank policymakers. The market, through breakeven inflation rates, is also pricing in a transitory view, with the rise in the 5-year breakeven rate outpacing the 10-year one. Breakeven inflation rates measure market expectations of inflation by taking the difference between nominal Treasury yields and the real yield on inflation-indexed government securities (TIPS).
10-year versus 5-year Breakeven Inflation Rates
Source: FRED
Friday’s Asia-Pacific Outlook
The risk-off tone will likely spill over into Friday’s Asia-Pacific trading session given the breadth of Thursday’s sell-off across equity, bond and commodity markets. Hong Kong’s Hang Seng Index rose 1.28% on Thursday, while mainland China’s CSI 300 pushed 0.80% higher. South Korea’s KOSPI followed its Asian counterparts higher, and Japan’s Nikkei 225 closed just over 1% in the green.
Elsewhere, Australia’s ASX 200 managed to close 0.73% lower despite the index seeing a jump earlier in the session on a much better-than-expected jobs report. The Australian economy gained 88.7k jobs versus 30k expected. The Australian Dollar initially reacted to the upside but ceded gains later in the session as capital flowed into the Greenback.
Friday will see another high-impact economic event from Australia cross the wires in the form of a preliminary retail sales report for February. According to the DailyFX Economic Calendar, the median expectation from analysts is 0.4%, which is slightly lower than December’s 0.5% read. A beat may see some strength flow into the Aussie-Dollar.
Later in the day will bring an interest rate decision from the Bank of Japan (BoJ). Economists are expecting the BoJ to hold steady on its benchmark interest rate at -0.1%. However, some fine-tuning to policy is likely as the central bank aims to add additional flexibility to its policy to weather future shocks. One possible change will be a widening of its target yield bank on government bond yields, which would likely push the Yen higher.
Nasdaq 100 Technical Outlook
The Nasdaq 100 index sank over 3%, its biggest decline since February. The tech-heavy index has struggled to eclipse the 13270 to 13280 range this week, with prices now retreating to the 12,800 area, degrading its technical posture. Thursday’s selloff breached the 20-day Simple Moving Average (SMA), wiping out nearly half of the March gain.
The 12,727 level may continue to offer an area of conflict between buyers and sellers. Below that and the 100-day SMA shifts into focus with the 23.6% Fibonacci retracement from the February to March move next in line. Regaining a bullish footing appears more difficult at the current level. Prices will need to defeat a descending trendline from the February swing high, with the 20-day SMA offering a potential point of interim resistance.
Nasdaq 100 Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter