Morning Minutes

Markets Retrench as Rates Rise and the US Dollar Strikes Back

Happy Asian Senior couple laughing while sitting on the bench in the park
Happy Asian Senior couple laughing while sitting on the bench in the park



The US 10-year treasury note yield has been creeping steadily upward for several months now, indicating increased confidence in the US economy and perhaps increasing inflation expectations from rising commodity prices. This steady recovery had been generally ignored by investors until yesterday when a sudden spike in the 10-year yield up to 1.60% spooked investors who suddenly worried that the end of the easy money party could come sooner than thought, ignoring dovish comments from Fed Chair Powell earlier in the week.

This morning, the 10-year yield has dropped back toward 1.50%, but this sudden action has unleashed a wave of selling across world markets, not only in terms of an equity market correction, but perhaps more importantly because the sudden attention on rising traded interest rates ignited a resurgence in the US Dollar.

Renewed interest in the greenback has suddenly sucked the wind out of the sales from assets which trade counter to the US Dollar. Mainstream and alternative currencies have been slammed over night including a 4.2% plunge for Bitcoin back under $47,000, a 3.3% drop for silver, a 0.9% decline for gold and dips of 0.4% to 0.5% for the Canadian Dollar, Euro and British Pound. The US Dollar rally also appears to have sparked a correction in commodity markets with copper and platinum both falling about 2.75%, WTI crude oil dropping 1.8% and natural gas falling 1.4%.

US index futures have been trying to stabilize heading into the last trading day of the week and of the month. Dow Futures are down 0.1%, while NASDAQ futures are up 0.2%. Following on from yesterday’s declines of 1.5% for the Dow and 3.5% for the NASDAQ, several overseas markets were slammed overnight, including plunges of 4.0% for the Nikkei and 3.6% for the Hang Seng, and declines of 0.5% for the Dax and 1.5% for the FTSE.

The last day of the month brings the US Chicago PMI survey at 9:45 am EST, (street 61.1 vs previous 63.8) which may act as a preview of Monday’s national PMI numbers. US personal income saw a big bump in January (likely from the last round of stimulus cheques going out) of 10.0% which beat the 9.5% street estimate and was up from 0.6% the previous month. Personal spending rose 2.4% which was less than the 2.5% street estimate, suggesting consumers were using the bump in income to save or pay bills (which is what the money was meant for) rather than spending it right away.

It’s the last busy morning for earnings reports this quarter, headlined by results from two first timers who recently completed IPOs. AirBnB beat the street on sales ($859M vs street $748M) but its shares are down 9.0% premarket, while DoorDash also exceeded sales expectations ($970M vs street $938M) but the stock is down 5.3% premarket after management suggested that the stay-at-home tailwind it has benefitted from could fade as lockdowns end and economies reopen. Other companies whose overnight results appear to have benefitted from the home based economy include Etsy ($1.08 vs street $0.59), ($1.04 vs street $0.75), and Workday ($0.73 vs street $0.55). In other news, Beyond Meat is down 5.5% premarket after reporting a worse than expected loss (-$0.34 vs street -$0.13) with the positive impact of new deals with McDonalds and Taco Bell quickly fading.

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Colin Cieszynski, Chief Market Strategist

Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

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