Last Week's Close
E-mini S&P 500 Futures (March): Settled at 3903, down 6.50 on Friday and 28.00 on the week
E-mini Nasdaq-100 Futures (March): Settled at 13,576, down 57.00 on Friday and 228.75 on the week
U.S. equity markets have started the week on their back foot as rising Treasury yields weigh on the risk landscape. Although last week’s push and pull held a floor of support, both the S&P and Nasdaq came to an unenthusiastic finish after decisively breaking below our momentum indicators again midday Friday.
The soft finish paved the way for added selling; overnight the S&P and Nasdaq pinged 2½ week lows. Since October, when the U.S. 10-year Treasury was at 60 basis points, we’ve steadfastly called for a move to 1.25%. This couldn’t have played out more perfectly; however, the backend of our prediction was a breakdown within the complex, which is exactly what we’re beginning to see now.
Though 2 weeks ago U.S. CPI didn’t show any inflation in January, real prices have risen just about everywhere else. Last week, PPI for January surged by the most since 2012, Retail Sales crushed expectations, and PMIs are displaying a steady increase in economic activity. These tailwinds, coupled with President Biden’s massive $1.9 trillion spending package, have opened a trap door in the Treasury complex. In other words, inflation and added supply are weighing on Treasury prices, which inversely means yields are rising.
The backend of our prediction called for a high velocity move from 1.25% to 1.50% that begins to tap a pain threshold within markets. The 10-year Treasury yield has already risen by as much as 32 basis points this month.
Although today’s economic calendar from the U.S. is rather quiet, the week picks up quickly beginning tomorrow. ECB President Christine Lagarde is in the spotlight at 8:30 a.m. CT and Fed Governor Michelle Bowman speaks at 2:30 p.m. CT.
China is officially back from the Lunar New Year and the metals markets are exuding the added attention.
Tomorrow, we look to CPI data from the Eurozone and U.S. Consumer Confidence. More importantly, Fed Chair Jerome Powell begins his 2-day Congressional testimony. He recently said the real Unemployment Rate is closer to 10%. The state of the economy, the need for added stimulus measures, inflation, and even the rise in yields will all be topics. Lastly, but certainly not least, this week boasts a deluge of small and midcap earnings.
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