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U.S. STOCKS SPOOKED AS FEAR OF FED MOUNTS (1003 EDT/1403 GMT)
Wall Street's main indexes gapped lower at the open and are under pressure on Wednesday as investors feared aggressive moves by the Federal Reserve to tackle inflation, with eyes on minutes from the central bank's March meeting.
Perhaps not surprisingly, with the U.S. 10-Year Treasury yield ramping to its highest level since March 2019, FANGs, chips, and other growth names are being hit especially hard.
Energy is the top gaining sector even with crude futures lower. Defensive groups are also showing strength.
Markets now await the latest FOMC Minutes expected at 2 p.m. EDT (1800 GMT).
Here where markets stand in early trade:
(Terence Gabriel)
U.S. 10-YEAR TREASURY YIELD: HITTING MAJOR RESISTANCE (0900 EDT/1300 GMT)
Fed Governor Lael Brainard said on Tuesday she expected a combination of interest rate rises and a rapid balance sheet runoff, spooking investors and dragging the tech-heavy Nasdaq down more than 2%.
With this, the U.S. 10-Year Treasury yield spiked higher. In fact, early Wednesday it hit 2.659%, or its highest level since March 2019.
On the charts, the yield is now reaching major resistance in the form of the 200-month moving average:
This long-term moving average now resides around 2.66%, and the yield has not mounted a monthly close above it since March 1989.
An additional major hurdle is the log-scale resistance line from the September 1981 high which comes in around 2.85% in April. This line nearly perfectly capped yield's rise in late 2018.
Meanwhile, the yield is severely overheated. Using a monthly RSI, the current reading is its most overbought since March 1980, or more than 42 years!
Given all this, the yield appears vulnerable to a sudden, surprise reversal. That said, on an Elliott Wave basis, a five-wave advance from the March 2020 low, at 0.3180%, suggests a trend inflection favoring higher yields over the long-term. If so, pull backs should, ultimately, prove to be corrective.
The latest FOMC minutes from its March meeting are set to be released at 2 p.m. EDT (1800 GMT), and they could indicate how fast and how far policymakers will proceed in trimming several trillion dollars from the stash of assets purchased to stabilize financial markets through the pandemic.
(Terence Gabriel)
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(Terence Gabriel is a Reuters market analyst. The views expressed are his own)