Global Stocks Shudder as Treasury Yields Strike a 16-Year High

Global indexes decline due to treasury yields increasing to a 16-year high, higher rate expectations, and US employment data. Higher treasury yields make the stock market less attractive and prompt investors to consider safer assets. In addition, higher yields are known to point towards higher interest rates. Asian stocks are experiencing the most substantial declines, while the European market is experiencing the most prolonged decline. The Hang Seng Index has declined by over 3%, while the German Dax and French CAC have declined for five consecutive days. 

Furthermore, investors and stock traders are concerned about the price of energy-based assets. The price of Crude Oil renewed its monthly highs and rose to the highest since June 22nd. The price of Oil continues to be supported by production cuts from members of OPEC and Russia, while employment data remains positive. Investors are concerned that higher energy prices can result in more difficulties in tackling inflation. As a result, the monetary policy may become more restrictive, and consumer demand can drop. Analysts are advising a price of $80 per barrel and above can pressure the stock market and lower investor sentiment. 

While Crude Oil is witnessing strong bullish price movements, other Dollar-correlated assets have sharply declined. For example, the price of Gold declined by 1.25% within three hours once the US released the first employment data of July. However, the US Dollar Index this morning is down 0.14%, allowing Gold to slightly increase in value. The best-performing currency of the Asian session has been the Japanese Yen. The Japanese Yen is increasing in value against the Dollar, the Euro and the Pound. Yen’s bullish price movement is primarily related to the low investor sentiment. 

However, It is also worth noting the publication of a report by the largest trade union group in Japan, Rengo, according to which, this year, enterprises increased wages for employees at the most significant pace in the last thirty years: the average salary increase was 3.58%. Many investors are advising the Yen in the longer term is likely to rise due to a less dovish central bank. However, no indication has been given by the Bank of Japan. 

NASDAQ - Yields Reach a 16-Year High

The NASDAQ was able to hold off a selloff in the first three days of the week, unlike its global competitors. However, the price declined yesterday, dropping 1.54% before retracing upwards. The instrument ended the day 0.78% lower, and only three of the top twenty influential stocks rose in value. The worst-performing stocks among the twenty most influential were Tesla declining by 2.78%, Netflix by 1.97%, and Intel by 1.87%. During yesterday’s session, 86% of the NASDAQ’s components ended the day lower.

NASDAQ 30-Minutes Chart on July 7th 

The price of the NASDAQ and the global stock market was negatively affected by multiple elements. Firstly, the employment data did not show any significant slowdown in the employment sector, giving the Fed a clear path to more hikes. The ADP Non-Farm employment change read 497,000, the highest seen since January 2022. The Weekly Unemployment Claims read 248,000, as expected. However, the JOLTS Job Openings came in lower at 9.82 million. The employment data seen so far is not indicating any slowdown or pressure from the monetary policy. 

Nonetheless, investors' main focus will be today’s official Unemployment Rate, Employment Change and Average Hourly Earnings. Depending on the analyst, Unemployment is expected to remain at 3.7% or slightly decline to 3.6%. Markets expect the NFP figure to be lower than the previous month at 224,000. The Average Hourly Earnings are also a concern for the Federal Reserve as higher salaries can contribute to higher inflation. If the data read higher than expected, the Fed’s terminal rate will likely rise above 5.60%. As a result, the stock market can potentially experience a further selloff. For another hike or an unchanged terminal rate, the employment data will have to be significantly lower than expected.

As confirmed during yesterday’s market analysis, Technical indicators will mainly indicate a downward trend as the price drops below $15,099. The asset's price this morning is again declining after the most recent retracement. As a result, the NASDAQ continues to move in a downward trend pattern. The price swings have formed two lower lows and lower highs, but investors will be cautious that the instrument does not form a double bottom at $14,966. The regression channel is pointing downwards and widening towards a bearish trend. The RSI trades below 50.00, showing sellers control the market while crossovers cross downwards. For this reason, technical analysis indicates a clear downward trend, but investors should be cautious that the employment data this afternoon does not change the price direction. 

Summary:

• Global indexes decline due to treasury yields increasing to a 16-year high, higher rate expectations, and US employment data.
• The ADP Non-Farm employment change read 497,000, the highest seen since January 2022
• The best-performing currency of the Asian session has been the Japanese Yen. The Japanese Yen is increasing in value against the Dollar, the Euro, and the Pound. Yen’s bullish price movement is primarily related to the low investor sentiment and increasing salaries. 
• The NASDAQ comes under pressure from a higher terminal rate and high bond yields. Technical analysis points towards a further decline.