Gold holding gains, equities falter as risk appetite deteriorates
- Fears over US banking and the debt ceiling: US banking stocks sell-off as Treasury Secretary Yellen warns of the US Governing being unable to pay its obligations.
- Moves into safe haven assets: Yesterday saw gold jumping, the JPY stronger and equity markets sharply lower.
- USD is falling back today: The USD is paring gains on major forex but JPY continues to recover.
- Equities have steadied overnight: European indices are trying to recover losses whilst US futures are a shade higher overnight.
- Metals hold their gains, as oil consolidates: In commodities, gold and silver are holding their sharp gains from yesterday, with oil steady after a sharp sell-off.
Fears over US banking and the debt ceiling
With the forced sale of First Republic Bank to JP Morgan Chase, the US banking crisis has returned to the forefront of traders’ minds.
Despite pumping $30bn into First Republic back in March, the continued outflow of customer deposits has resulted in the failure of a third mid-tier banking failure in the US in the past couple of months.
Obvious questions are being asked by traders now, such as: “Will this be the last?”
Shares in US banking stocks have fallen sharply.
The debt ceiling fears are ramping up
The situation has not been helped by the admission on Monday from Treasury Secretary Janet Yellen, that the impasse over the raising of the debt ceiling may mean that the US Government might be unable to meet its payment obligations.
Without agreement in Congress over raising the debt ceiling, the situation could become a serious problem around June or July.
Add in the concerns that markets have with significant risk events approaching, including the monetary policy decisions from the Federal Reserve and the European Central Bank and this is driving traders out of riskier assets and into safe haven plays.
Volatility gauges increase
A signal of these concerns rising is the increase in volatility gauges.
The VIX Index of S&P 500 options volatility had fallen to extremely low levels recently (having hit 15). This could be taken as a sign of complacency.
However, according to the CBOE, the VIX has spiked up over the past couple of days, including an increase of over 10% yesterday.
Now, admittedly, this is up 10% from a low level and is still below 20, however, this is a sign of a turnaround in market sentiment.
When traders rush to buy put options, they are looking to cover their portfolios for downside risk. This pulls the VIX higher.
It is a gauge that we will be keeping an eye on in the coming days.
A move into safety
There have also been signs of a shift back out of risk assets and into safe havens, all suggesting a “risk-off” move.
- US equities fell sharply yesterday
- Oil was significantly sold off
- JPY is rallying
- Gold has spiked decisively back above $2000
For now, this is just a warning though.
The decline in Wall Street is steadying today ahead of the Fed, but if these moves continue then it could herald a decisive shift in the near to medium-term outlook on major markets.
S&P 500 futures wobble and Gold moves higher
Let’s take a closer look at the technicals of two major markets.
S&P 500 futures have fallen but not broken down yet, whilst Gold has made a key step towards breaking higher.
S&P 500 futures (SP500ft)
Monday’s failure around the key resistance at 4208 is a warning that was added to by yesterday’s decisive bear candle.
However, there is no decisive technical breakdown, yet.
- The intraday rebound from yesterday’s low at 4105 is encouraging but needs to hold.
- The daily RSI remains above 50 – implying a positive bias remains.
However, there have been multiple bull failures under the February high at 4208 and this is a huge barrier to gains.
How the market reacts to the Fed and the ECB could be a defining factor of the March/April rally that has lost upside momentum in recent weeks.
Initial support is at 4105 with 4068 now a key higher low.
Gold rallied with a strong bullish candlestick yesterday.
A move above resistance at $2012 means that the April rally high of $2048 comes back into view.
The bulls will be encouraged by:
- The support forming at $1969 above the pivot band $1935/$1960
- The daily RSI picked up from 50 and confirmed the near-term upside break.
Holding the breakout support between $2005/$2012 would suggest that a retest of $2048 would be on.
Beyond there, the long-term resistance at $2070/$2075 could be tested in due course.
Support and resistance levels for Forex, Commodities, and Futures/Indices
|Brent Crude Oil
|S&P 500 futures
|FTSE 100 Index
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