Another Risk-Off Session Closes the Week on Wall Street

The official US employment report caused even more turmoil in financial markets than usual, as the most watched data points sent conflicting signals about the most important global labor market. Non-Farm Payrolls missed the consensus estimate by a mile, the Unemployment Rate hit an almost 50-year low at 3.7%, while the most-awaited Average Hourly Earnings growth came in at 0.3%.

Wage growth in August was revised lower to 0.3% as well, but although the original release triggered a rise in yields, the revision wasn’t enough to stop the swift rise in rates yesterday.

Nasdaq 100 index Futures, 4-Hour Chart Analysis

The major US indices all finished clearly in the red on Friday, with the Nasdaq leading the way lower yet again, shedding more than 1% after yesterday’s 2% decline. The Dow and the S&P 500 fared much better in the last couple of sessions, but according to futures markets, European and Asian markets followed in the footsteps of the tech benchmark.

The US small-cap segment has been especially bearish this week, and the Russell 2000 touched its 200-day moving average yesterday, severely lagging the broader market.

EEM (Emerging Market ETF), 4-Hour Chart Analysis

Emerging markets tested their cycle lows, at least as measured by the dollar-denominated EEM ETF, and after a brief period of relative stability, the strong downtrend in the segment looks to be taking over again.

While the most vulnerable currencies are still well off their lows, a broader risk-off shift would likely put them back in the crosshairs, as funding costs are exploding higher, with the Dollar also pushing towards its August highs.

Break-Out in Yields Could Finally End the Multi-Decade Bond Bull

30-Year US Yield, Weekly Chart Analysis

The long-term charts in Treasury yields reveal possibly crucial break-outs, especially on the long-end of the curve, with the 10-, and 30-year yields both taking out key resistance levels. While the secular decline in yields that started back in the 80’s could be ending, the broadest trendlines are still well above the current levels.

Should the current surge in rates trigger a slowdown, a reversal could be very swift. What’s sure, is that the downtrend that started with the Fed’s quantitative easing program is now broken and technicals suggest a rise to 4%, around the 2009 highs in the 30-year yield.

WTI Crude Oil, 4-Hour Chart Analysis

Commodities had a relatively quiet day amid the stock and bond rout, thanks to the Dollar’s pullback, but the most important crude oil contracts followed risk assets lower, continuing the short-term correction after their break-out to multi-year highs.

The sanctions against Iran together with the relatively low Saudi output are still the main drivers behind the recent strength in oil. Despite the tight market, should the risk selloff continue next week, the fact that the WTI contract is back below the $75 level could lead to a meaningful reversal, so caution is warranted for bulls here.

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Trader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.