Treasuries and Stocks Tumble as Jobs Friday Looms

Financial markets had a bloody US session, with especially the second half of the day bringing steep losses in stocks. All of the major indices finished deep in the red, while the Volatility Index (VIX) surged to its highest level since the mid-August emerging market rout.

Treasury yields, which triggered the selloff, retreated off their intraday highs, which represented multi-year highs across the yield curve. The Greenback also pulled back from its highs, but the Dollar-funding crisis is likely here to stay, as the trend in yields seems robust.

USD/TRY, 4-Hour Chart Analysis

Predictably, emerging market currencies got under pressure due to the sharp rise in US yields and the one-month high in the Dollar index, but on a positive note for global risk assets, the moves are muted so far. The Turkish Lira is still in a consolidation pattern against the USD, which developed after the panicky period in August, and today’s move only pushed the currency to a 10-day low, with the all-time lows being far from the current levels.

2-Year US Treasury Yield,4-Hour Chart Analysis

Tomorrow’s Employment Report will be closely watched yet again by both investors and traders, with a clear focus on the Average Hourly Earnings figure that sent shockwaves through financial markets last month. While analysts expect a slower pace this time around 0.3% vs. 0.3%, on a yearly basis, growth is well above the inflation target of the Fed.

With that in mind, it’s clear that the better than expected ADP payrolls figure is among the main catalysts behind the surge in yields. The official payroll growth is expected to come in at 185,000 with the unemployment rate ticking lower to 3.8%

Russell 2000 and Nasdaq Leading the Way Lower

Nasdaq 100 Index Futures, 4-Hour Chart Analysis

The Nasdaq has been clearly the weakest US index from a short-term perspective, not counting the small-cap Russell 2000 benchmark. The tech index got hit hard today as well, continuing the trend from yesterday afternoon, and the short-term chart also shows a possibly powerful reversal pattern.

The widely traded Nasdaq 100 futures contract hit a marginal new all-time high on Monday, but instead of a break-out, a bull trap pattern got completed, and that could trigger a deep correction in the tech segment, especially given the recent weakness in the smaller issues on Wall Street.

Russell 2000 (Small-Cap index), 4-Hour Chart Analysis

The main US small-cap benchmark hit its lowest level since late-July on Tuesday, clearly underperforming the broader market and signaling risk aversion among investors. Despite yesterday’s oversold bounce, the index remained wounded from a technical perspective, and a break below the late-July support could open up the way for more weakness.

That could possibly be the precursor of a deeper correction in the whole US market that has been the only really bullish one among the leading global equity markets. Tomorrow’ session could be an important one, as the Employment Report usually sparks big moves across asset classes, and the Russell is trading very close to the crucial level in focus.

Featured image from Shutterstock

Author:
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.