Stock markets tumbled yesterday, and US Treasuries were bought hard, pushing yields lower amid new fears regarding the new COVID-19 variant spreading rapidly
The S&P 500 fell 2%, the Dow Jones lost 2.5%, and the Nasdaq was down 1.4%. Macro-level uncertainty dominates investor sentiment due to the worsening of the pandemic with the Delta variant. The debate between reflation or inflation, the lack of clarity about the future of Fed policy, and geopolitical tensions between the US and China are adding fuel to the fire.
This worrying scenario has clouded growth prospects and has caused a strong buying flow of US treasury bonds seeking refuge, with yields reaching levels not seen since February 2021 - 1.19%. The drop in long-term interest rates and energy stocks driven by oil prices pressured financial stocks.
The move is reflected in the DowJones 30 price, which has fallen the most. After trading 2.5% lower, the index technically rests on the 100-day SMA line at 33730 points, which now acts as support. Below this level, it will find its next support in the 33020 points.
The energy sector & Oil
Energy fell more than 4% as oil prices dropped below the $70 level after OPEC and its allies agreed to increase production since the Covid Delta variant casts doubt on the global demand.
Crude prices experienced their worst decline since March, falling more than 7%.
Energy market analysts do not attribute the drop to the rise in OPEC+ production, which was well within market expectations. What crushed the market was the resurgence of Covid cases in the form of the Delta variant of the virus and its impact on global growth. The Organization of the Petroleum Exporting Countries and its allies will agree to increase supply by 2 million barrels from August to December.
The agreement to add 400,000 barrels a day each month for the next five months was what the alliance tried to conclude two weeks ago. This production increase was calculated to avoid a drop in crude oil price, considering the level of global demand at that time. Still, there is doubt that the increase in global infections can cause mobility restrictions and lower consumption of petroleum derivatives.
Crude Oil has broken the support located at $67.20 and is now resting on the 100-day SMA line at $66.20, below which, from a technical point of view, it would make its way to deeper losses down to $61.80, below this level, the current upward trend would be terminated.
Sources: Bloomberg.com, reuters.com
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