The US indices are beginning to recover from overbought levels, while Treasury bonds are also underperforming after a strong start to the year, with 10-year bond yields falling as low as 3.35%.
The market session on Monday began with a continuation of the risk aversion that dominated all day on Friday following the release of a much higher-than-expected Non Farm Payrolls figure. However, it was also influenced by geopolitical events.
The stock market fell after making gains in January due to speculation that the Federal Reserve will maintain a tight monetary policy to control potential inflationary pressures resulting from an overly tight labor market.
US indices are beginning to retrace from overbought levels, while Treasury bonds are also underperforming after a strong start to the year, with 10-year bond yields falling as low as 3.35%.
The uncertainty caused by the unexpectedly large number of Non-farm Payrolls remains, and can only be alleviated by a lower CPI figure in the data released next week. Today, the Federal Reserve Chairman, Jerome Powell, is expected to make a public statement, which could shed some light on how the market might move, though expectations are low.
However, another source of concern for the market arose yesterday, this time of a geopolitical nature: the United States announced plans to levy a 200% tariff on Russian-made aluminum.
The war in Ukraine also continues to cause uncertainty. US intelligence officials ordered to shoot down a Chinese spy balloon over US territory. China's official visit to Washington D.C. was unexpectedly canceled, provoking a period of tension between the two superpowers. Chinese stocks traded on US stocks plummeted and Hong Kong's Han Seng Index fell 2.60%.
Combined, these events significantly increased investors' risk aversion and caused US stock indices to trade in negative territory for the second day in a row. The US dollar strengthened, acting as a safe haven in this case, pushing the EUR/USD pair close to 1.07.
Related: EUR/USD analysis and price predictions
Sources: Bloomberg, Reuters