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US long-term interest rates fall, boosting stocks

Dow Jones Index

Last week, the Dow Jones Index had its best week in almost a year. The growth was driven by the slowing down of the economy and the Federal Reserve's statement that seemed soft on future policy, which caused long-term interest rates to fall sharply. The 10-year US Treasury bonds yield fell by 0.30% to 4.57%, making stocks more attractive to investors.

The Federal Reserve decided not to change interest rates, which was what most people expected. However, investors were happy with the Fed's comments after their meeting. The Fed's message was that the higher long-term interest rates we've seen recently are already helping to slow down the economy a bit, which was part of their plan.

Employment data for October fell short of analyst forecasts, suggesting that the Fed's efforts to cool the overheated economy and suppress inflation may be bearing fruit. The modest rise in average hourly earnings, at 0.2% versus the 0.3% predicted, further underlines this trend. The Dow Jones halted its ascent at the October peak, presenting potential short-selling avenues for short-term traders amid signs of an overbought market. Although a breach of the 34,150 resistance level could prompt a swift uptick, the anticipation of limited news flow sets the stage for sideways or lower price action this week.

Dow chart Nov 4

Resistance: 34150, 34600, 35000, 36000

Support: 33000, 32785, 32300, 31750

Nikkei 225 Index

Mirroring the positive movement in US markets, the Nikkei Index in Japan experienced an impressive week, climbing over 4%. This uptick reflects a renewed interest from traders in equity markets as they regain confidence. The uplift in the Nikkei was also influenced by global market trends, suggesting a potential shift in investor sentiment towards a more bullish outlook on equities.

At its recent meeting in October, the Bank of Japan (BoJ) maintained its very supportive monetary policy, keeping the short-term interest rate at -0.1%. However, the BoJ made a subtle change in its approach to managing interest rates, notably its yield curve control. By choosing to view the 1.0% ceiling for 10-year JGB yields more as a guideline than a hard cap, the central bank has signalled more flexibility in letting yields rise.

Despite the recent gains, the market is overbought in the short term, suggesting that a cautious approach is prudent. Analysts are looking at the 33,000 level as a critical point of resistance and suggest that the market may move sideways or even trend lower if it fails to break above this threshold. Traders are advised to watch this level closely, as staying below this resistance could indicate that taking a conservative stance may be the best strategy in the coming week.


Resistance: 33000, 33375, 34000

Support: 31650, 30250, 30000