Bonds

The most notable reaction following the latest FOMC meeting was the reaction of bond markets, which continued to plunge and send yields higher. Not even the US dollar could extend its rally meaningfully despite the rise of yields. But global stock markets certainly took notice and fell in tandem as investors finally took the Fed seriously that interest rates are likely to remain higher for longer. So whilst we have US PCE inflation, consumer sentiment, GDP, retail sales and the likes of China PMIs and Australian CPI, it is likely to be how bond yields behave next week as to how important these economic data points become.

Markets rallied after sell-offs this week, led by Nasdaq. Bond markets steadied, with yields backing off highs. This reversed prior moves this week. After focusing on the Fed and interest rates this week, traders are starting to think about the impact of a Government shutdown next week and an escalating Auto workers strike. Commodities saw buying in oil, as did precious metals and the ag complex. Bottom-line: risk-on.

Vincent Deluard, StoneX global macro strategist, asks: are we at an inflexion point, when higher bond yields and a steeper yield curve could hit the rating of expensive growth stocks? The Magnificent Seven (Mag7) stocks have become synonymous with this bull market: Amazon, Alphabet, Apple, Nvidia, Meta, Microsoft and Tesla. These stocks make up a quarter of the S&P 500 market value.

Should the Japanese government order the Bank of Japan to intervene in FX markets, it deserves the savage USD/JPY bounce that will almost inevitably be coming its way.

Nasdaq continued to lead markets down this morning as traders digested a pessimistic assessment of the Fed’s statement yesterday. Jobs data continues to demonstrate that the economy is not slowing. 10-year bond yields spiked to almost 4.5%, rates last seen in 2006, and putting a strain on the valuation of equity markets. Bottom-line: risk-off.

If gold can’t weaken substantially in these conditions, when will it? And what happens when the tide eventually turns, with the US dollar and bond yields turning lower?

Nasdaq fell sharply on news that while the Fed will pause rates for now, higher rates are possible. Higher bond yields and the risk of another rate hike this year caused a sell-off in equities and bonds. Oil saw profit-taking. The dollar index rallied on hopes that US rates will rise further. Bottom-line: risk-off.

Nasdaq, the R&P 500 and Russell 2000 equity indices were off marginally as markets braced for tomorrow’s Fed interest rate decision. Bitcoin rose 1.2% to $27,177, continuing a recent rally. Ten year bond yields rose to 4.37%, a rate last seen in June 2008. Oil and the dollar, recently strong markets, were unchanged, as were Gold and Silver. Bottom-line: risk-off.

USD/CNH has broken out of the range it’s been in since July, signaling a potential period of consolidation, or even a reversal, from the prevailing bullish trend.

Mixed results in this morning's inflation data fed hopes of a rate hike pause on Wall Street, leading to cautiously firm stocks at midday, led by Nasdaq. Bond yields fell back after sharp increases on a first read of the inflation data. Futures markets put close to zero probability on a rate rise next week. Elsewhere currency and commodity markets were pretty much unchanged. Crude oil moved up to a 10-month high. Bottom-line: risk-on.

Containing upstream producers through to auto manufacturers such as Tesla, the Global X LIT ETF can be used to track sentiment towards the lithium sector.

Tech stocks gave up recent gains on disappointing news from Oracle, with Nasdaq ending a 3-day recovery. Many commentators point to the high valuation of many tech leaders. Oil prices were today’s stand out, approaching a 12-month high. The dollar continued to strengthen, notably against the Japanese yen and Chinses yuan. Data from service sector reported strong growth and higher prices – bad news for inflation. Bottom-line: risk-off.

Gold is pausing for breath between $1,925 and $1,950. All eyes are on the Fed, and interest rate policy. While the labor market is tightening slightly, it’s broadly steady on balance over the longer term. Silver is tracking gold, and the ratio is holding steady. Elsewhere, economic news is weak: European PMIs were disappointing again, and there was more bad news from China, with continuing support for the yuan. For now, bullion markets are cautious and, barring any exogenous shocks, we can probably look for prices to drift in the near term ahead of next week’s Fed meeting.

Bullish factors August CPI in the US is expected to accelerate moderately, reinforcing the perception that the Federal Reserve will maintain a firmer stance on inflation and sustain higher interest rates for longer, strengthening the dollar. Economic data in China and Europe are expected to suggest a slowdown in these economies and could dampen foreign investors' risk appetite, weakening the real. Bearish factors August IPCA in Brazil should increase moderately, suggesting that the space for interest rate cuts by the Central Bank may be lower than initially estimated and lower expectations for the fall in the interest differential across the country, contributing to the attraction of financial investments and strengthening the real.

This week’s inflation report is centerstage, with the Nasdaq and S&P 500 rallying on the belief that the report will be benign and the Fed won’t raise interest rates next week. The oil price is hovering around $88 as we await new data on the supply/demand balance. September 11 – 9-11; May the memory linger and may we never forget. This is a somber day in American history as it struck at the heart of Wall Street. Bottom-line: risk-on.

Equity markets rose modestly after recent sell-offs on a low energy day with little news. Tech stocks in the Nasdaq recovered after stock specific news hit big names like Apple. Oil resumed its upward path on news of China’s oil stockpiling. The US dollar held key support levels after its recent rise. The next few weeks will see traders on Fed watch and chatter about (another) budgets showdown which might have a real market impact this time around. Bottom-line: risk-on.

Using the TLT EFT to track the risk of higher US bond yields, increased market volatility and a stronger US dollar.