It was all about Yields this week as Treasuries, Equities and EM currencies tanked as the USD continued its bid on the back of the rapidly rising 5, 10 and 30-year US Treasury Bond rates.
If Equities took centre stage last week, then this week the entire theatre was taken over by the rally in Yields. Stocks tanked and once again tested September lows. USD rallied to 3-mth highs and the Evergrande saga hung over Asian markets as the threat of contagion persists. The US government could run out of cash by October 18, as Mrs. Yellen & Mr. Powell try to reassure markets.
Germany and Japan have new leaders, as Germany narrowly leaned to the left with Mr. Scholz and Japan tipped back to the right and Mr. Kishida. Still to come this week, Month and Quarter End, much more Central bank “speak” and various GDP, PMI & CPI data to add to the mix.
The number and quality of the US jobs recovery grinds on and will be central to the FED’s taper timeframe for later in the year. The weekly US unemployment claims ticked higher again last week, to 351,000, from 335,000. This week they are expected to return to 335,000 but still above pandemic lows of 312,000.
The vaccine rollouts continue to drive sentiment, and the Delta variant remains a significant concern, as the winter season in the northern hemisphere looms. In Asia lockdowns remain in place and the vaccination rates continue to improve. However, as booster jabs start in Europe, and double vaccination levels approach 80%, low-income country vaccination rates remain very low.
Volatility was back in the FX markets this week, with a stronger Dollar weighing on all the Majors and EM currencies, in particular. The USDIndex rallied to 10-mth highs at 93.85 from last week’s 20-day high at 93.42. EURUSD sank to 1.1655, USDJPY pushed 111.00 to July highs at 111.65. Cable was the worst of the majors as food and fuel supplies ran low on lorry driver shortages, testing 1.3500, a level not seen since January.
The US stock markets tanked on persistent Evergrande, the September effect and the fall in Treasuries. All three indices remained well below their 50-day moving averages. This week the USA500 has posted 9 days under the 50 MA and tested 4330 once again. Technology stocks were the worst performers with the USA100 at a new 21-day low as the USA30 recovered from a 65-day low.
Gold continued to decline as the USD and Yields rallied – posting new September lows at $1728 and testing the end of day lows from August. The August 9 intra-day spike lower to $1690 remains a key support area, with the 20-day moving average at $1765, a key resistance area.
USOil prices continued to soar, touching 3-year highs as demand outstrips supply and inventories continue to be drawn down. This week price peaked over $76.00 at $76.25, before a rapid re-trace on the stock market tumble tested down to $73.30 before recovering to $74.00.
The yield on the US 10-Year Treasury Note remains very much in focus and a key market mover. A very significant rally to 1.55% from 1.30% last Friday had repercussions for the Dollar, Stock markets and Commodity prices. A more hawkish FED, and rising inflation, suggests the taper timeframe will commence in November and certainly before year-end.
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Stuart Cowell
Head Market Analyst
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