Demand for bonds has increased dramatically on safe haven demand and yields, especially for US Treasuries, have fluctuated wildly in recent days. It was the most volatility in yields since 2009, with market concerns about the health of US regional banks following the collapse of Silicon Valley Bank and two other US lending institutions leading to bets that the Federal Reserve will pause its rate hike cycle or even cut rates to stabilize the financial system.
Treasury bond yields partially recovered from recent sharp losses, with short-dated Treasury yields in particular rebounding after epic declines. The Fed Fund rate is still above Treasury yields, which is a sign that markets are now back to assuming that rates will not rise much anymore.
However, the main focus is on today's U.S. Consumer Price Index, which will be released in about 30 minutes (12:30 GMT). I expect the reading to stay hot and bring back expectations that the Fed is not done tightening. Either way, we will again see very high volatility as markets are deeply divided over the prospects for further rate hikes and the current banking crisis at smaller regional banks regarding the health of the U.S. financial sector.
A hot inflation report – which would mean core inflation is at 5.5% year-over-year or higher and month-over-month inflation in particular remains a concern – will send rate hike bets back up and further weigh on equity markets – especially financial and growth stocks, which are sensitive to interest rate changes.
Oil prices continued their recent slide ahead of U.S. inflation data, while gold prices declined after rising in the previous three sessions as traders turned to safer assets.
Higher Treasury yields and concerns over a U.S. CPI report that keeps pressure on the Federal Reserve to fight inflation also helped the USD to end a three-day loss. The EUR remains strong as the ECB appears to be the last truly hawkish central bank.
👁 ROB'S MARKET OVERVIEW:
Today's market moves are fully depending on the US CPI report. We expect the inflation report to remain hot which will increase rate hike expectations again. In combination with high volatility and markets remaining nervous about the health of the US financial sector, we expect markets to remain under pressure. A drop in Treasury yields in recent sessions and expectations that the Fed is more likely to end raising rates earlier is helping tech stocks likely to outperform.
March 14 – 2023
🇺🇸 US Markets ↕️
Cyclical Stocks ↕️
Tech/Growth Stocks ↕️/↗️
Financial Stocks ↕️/↘️
Defensive Stocks ➡️/↗️
Energy Stocks ➡️/↘️
💱 Forex (fully depending on US CPI report)
USD ↕️/↗️ (in case the US CPI report stays hot).
AUD ➡️ (after gains, upside limited)
JPY, GBP ➡️/↘️
⚒ Commodity Markets
Oil prices ➡️/↘️
Natural Gas prices ➡️/↘️
Metal prices ➡️
Precious Metal prices ➡️/↘️ (after recent gains, further upside limited)
⚡️Cryptos ➡️/↗️ (benefiting from lower bond yields)
(*↗️ bullish, ↘️ bearish, ➡️ sideways / stable, ↕️ mixed / volatile)
Yours, Robert 🇺🇸💵📈🔍