Interest rates (market yields) in the US market began their upward trend exactly on the day the Fed took the monster step of reducing interest rates by half a percent. Since September, the market yield has risen from around 3.6% to 4.75%. And the strength indicator suggests that a further upward trend can be expected…
The difference between the funds target rate of the US Federal Reserve (Fed) and the market yield of the US Treasury over two years indicates the potential for interest rate movements. After the three Fed decisions, the market apparently no longer believes in further interest rate cuts by the Fed…
Even the SWAP market currently assumes at most one more rate cut of a quarter of a percent…
Further confirmation comes from the Futures Market, which also assumes a final (?) interest rate cut of a quarter of a percent…
However, as market yields rise, so does the stock market fever curve. Equity investors have recently been watching rising interest rates with concern. But the closer the interest rates get to the 5% mark, the more nervous they are likely to become. Somebody’s gonna get hurt…Smart investors switched to distributions weeks ago. During the first two sell-offs since December, there was still an immediate ‘exaggeration’ that suggested a countermovement (recovery) was likely. Now this is no longer the case…
As mentioned in earlier thoughts, strong sell-offs in the stock markets also do not occur when optimistic sentiment still prevails in the market. This is no longer the case either…
The yield curve of the US Treasury market (the yields of the various maturities) suddenly shows a completely different face: since July, it changed from falling to flat, but now it is rising.The market is telling us that it has changed its expectations since last summer: a falling yield curve indicated that the market expected interest rates to fall in the long term (because it assumed that the economy would be weak). But now the yield curve is rising, so the market expects interest rates to rise in the long term… Rising interest rates are not good for the stock markets.
In fact, the Citi US Economic Surprise Index is also trending upwards again after a brief interruption. This means that US economic data is stronger than expected. And a strong economy would have to be slowed down by rising interest rates…
The currency market is also sending us the same signals: due to the carry trade, the Japanese Yen has a very high correlation with the yield of the US Treasury with a term of 10 years. According to this correlation, the market price of the US Treasury should continue to fall – which would cause the yield to rise further…
Although the General Matrix Indicator is already showing a falling trend, it is still in positive territory. This indicates that the stock markets have every reason to be nervous. And bottom fishing should not be started until this indicator falls into negative territory. It is not there yet… More By This Author:One Of The Surprises In 2025 Could Develop In The Oil Market
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