Image Source: PexelsMARKETSStocks continue to feel the pressure from the bond market sell-off as the hawkish repricing of the Fed curve forces investors to rethink their expectations for aggressive rate cuts. Over the past month, Treasury yields have steadily climbed, with traders recalibrating their outlook on the Fed’s policy trajectory. However, the recent spike in yields—driven partly by the rising probability of a Trump victory in betting markets—has traders hedging against the potential for more inflationary policies like higher tariffs, looser fiscal policy, and tighter immigration controls.As election uncertainty grows, markets are increasingly factoring in the possibility that Trump’s return could upend current assumptions, fueling volatility and prompting a shift in sentiment. Investors are now bracing for the economic impact of a more protectionist agenda, adding another layer of risk to an already jittery global market.Beneath the betting market buzz driving the “Trump Trade,” traditional “Blue Wall” polls still show the U.S. election is a tightly contested affair. This uncertainty is spooking markets, with investors opting for deleveraging and defensive positioning in risk assets. It’s no surprise that global markets are starting to reflect these jitters. Profit-taking and risk reduction tend to hit the most profitable corners first, and on Wednesday, it was the mega-cap stocks that felt the squeeze, along with gold.Sure, we can argue that some gold investors are concerned about the metal’s inflated valuation relative to real yields and the surging dollar—since gold is typically viewed through the lens of the inflation-adjusted risk-free rate. But with mega-cap stocks sitting on mountains of cash and having locked in cheap, long-term debt during the COVID era, they’ve largely insulated themselves from rising yields.That said, the sell-off hints at something bigger: election-driven deleveraging. It’s not just about gold or yields; it’s the broader anxiety stirring across Wall Street as traders recalibrate ahead of a highly unpredictable election. The prospect of post-election policy shifts is clearly starting to weigh on risk appetite, prompting some early moves to trim exposure and take cover.Historically, stocks tend to dip before an election and rally once the uncertainty clears. We might be heading into the murky waters of “Foggy Bottom,” where uncertainty reigns supreme. As I always suggest, make hay on the run-up, trim risk before the drama unfolds, grab your popcorn, and enjoy the show from the sidelines with your favourite libation.ASIA MARKETSAsian markets are gearing up for a defensive start on Thursday as the relentless rise in U.S. bond yields and fading hopes for aggressive Fed rate cuts cast a long shadow over global sentiment. The shift in rate expectations triggered a beatdown in U.S. Big Tech on Wednesday, with the Nasdaq tumbling 1.6%—its steepest drop in nearly two months. World markets are now down for a third straight day, setting an ominous tone for Asia’s open. Even Tesla’s (TSLA) post-earnings 8% surge, which briefly lit up the tech sector, feels more like a flicker than a lifeline amid the broader market turmoil. The bearish winds are blowing strong, and Asia may find itself bracing for impact.FOREX MARKETSIn the currency markets, all eyes are glued to USD/JPY as it inches toward the 153 mark, caught in a whirlwind of political storm clouds swirling across both the Pacific and the U.S. Political uncertainty has sent the yen into a tailspin, sparking chatter about potential intervention from Japan to halt its freefall. But let’s be real—Japan’s authorities are unlikely to step in until after the U.S. election drama unfolds.Meanwhile, the U.S. dollar is flexing its muscles, powered by a potent mix of political intrigue and geopolitical tension.U.S. 10-year Treasury yields have surged since the start of the week, as the prospect of deep Fed rate cuts fades into the rearview mirror. Add to that the rebound in oil prices, driven by Middle East tensions, and you’ve got a dollar that’s gaining strength while risk appetite takes a nosedive globally. Major oil importers like Europe and Japan are feeling the pinch, further amplifying the dollar’s dominance.The yen is stuck in the perfect storm—a toxic cocktail of U.S. election jitters and Japan’s own political uncertainties, pushing it further into the abyss.Since mid-October, markets have been gradually pricing in more Trump risk through higher U.S. rates and broad dollar strength. However, the FX market hasn’t fully baked in a Trump victory just yet. While the greenback’s power is still largely supported by robust U.S. economic data, EUR/USD, hovering around 1.0783, has yet to absorb the full Trump premium in the same way USD/JPY has. The yen has taken a particularly hard hit this week as U.S. yields continue their climb, with the 10-year Treasury yield touching 4.24%.The most bullish scenario for the dollar—and a nightmare for the U.S. bond market—would be a Trump win alongside a “Red Sweep,” where Republicans seize Congress, giving Trump carte blanche to roll out his fiscal agenda. Prediction markets like PolyMarket are now pricing in a 50% chance of this Red Sweep, up from 30% earlier this month. Paired with the recent rebound in oil prices, this has pushed inflation expectations higher, with the 10-year U.S. inflation breakeven rate up 30 basis points from its September low.If a Red Sweep becomes reality, USD/JPY could skyrocket toward the 158-159 range as markets prepare for the inflationary wave from Trump’s policies. Buckle up—it’s shaping up to be a wild, volatile ride ahead.OIL MARKETSCrude oil prices took a hit after U.S. inventories posted a surprisingly large build. The Energy Information Administration (EIA) reported a jump in commercial stockpiles of 5.47 million barrels last week, far surpassing the 1.6 million-barrel increase projected by the American Petroleum Institute. Gasoline inventories also saw an uptick, rising by 878,000 barrels. Still, implied demand edged up to 8.84 million barrels per day, providing a sliver of support for sentiment.In addition, there was a glimmer of hope in ceasefire talks in the Middle East. U.S. Secretary of State Antony Blinken and Israeli Prime Minister Benjamin Netanyahu reportedly reached some consensus that the killing of Hamas leader Yahya Sinwar could open the door for de-escalating the conflict in Gaza.However, the larger narrative in the oil market is still dominated by the expectation of a looming 2025 supply glut, with the “Trump pump, pump, pump” mantra echoing in the background. This leaves bearish Oil traders hypersensitive to any news that could shift prices, especially with geopolitical tensions simmering. For example, an Iran-backed drone recently came alarmingly close to Netanyahu’s residence. But, historically, these flare-ups haven’t always led to prolonged conflict, and the current rally might not have the legs to go much further.December WTI’s struggle to break through the $72 level signals that traders aren’t betting on a significant escalation in the Middle East. Instead, the market seems to be pricing in a surplus and confidence that OPEC and Saudi Arabia’s spare capacity could fill any supply gaps if Iran’s oil infrastructure were compromised. While the geopolitical noise is deafening, it’s clear that underlying fundamentals—particularly the anticipated oversupply—are keeping a cap on any prolonged rally in oil prMore By This Author:Spiking US Yields Spook Investors As Political Storm Clouds Loom On Both Sides Of The Pacific
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