After the Federal Reserve made a more radical dot chart adjustment the day before, following the dot chart has proven to be a dangerous behavior for the risk market, and investors finally woke up from their long period of complacency. , in the SPXs third largest single-day decline this year (-1.6%), the aftershocks of Powells hawkish suspension of interest rate hikes were fully felt. The decline was mainly driven by a 2.9% decline in the consumer goods sector and a 3.5% decline in the real estate sector.

The 2-year U.S. Treasury yield climbed to its highest level since 2006 (5.18%!), while the 10-year yield hit a 15-year high of 4.50%. The global yield index is currently at its highest level since 2008, while The 30-year long-term U.S. Treasury bond issued in 2020 is currently trading at $48, a 52% drop in price since the auction. This is a risk-free, long-term Treasury bond issued by the U.S. government that has lost half of its value in just three years. (Due to the math of duration) Who said bond trading was boring?

Not to spread panic, but if yields follow the Feds forecasts exactly, short-dated yields would rise another 20-30 basis points from current levels, levels not seen since the dot-com era.

To make matters worse, the U.S. Department of Energy’s crude oil inventories continue to decrease significantly and have returned to the level of 1985. Crude oil futures bucked the trend and rose, with prices remaining near US$90. We still believe that the current market underestimates the inflation caused by rising costs. Risk of rebound.

Tech stocks are finally reacting to the surge in yields, having had their worst month yet. From a technical perspective, the SPX broke trendline support from March and 5-year investment grade CDS also rose strongly. , interest rate differentials have finally begun to show a positive correlation with rising interest rates, the yen seems to have a good chance of falling below 150, and the US dollar index seems to be preparing to rise further.

Looking ahead, if the risk-off trend persists, we expect cross-asset correlations to start to move closer to 1. With one week to go until the end-of-month rebalancing of portfolios, we expect cryptocurrency prices and others to continue to follow the trend in yields, We still recommend continuing to pay close attention to changes in yields to judge the direction of asset prices in the short term, and do not recommend any risky dip-hunting attempts at this time.

Finally, just when we already have too much to deal with, its wonderful that the script is playing out again as Congress rushes to meet the October 1st deadline and engages in brinkmanship again, raising the possibility of a government shutdown again. .....