Bad. Yesterday’s 30-year treasury auction in the US was bad. Then, the Federal Reserve (Fed) Chair Jerome Powell’s speech at an IMF event was hawkish. Powell repeated that the FOMC will move ‘carefully’ and that the Fed won’t hesitate to raise the interest rates again, if needed. The bonds sold off, the US yields spiked higher.

Of course, the sudden jump in US yields hit appetite in US stocks yesterday. The S&P500 fell 0.80%, and Nasdaq fell 0.82%. The US bond auction brought along a lot of volatility, questions, and uncertainty.
The US dollar jumped to its 50-DMA as a response to a rapid surge in the US Treasury yields. The EURUSD sank below the 1.07 level. Cable traded near 1.22 as the dollar-yen rose above 151.

In energy, the oil bulls come in timidly near the $75pb psychological support. The oil selloff probably went too far and it’s time for – at least – a minor positive correction. A move toward the $78/80 range would be reasonable, but there is a fundamental shift in market narrative regarding the war in Gaza and potential implications on oil prices.

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The US 10-year yield plunged below the 4.5% mark yesterday, even after a 40-billion-dollar sale of US 10-year papers saw lower-than-expected demand and resulted in a slightly higher-than-anticipated yield of 4.519%. Today, all eyes are on the $24 billion worth of US 30-year bond auction. The US 30-year bond yield plunged to 4.60% yesterday, after rising to 5.17% last month.

That’s disquieting; the US 10-year yield has now fallen more than 50bp in less than 2 weeks. Yes, a part of it is a correction of the accelerated rise that we observed starting from September. But that rise partly explains why the Fed members decided to refrain from announcing another rate hike at the latest policy meeting. As such, the recent fall in long-term yields will certainly get them back to a high-alert level.

Elsewhere, China doesn’t have inflation and it can’t create it; that’s a problem. Released today, the latest Chinese CPI data came in worse-than-expected. The Chinese consumer prices fell 0.2% in October, on a yearly basis, versus no change expected, and producer prices fell 2.6%, slightly better-than-expected but not encouraging.

Worries regarding the Chinese economy don’t help lift sentiment in oil markets. The barrel of US crude fell to $75pb yesterday as the selloff continued at full speed. The selloff should slow as the market is now at the limit of oversold conditions, but investors are increasingly concerned about slowing global demand.

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Portuguese markets were hit yesterday by the resignation of the country’s PM following an investigation into possible crimes of corruption involving lithium and hydrogen projects. The Portuguese PSI 20 fell more than 2.50% on political jitters and uncertainty. But the scandal didn’t resonate much in the rest of the European indices – which were little changed yesterday. The EURUSD slipped below the 1.07 mark, the US dollar extended its gains for a second day but the US yields continued to fall despite cautiously hawkish comments from Fed members.

The S&P500 is above its 50-DMA for the 3rd day and the rate-sensitive Nasdaq 100 broke above its summer down-trending channel top.
The barrel of crude oil fell almost 5% yesterday after the $80pb support gave in to the growing weight of the increasingly aggressive bears. Crude oil is approaching oversold market territory.

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The US bond yields rebounded, and the equity rally slowed on Monday. The chatter of weak demand and profit warnings are not great for equities, but the worst news would be sticky inflation despite slowing growth and a persistently long period of high interest rates. For now, the Federal Reserve (Fed) is perceived as being ‘done’ with interest rate hikes.

But despite a series of no rate hike news that we received over the past few weeks from major central banks including the Fed, the European Centra Bank (ECB) and the Bank of England (BoE), the Reserve Bank of Australia (RBA) raised its rates by 25bp, as broadly expected, today. The RBA hike came as a sour reminder that there is no rule that says that a bank can’t hike rates after pausing for four meetings. Interestingly, the AUDUSD fell after the decision.

Elsewhere, the Chinese exports fell for the 6th consecutive month and Iranian oil exports fell for the 2nd straight month to 1.43mbpd as demand in Asia weakened. Yesterday’s crude oil gains remained limited, and there is a stronger case for a decline below $80pb level.

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The excellent combo of lower-than-expected US NFP, weaker-than-expected wages growth and the unemployment rate at an almost two-year high sent another wave of optimism to the financial markets on Friday that the Federal Reserve (Fed) is done hiking the interest rates. US yields further fell and US equities roared after three months of struggle.

In the FX, the US dollar slid the most since July and sank below its 50-DMA, triggering a beautiful rally in major pairs. The EURUSD flirted with 1.0750, Cable rallied to 1.2390, the USDJPY fell below the 150 mark, and the AUDUSD jumped to its 100-DMA and could extend rally if, as expected, the Reserve Bank of Australia (RBA) delivers a 25-bp hike tomorrow for the first time in 5 months.

But there is one kid in that party room that’s less cheery than the others and that’s crude oil. Crude oil remained under pressure on Friday and was only timidly bid this morning on rising tensions in Gaza, the news that Israel encircled Gaza city and the headlines that Saudi and Russia will stick to their planned oil cuts despite the Middle East tensions.

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