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Rates are on the march still, the US 10yr notching its highest since November 2007, and the re-steepening should be a cause for concern. The inversion followed by steepening is the tell – remember the yield curve inversion is usually followed by a sharp steepening before the doodoo really starts to fly and the market tends to bottom 6 months after the first rate cut. There is a lot of complacency about the soft landing, and I believe the risks of a mistake is now high. We should also consider Japan’s move on YCC – that is the first step towards normalisation that could cause all kinds of problems for global capital markets. The selloff in bonds and stocks is almost certainly linked to this move a few weeks ago, but the fundamentals are present in the US economy. Then factor in issuance and you have conditions for complacency to give way to fear. 

 

Chipping Away 

For now, the market is apt to buy dips – Nvidia leapt more than 8% to help the Nasdaq snap a four-day losing streak despite rates moving up. The company reports tomorrow, and you get the sense that a lot is hanging on NVDA delivering blistering numbers and a very strong outlook. Imagine buying NVDA at 244x trailing earnings – you have to be feeling lucky. But the gains helped the Nasdaq rally 1.56%, whilst the S&P 500 added 0.69% to just fall short of the 4,400 line at the close. Is AI hype a sustainable fuel to keep the market in the air? Probably not. 

 

Europe Greener 

Elsewhere, stock markets in Europe opened broadly higher on Tuesday with the positive handover from Wall Street and a generally more upbeat Asian session. A softer dollar maybe helping things a bit. The FTSE 100 rose 0.3%, whilst the DAX and CAC both added 1% in early trading with chipmakers doing well in the wake of the NVDA pop. Elsewhere, crude oil softened, giving up gains yesterday to fail at the 21-day EMA. Gold was firmer, recovering $1,900 on the weaker greenback. BRICS summit kicks off today – gold-back currency to disrupt the dollar...?! Trump says he will surrender to Georgia authorities on Thursday but still seems dominant in the polls for taking the Republican nomination. 

  

Deals Today 

Ubisoft rallied 6% as Microsoft said takeover target Activision would sell its non-European streaming rights to the French firm. The move came as MSFT resubmitted its merger agreement in a bid to clear UK regulators. Meanwhile Arm has published its Nasdaq listing prospectus, with a valuation of around $60-$70bn. Tricky one...revenues were down 1% last year and 2.5% last quarter, whilst earnings fell 53% last quarter. Guess the idea is to ride this year’s surprise AI hype and try to gloss over the decline in revenues... Masa is probably a bit optimistic with his valuation here though. 

  

Dollar Doldrums; Approaching Danger for Yen? 

Higher Treasury yields failed to lift the dollar out of its slide, but this may just be a temporary pullback. The 10yr hit a fresh 16-year high at 4.336% overnight. Yields on 10yr inflation-protected TIPS topped 2% to the highest since 2009. Japan’s 10yr rate also hit a 9-year high overnight as pressure bubbles up across the fixed income spectrum. Market participants were clearly looking at Japan’s core inflation reading, which was hotter than expected at 3.3% for the BoJ CPI reading vs the forecast 2.9%, and above the previous month’s 3.0%.   

The yen made up some ground against a broadly softer dollar, with USDJPY back to 145.80 from 146.40 yesterday as it wrestles with the 23.6% retracement. BoJ governor Ueda met the PM but said no discussion on exchange rate volatility took place...but the 146 area is certainly getting towards the intervention zone. 

 

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Dixie turned softer with failure on the 200-day – looking for whether this is confirmed at the close.

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