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Bond market stress

Some decent eco data and consumer confidence numbers, plus a slew of comments from various Fed speakers, hit the US Treasury market and yields surged to fresh multi-year highs. Back to this good news is bad news for the market since it only provides ongoing cover for the Fed to keep on hiking until it all breaks. The 10yr Treasury yield rose above 4%. After some respite early doors on Tuesday the selling continued in the UK as gilts yields rose again to fresh multi-years highs across all tenors. The 30yr gilt yield jumped above 5% for the first time since 2002. The 10yr rose above 4.5%, and is ticking up now, whilst the 2yr has nudged close to 4.7%.

Stocks feel the heat

Stocks have slumped early Wednesday amid the bond carnage. The FTSE 100 declined as much as 2% before paring losses a touch with just about every stock in the red, whilst the FTSE declined also by 2%. Rate hike worries are the chief driver of the losses and it’s hard to see where you are supposed to hide – cash if you can get 4-5% on a 2yr gilt? I think a lot of people are clinging to equities because there just isn’t much else on offer, but they don’t want to be there.

 The DAX slid over 1.6% to below 12,000 after the German GfK consumer climate index fell to –42.5 in October, a huge fall from the –36.8% in September and another record low. ECB chief Lagarde said they’ll keep hiking in the coming meetings. Asian markets were lower with the Hang Seng off by more than three percent – more property market worries.

S&P 500 close to key level

Rising rates hit the US market as the S&P 500 made a fresh 2022 low and the Dow fell further into a bear market. The Nasdaq composite managed to eke out a 0.25% rise for the day, but remains down 33% from its highs whilst the S&P 500 is 24% below its peak. US markets are now facing technical breakdowns at some very key levels, with the S&P 500 at a YTD low and testing its 200-week moving average. Apple is down after ditching its planned iPhone boost due to lack of demand – about 7% of the market.

Dollar still strong

In FX, dollar strength remains the dominant force. GBPUSD slipped post the IMF comments, dropping back to the low 1.06 area. China’s yuan fell to its lowest since 2008. EURUSD made a fresh 20-year low at 0.9536. USDJPY is near its 24-year high at 144.

Oil soft

Brent futures are weaker in early trading, just a touch above the Monday low. Goldman on how it got its $140 target wrong: “What we failed to appreciate is the extent to which regional prices for commodities denominated in local currencies could diverge on a global basis.” Meanwhile reports yesterday pointed to Russia calling on OPEC+ to cut production by as much as 1m bpd. 

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