Oil prices and Treasury yields are both surging. Is the global financial market about to turn?
The market action is enough to make you break out in a cold sweat. The rise in international oil prices has widened to nearly 3%, while Treasury yields are even more startling: the 10-year yield has surged to 5.32%, and the 30-year yield has soared to 5.71%. Meanwhile, spot silver has fallen below $59, all three major U.S. stock index futures are down, and Nasdaq futures have dropped 0.4%.
This latest signal is extremely dangerous. Persistently rising oil prices are directly worsening inflation stickiness, while out-of-control Treasury yields show that the market’s tolerance for long-term funding costs is nearing its limit.
Global liquidity is being aggressively drained by high-yielding risk-free assets. Big investors are scrambling to buy government bonds for their high yields, and no one wants to stay in stocks or precious metals and take a gamble. Silver falling below a key level is the clearest reflection of this: the safe-haven appeal of precious metals has temporarily failed in the face of a sharp surge in risk-free rates.
This macro environment is decidedly unfriendly to risk assets. If yields continue to consolidate at elevated levels, pressure on U.S. stock valuations will intensify. The correction is definitely not over.
Going forward, keep a close eye on inflation data and policy signals. If liquidity pressures spill over into the real economy, the market could see a much larger bout of volatility at any moment. Don’t get carried away with trading lately; keeping a little more cash on hand for protection is the best move.
DYOR
$CL $BZ
The market action is enough to make you break out in a cold sweat. The rise in international oil prices has widened to nearly 3%, while Treasury yields are even more startling: the 10-year yield has surged to 5.32%, and the 30-year yield has soared to 5.71%. Meanwhile, spot silver has fallen below $59, all three major U.S. stock index futures are down, and Nasdaq futures have dropped 0.4%.
This latest signal is extremely dangerous. Persistently rising oil prices are directly worsening inflation stickiness, while out-of-control Treasury yields show that the market’s tolerance for long-term funding costs is nearing its limit.
Global liquidity is being aggressively drained by high-yielding risk-free assets. Big investors are scrambling to buy government bonds for their high yields, and no one wants to stay in stocks or precious metals and take a gamble. Silver falling below a key level is the clearest reflection of this: the safe-haven appeal of precious metals has temporarily failed in the face of a sharp surge in risk-free rates.
This macro environment is decidedly unfriendly to risk assets. If yields continue to consolidate at elevated levels, pressure on U.S. stock valuations will intensify. The correction is definitely not over.
Going forward, keep a close eye on inflation data and policy signals. If liquidity pressures spill over into the real economy, the market could see a much larger bout of volatility at any moment. Don’t get carried away with trading lately; keeping a little more cash on hand for protection is the best move.
DYOR
$CL $BZ