Markets:
It was an important day in markets as the 5% dam in US 10-year rates finally made a clear break. The pressured started in Europe and continued in the US but what really tipped it was a very strong S&P Global PMI for the USA. The numbers suggest a quickening economy and rising prices once again. At minimum, it's led to the market pricing in a 65% chance of an October Fed hike but there are fears that the FOMC is behind the curve and that rates will need to go higher. With that, the market has priced in an additional 10 bps of rate hikes through 2027 and 94 additional basis points from here.
The US dollar soared with USD/JPY climbing 92 pips to 158.27, begging for intervention once again. There is a fundamental driver though so it could be throwing more good money after bad, particularly if it's fighting the Fed. The pain spilled over into equities with the Russell 2000 unsurprisingly lagging and falling 1.6% versus 0.8% for the S&P 500. Gold was also beaten up on competition against higher-yielding dollars.
Iran was less of a factor today but the market increasingly concluded that not much has changed. Iran reportedly floated the same conditions that the US previously agreed to in the MOU but the sources were suspect.
Overall, this had the feeling of a day where the Fed and Treasury were starting to lose control but it was only one data point, and not a particularly major one. There isn't much left to come this week with only initial jobless claims on Thursday and durable goods orders Friday so we could see a short-term cool-down. Expectations are low for the Trump-Xi meeting.
This article was written by Adam Button at investinglive.com.
Source: Investing Live - News
