Recently, the U.S. bond interest rates have risen, the stock market and the currency market then freaked out.
Recently, the U.S. stock market with the U.S. bond market selling pressure dance, the currency market is no exception. Wall Street strategists believe that unless the U.S. 10-year bond yield finally rose to 2%, otherwise the market will never have peace in the short term.
The U.S. 10-year bond yield rate rose above 1.6% on the 12th (Friday), as the U.S. bond yield rate jumped to make U.S. stocks relatively less attractive for investment, the stock market downward pressure, especially to the high-priced stocks bear the brunt, reflecting the market capital to pull out of growth stocks, including large-cap stocks, technology stocks, etc., into the boom cycle sensitive to value stocks and stocks. The Nasdaq Composite Index has now entered “correction” territory (down 10% from its previous peak), while the Dow Jones Industrial Average has reached new highs, reflecting this trend.
The financial website MarketWatch reported that Societe Generale (SocGen) global general economic strategist Kit Juckes wrote in a research note: “Unless the U.S. 10-year bond yield rises to 2%, there will be no peace.”
Juckes said, “The pattern is clear: stocks are going through a class rotation, not a correction, and the bond market is trying to find some new equilibrium amid a much improved economic outlook in the U.S. and elsewhere.”
He further explained: “As the colonial interest rates move higher, the dollar also rises strongly; when the colonial interest rates stabilize at some new level, the dollar falls back. Such a pattern may continue repeatedly until the bond finds a new equilibrium point. And according to the past tapering (quantitative easing) panic (taper tantrum) and the boom cycle of past examples, the bond market is unlikely to find an equilibrium point before the U.S. 10-year bond yield rises to 2%.”
Based on this reasoning, Jax said that since the dollar’s appreciation is driven by the climb in colonial interest rates, he is not in a hurry to fight this market wave. The U.S. dollar index (DXY), which tracks the dollar’s movement against a basket of six major currencies, rose 0.3% on the 12th, bringing the March gain so far to 0.9%.
He pointed out that the dollar against the yen, as well as the euro against the Swiss franc exchange rate is also affected by the higher U.S. bond yields. Usually the dollar against the yen exchange rate and the U.S. debt real (Inflation-adjusted) yield rate is more relevant, with the nominal interest rate correlation is smaller; the euro against the Swiss franc exchange rate is often with the nominal yield rate changes dance.
However, this year’s situation is: these four – the substance and the nominal U.S. bond yield, the dollar against the yen, and the euro against the Swiss franc – all like Siamese twins like up and down.
Jax said: “the U.S. bond yield rose, the euro against the Swiss franc and the dollar against the yen may also tend to rise, at least in this momentum is still strong when so. Assuming the U.S. 10-year bond yield rises in the next few weeks against 2%, based on a simple deduction, the dollar against the yen exchange rate may rise to 111, and the euro against the Swiss franc may rise to 0.96. Perhaps too simplistic, but now these trends are too strong, unstoppable in the short term.”
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