Financial markets are continuing in the path they've taken the past few days with US yields and the dollar still climbing, equities suffering and emerging markets looking like they're heading for trouble.
"The key events across markets was the US bond yields breaking higher, with the 10-year benchmark closing near 3.09%. One wonders if this is bad for the dollar in the longer run but for now the focus is on the advantage to the US in terms of yield advantage," says John J Hardy, Saxo’s Head of Forex Strategy.
For the moment though, he adds, this is very bad for emerging markets, given the greenback's status as the world's reserve currency. "When the US dollar goes up and when US yields go up too all of this EM exposure to dollar-denominated debt puts a lot of focus on these countries," Hardy says. The Turkish lira is especially exposed to systemic risk and the lira is plumbing new lows ahead of the June election there.
Meanwhile, Japan's GDP was very disappointing with "unbelievable nominal growth at a negative 0.4% QoQ" Hardy says. This economic contraction, he adds "will keep the Bank of Japan away from any move on policy," he adds.
A side effect of the dollar/US yield developments is that equities are "stuck in the mud", reports Peter Garnry, Saxo’s Head of Equity Strategy. The S&P futures index, for example, met pretty hard resistance and has been selling off since. Other hurdles for equities include North Korea's cancellation of scheduled talks with its southern neighbour and some fresh and disappointing macro news out of Europe.
Finally today, Althea Spinozzi, from Saxo’s bond trading desk, notes that the US 10-year yield was very close yesterday to 3.10%, with its highest intraday being 3.09%. "The US 30-yr to 2-yr spread widened up a little but we're nowhere near a steeper curve," she adds. In Europe, these's pain for the price of sovereigns too because of that fresh evidence of that the economy is slowing.
Q4 Outlook 2022: Winter is coming
- Winter is coming to the financial markets as central banks are tightening their grip. How spring will look is still a question.
European energy crisis: it will get worse before it gets betterThe winter in Europe will be tough, but whether the result is political chaos or sustainable, innovative solutions is still undecided.
A difficult and volatile quarter awaitsAs the year draws to an end, commodities continue to be at centre stage of the world with growth pockets political uncertainty.
The bright side: crises drive innovationThe positive spin on crises is that they come with solutions. It is worrisome that deglobalisation may be a response to this crisis.
Green transformation in China: renewable energy and beyondGoing green, China needs to span numerous energy sources to ensure stability, as every source comes with a challenge.
Asia: Intermittent solutions, but a faster renewable adoption curveAsian energy supply is being squeezed. This and the adoption of renewables may change the investment sentiment in the region.
FX: A Fed thaw needed to deliver a sustained USD turn lowerThe US Dollar can keep momentum when the Federal Reserve continues to tighten, leaving the rest to play to their drum.
Autumn can become ugly for equities and bond holders. Comfort for Dollar longsTechnical analysis suggests that equities could face a tough Q4 as could fixed income. US Dollar positions could provide some upside.
The next stock market sector to watch, with stocks going nuclearAs the world scrambles to find affordable, sustainable energy, nuclear is getting attention from politicians and investors alike.
The crypto space is getting cold when the hype disappearsCryptocurrencies face a winter of their own as retail investors and governments are asking tough questions.