Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

Bonds Whisper Caution as Stocks Stall, US Dollar Rises Ahead of PCE Data

Published 28/02/2024, 08:27
Updated 20/09/2023, 11:34

Stocks were flat again yesterday as the events the rest of the week get a bit more interesting, with GDP revisions today, PCE on Thursday, and ISM on Friday.

It seems clear that bond rates are waiting patiently for a signal or a reason to go higher. At this point, it seems like the 10-year will be heading sharply higher and potentially back to 5% or below 4%. However, I think 5% is more likely.US 10-Year Yield-Daily Chart

There is a lot of evidence to support the idea that rates go higher from here, oil being one of them.

Right now, oil is butting up against resistance at $79, and this is the fourth time oil has hit this level since the end of January. A break out could send oil back to the mid to upper $80s.

Crude Oil-Hourly Chart

Gasoline is another reason to think that rates go higher because gasoline appears to be heading higher based on its technicals.RBOB Gasoline Futures-4-Hour Chart

The Atlanta Fed GDPNow model suggests that nominal growth in the first quarter will be around 6%, suggesting that rates go higher.PCE Forecast

I would think then that the dollar would also move higher, with the DXY index pushing back to the 106 area.DXY-Daily Chart

The economic data and the fact that inflation is stuck around 3% will likely force the market to tighten financial conditions again.

Conditions will have to tighten because why should investors get paid a rate of interest that is insufficient given the growth and inflation outlook of the economy?

If the economy remains strong and rates rise, why shouldn’t the dollar appreciate?

If rates and the dollar appreciate, financial conditions will have to tighten unless high-yield investors accept smaller and smaller discounts on the added risk they have to take.

The corporate bond advance-decline line has already turned lower, likely because rates have turned higher, another divergence signal between stocks and just about everything else.SPX Market Breadth

But we can see what happens. Things get more interesting today.

Youtube Video:

Original Post

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.