- US Yields now look to be breaking out with much higher targets now in play. UK yields at 27-year highs.
- The USD likely benefits from the higher yields and softer equity picture
- The Equity market is now clearly more susceptible to this bond market move
- WTI looks set to continue higher likely further exacerbating this picture
- Gold is likely choppier as higher yields and a strong USD are not optimal but still looks constructive
- XBT trades like a risk asset - so trading closely to equities
If this continues it likely "breaks things" but for now this move has momentum
We have seen what can only be described as an impulsive break through the pivotal 4.845% level on the 30-year yield which suggests a danger of materially higher levels in the weeks ahead. While we still technically need to see a weekly close the reality is that we would likely need an awful employment report and a meltdown in Equities for that to happen.
The strong rise in JOLTS (+354k) is a November number and at the margin opens up the danger of a good NFP print for December on Friday.
The break of 4.845% is material as I have noted in recent pieces. It suggests that we have the "3rd strike" in the bearish fixed income picture that not only suggests we can revisit the highs at 5.18% but ultimately signals a move as high as 5.75%
On the 10-year yield we have a good level at 4.74% (equivalent of the 4.845% on the 30-year yield) with a break suggesting 5.02% and then 5.60%
Absent the market starting to think that the next Fed move could be a hike it will be virtually impossible for the 2-year yield to lead the way suggesting further curve steepening is also likely. The 2's 30's curve has taken out the first target at +55 to +60 bp's but the long-term target here is ultimately as high as +120 bp's
In the UK we have seen the 10-year yield break to new trend highs above 4.75% with no real levels of note now until 5.56%. We have also broken to new highs in the UK 30-year yield taking us to the highest levels since 1998.
FX
Sterling looks very susceptible on this as the yield move is not happening for good reasons. there is good support on GBPUSD at 1.2300 and below there, next support sits at 1.2037. EURGBP is pushing good resistance at .833 with a close above suggesting .8430-35 at a minimum.
This as EURUSD also looks soft. We have a 76.4% retracement level at 1.0201 and a break below there opens up for a move to .9950 to Parity
USDJPY likely goes higher with the yield move but may struggle to lead the way if equities are also under pressure. Nonetheless 160.17 and potentially 161.95 are the next levels to watch.
Given the tariff dynamic expect the CAD and MXN to remain under pressure also.
Equities
Pivotal levels on ESA (S&P) and NQA (NASDAQ) remain 5,866 and 21,006 respectively. Closes below these levels, if seen, would open up for extended losses.
Commodities
The bullish picture in WTI remains intact with an initial target of $76 and then an extended target of $78.50-$79.00. Such a move can only further fuel the yield dynamic at the moment.
Gold looks solid but higher yields, and a higher USD are not ideal parameters, so it likely remains choppy near term.
XBT trades like a risk asset again so in the near term may be more driven by the equity market.
IF we see the yield moves as noted above, I cannot help but feel that it "breaks things" and clearly the equity market is no longer immune but right now this move has momentum, and it will be hard to stand in front of the "oncoming train"
