Quiver Quantitative - Equities and treasuries have been fluctuating as investors grow concerned about rising interest rates and soaring oil prices, with crude oil reaching a one-year high. The yield on the 10-year Treasury surpassed 4.6%, its highest since 2007, due to apprehensions about depleting crude reserves and increasing consumer pressures. The stock market showed some resilience after President Joe Biden emphasized the potential of artificial intelligence, boosting the Nasdaq 100 by 0.2%. However, the global benchmark, MSCI All Country World Index, experienced its ninth consecutive drop, marking its longest decline in twelve years.
The Federal Reserve's perceived hawkish stance and concerns about possible disruptions, including a potential shutdown that could lead to daily revenue losses of up to $1.9 billion and an autoworker strike, have further agitated traders. Minneapolis Fed President Neel Kashkari hinted that if these negative scenarios occur, the Fed might need to adjust its monetary policies to achieve its inflation targets. Market watchers are anticipating forthcoming remarks from Fed Chair Jerome Powell and other central bank officials, while also keeping an eye on the Fed's preferred inflation metric releasing on Friday.
The bond market is experiencing an inflection point, with Bob Michele, CIO for fixed income at JPMorgan Asset Management, suggesting that the market is transitioning from its previous lows towards a more normalized state. West Texas Intermediate crude's price briefly exceeded $94 a barrel, negatively impacting consumer confidence. This inflationary pressure is further evidenced by the dollar's six-day rally, its longest in a year. A significant options position held by a JPMorgan Chase (NYSE:JPM) & Co. equity fund might further intensify the U.S. stock selloff, as numerous protective put contracts are set to expire this Friday.
Additionally, the Federal Reserve Bank of New York indicated that bond investors' compensation for holding long-term debt turned positive for the first time since June 2021. This implies that traders are anticipating elevated policy rates. Given these conditions and anticipated events, experts suggest that market volatility could persist, possibly leading to more dramatic shifts in global financial markets.
This article was originally published on Quiver Quantitative