In today’s Money Weekend…stocks have been ignoring the sharp rise in yields over the past month…a further jump could threaten the top of the long-term channel…perhaps the Aussie dollar is at the beginning of a sharp fall…and more…
We got some big news during the week when US Fed Governor, Lael Brainard, said on Tuesday that the central bank could start reducing its balance sheet as soon as May and would be doing so at ‘a rapid pace’.
She has been known as a dove, so hawkish words from her mouth raised many eyebrows. The long end of the US yield curve was dumped, and rates shot higher on the news.
Stocks have been ignoring the sharp rise in yields over the past month, but I reckon we aren’t far off seeing stocks take fright at a further jump.
In today’s ‘Closing Bell’ video, I show you the US 10-year bond yield chart and point out that yields are racing up into the top of the channel of the past four decades.
Over the past few months, I have been saying that rates would probably shoot straight to the 2.6–2.9% range. The yield on the US 10-year bond is currently 2.66%, and there are no signs that the rise in yields is over yet.
A further jump could threaten the top of the long-term channel and bring yields close to the high of the last major wave down in yields over the past few years, which sits at 3.25%.
I’ll eat my hat if US 10-year yields head above 3.25% and stocks are still trading near the all-time high.
The situation is potentially explosive if buying doesn’t come into the US 10-year bonds soon, so I think it’s worth your time to check out my ‘Closing Bell’ video below, where I explain the situation, and also look at the current bearish set-up on the weekly charts in the S&P 500.
I finish up the video by looking at the Australian dollar, which saw a large sell-off during the week.
The Aussie dollar has been flying on the back of strong commodity prices, but the interest rate differential to US rates is about to widen as the Fed chases down inflation and the RBA drags their feet for fear of toppling our overstretched housing market.
Perhaps the Aussie dollar is at the beginning of a sharp fall.
Check out my analysis in the ‘Closing Bell’ video below:
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Until next week,
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Murray Dawes,
Editor, Money Weekend
