Bonds & Interest Rates

Japan’s Nikkei index tumbles 3% over US rate rise concerns

TOKYO — Japan’s benchmark Nikkei Stock Average dropped to a one-month low on Monday morning after indications that the U.S. Federal Reserve could move away from ultra-easy monetary policies sooner than expected.

The Nikkei index at one point fell over 1,000 points, or 3.5%, to reach its lowest level since May 20. The benchmark declined below the 28,000 mark with shares in 97% of the index’s 225 companies trading lower. The broader Topix index was down over 2% while the startup-heavy Mothers market fell 1.6%.

Tokyo’s fall tracks a retreat by Wall Street’s main indexes last week, with the Dow Jones Industrial Average declining over 500 points, or 1.6%, on Friday.

The sell-off in stocks accelerated after remarks from St. Louis Federal Reserve President James Bullard on Friday that an initial rate increase could happen in late 2022 as inflation risks rise.

Forecasts from the Federal Open Market Committee earlier last week suggested that its first post-pandemic interest rate hike could come in 2023.

Investors have reacted strongly to the possibility of rate rises sooner than has been expected. In March, the Fed had signaled there would be no rate hike until at least 2024…. CLICK for complete article

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My best short term trading week of the year

 

I’ve taken a lot of small losses this year, trying to fade what I thought was irrational bullish enthusiasm – so it felt good to cash in some winning tickets this week. I’ll tell you more about that in the Short Term Trading section below, but first:

Did we just have a classic Soros Inflection Point? Did the markets over-react?

The consensus view was that the Fed meeting would be a non-event. But since that meeting, the US Dollar has had its best week since March of last year, gold is down $100, the long bond had ripped higher, the yield curve has flattened with a vengeance, and the Dow has tumbled to a 3-month low. Not exactly a non-event.

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Why Oil Prices May Shoot 15% Higher

Supply constraints and a global economy rapidly rebounding from the debilitating COVID-19 pandemic lays the foundation for much higher oil prices, Goldman Sachs global head of commodities research Jeffrey Currie argues.

“Near term our highest conviction long is oil where we still see brent [crude oil] averaging $80/bbl this third quarter with potential spikes well above $80/bbl. Global demand likely rose to 97.0 million barrels a day in recent days from 95.0 million barrels a day just a few weeks ago as the U.S. passes the baton to Europe and emerging markets, where even India is beginning to show improvements,” Currie said in a new research note to clients on Friday.

To be sure, oil prices have had a bullish bias of late… CLICK for complete article

Norway Leads the Pack on Rate Hikes

Norway’s central bank has once again cemented itself as a hawkish outlier in the G10 policymaker arena. Norges Bank is now penciling in its first rate hike in September, and its rate projection indicates that may well be followed by another in December and March of next year. In total there are four hikes in by the end of next year, and another couple by the end of 2024.

In a sense none of this is too surprising. The Norges Bank had already been signaling at least one hike this year, and in effect the latest rate path just adds in one additional hike over what was in the March profile. The bounceback in Norwegian activity, coupled with slightly higher oil prices and a weaker NOK (relative to what the central bank says it would expect given energy price levels), all contributed to the higher rate path.

At this stage, there’s little reason to doubt that these rate hikes will materialize, barring further Covid-19 surprises. But does this tell us much about what other central banks might do? We suspect it doesn’t. Remember back in 2019, the Norges Bank hiked interest rates three times, while the Fed was busy cutting… CLICK for complete article and charts