The implications of stagflation (high inflation driving tighter monetary policy and a weakening economy) appear to be putting a squeeze and taking their toll on stocks, bonds and commodities again today.
From the inflation/monetary side, this week’s series of interest rate increases and hawkish comments from central bankers continues to impact trading across asset classes. Interest rate expectations continue to move upward across the curve.
The US 2-year treasury note yield is now trading above 4.2%, the US 5-year treasury note yield has broken out over 4.00% and the US 10-year treasury note yield has rallied up toward 3.75%, its highest level since 2010. Rising yields have ignited another rally for the US Dollar, which is up 2.4% against Bitcoin, 1.7% against the Pound, 1.4% against Gold, 1.0% against the Australian Dollar, 0.8% against the Euro and 0.2% against the Canadian Dollar.
Tightening monetary policy continues to put a headwind in front of equity markets. US index futures are down 1.1% to 1.3%, adding to yesterday’s US index losses of 0.3%-1.3% with the NASDAQ taking the biggest hit over both periods. In Europe today, the Dax is down 2.2% and the FTSE is down 1.9%.
From the economic side, today’s Flash PMI reports have shone a spotlight on a weakening global economy that could negatively impact corporate earnings and resource demand. For the most part, Flash Manufacturing and Flash Service PMI reports for Australia, Germany, France and the UK came in below 50 in contraction territory and/or worse than investors once again. The combination of weak economic news and a rising US Dollar has hammered commodities today with copper plunging 3.8%, and WTI crude oil dropping 2.9%.
There is more potential news to come that could impact trading heading toward the weekend. US Flash Manufacturing PMI (street 51.1) and Flash Service PMI (street 45.0) reports are due at 9:45 am EDT. Fed Chair Powell is speaking at 2:00 pm EDT.
