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Market News U.S. stocks suffered "Black Monday", do they continue to plummet, look for hints from there
U.S. stocks suffered "Black Monday", do they continue to plummet, look for hints from there
On September 20, the S&P 500 index just closed on its worst day since May. The U.S. stock market recorded its biggest decline in about four months. Investors' prospects of the Federal Reserve's underweight triggered a plunge in global stock markets. Bianco, president of Bianco Research, said that the next trend of the market has returned to a central theme: interest rates. The US Treasury bond market is currently being watched to find evidence to determine whether the sell-off will worsen or whether it is only a temporary phenomenon.
2021-09-21
10871
On Monday (September 20), the S&P 500 index just closed on its worst day since May. The U.S. stock market recorded its biggest decline in about four months. Investors' prospects for the Fed's code reduction triggered a plunge in global stock markets. The S&P 500 index fell 2.9% during the intraday session, the largest one-day decline since October 2020, and the closing decline narrowed to 1.7%. After the index rebounded from the closely watched moving average, traders once again bought on dips .
Bianco, president of Bianco Research, said that the next trend of the market has returned to a central theme: interest rates. The US Treasury bond market is currently being watched to find evidence to determine whether the sell-off will worsen or whether it is only a temporary phenomenon.
He believes that if such a correction occurs while interest rates remain sticky, and may even show an upward trend, I think this will be a red flag for investors. If the bond market behaves as you should expect, interest rates will fall in the next few days as stock prices fall, then I think you will breathe a sigh of relief because we may be entering a surrender period.
He added that the decline in government bond yields suggests that investors are turning to high-quality buying, which means that when the S&P 500 index is falling, investors are flocking to government bonds rather than the stock market. The US 10-year Treasury bond yield dropped to around 1.25%, which will give people a sense of relief.
On the other hand, if the 10-year Treasury bond yield rises to 1.38% or higher, he believes this means that investors are worried about "continuous inflation" and the Fed is forced to act faster than many people expected. Worries about the Fed's reduction in debt purchases have been lingering over Wall Street, even though the stock market has climbed to record highs.
U.S. Treasury bonds continued their overnight gains during the U.S. trading session on Monday, and the yields in the late trading session were close to the lows of the day. Traders start the hedging mode. Long-term U.S. Treasury bonds led the gains, with the yield curve reaching August 2020.
Long-term Treasury bonds may begin to receive additional support from month-end capital flows this week and next month. U.S. Treasuries outperformed European Treasuries, and German and British Treasuries rose by 2 basis points and 1 basis point respectively. Long-term swap spreads narrowed by 1.2 basis points, indicating that income flows are supporting U.S. Treasury bonds. As of 3 p.m. Eastern Time, the trading volume of US Treasury futures was roughly the same as the 10-day average, and long-term bond contract trading was the most active, 13% higher than the usual level.
U.S. interest rate strategists listed in the weekly report the possible reactions of the market to the results of the September 22nd Federal Open Market Committee (FOMC) resolution. Bank of America favors hedging interest rate downside risks, and Goldman Sachs recommends tactically short short-term bonds. The U.S. Treasury bears look forward to the decisive week, focusing on the possibility of the Fed’s underweight signal and the unexpected turn of the dot chart.
Although the Fed insists that the rise in inflation is temporary, Bianco believes there are signs that inflation may last longer. For example, without reopening components of the consumer price index, such as airline tickets and restaurants, inflation looks much higher. Excluding all the reopening, you still have an inflation rate of about 3.5%, which is too high for the Fed. If the market starts to believe that the inflation rate will remain around 3%, it may be higher or lower. This is unacceptable for 10-year Treasury bonds with a yield of 1.3%, and may cause real problems for the bond market.
At this week's meeting, the FOMC may give an "advance notice" on reducing the scale of debt purchases before the end of the year. Rabobank expects that the code reduction will be officially announced in November and officially launched in December. Powell may also provide an initial timetable for reductions, and the bank expects the reductions to be completed before the end of 2022.
The economic forecast will be extended to 2024, which means that the dot plot will include economic forecasts until 2024. At the same time, the bitmap may be increasingly inclined to raise interest rates for the first time before the end of 2022. Although Powell may repeat his argument and explain why inflation is "temporary", inflation expectations will tell us how long the "temporary" judged by the FOMC will last. Powell may reiterate that the end of debt reduction does not mean the beginning of interest rate hikes.
Bianco, president of Bianco Research, said that the next trend of the market has returned to a central theme: interest rates. The US Treasury bond market is currently being watched to find evidence to determine whether the sell-off will worsen or whether it is only a temporary phenomenon.
He believes that if such a correction occurs while interest rates remain sticky, and may even show an upward trend, I think this will be a red flag for investors. If the bond market behaves as you should expect, interest rates will fall in the next few days as stock prices fall, then I think you will breathe a sigh of relief because we may be entering a surrender period.
He added that the decline in government bond yields suggests that investors are turning to high-quality buying, which means that when the S&P 500 index is falling, investors are flocking to government bonds rather than the stock market. The US 10-year Treasury bond yield dropped to around 1.25%, which will give people a sense of relief.
On the other hand, if the 10-year Treasury bond yield rises to 1.38% or higher, he believes this means that investors are worried about "continuous inflation" and the Fed is forced to act faster than many people expected. Worries about the Fed's reduction in debt purchases have been lingering over Wall Street, even though the stock market has climbed to record highs.
U.S. Treasury bonds continued their overnight gains during the U.S. trading session on Monday, and the yields in the late trading session were close to the lows of the day. Traders start the hedging mode. Long-term U.S. Treasury bonds led the gains, with the yield curve reaching August 2020.
Long-term Treasury bonds may begin to receive additional support from month-end capital flows this week and next month. U.S. Treasuries outperformed European Treasuries, and German and British Treasuries rose by 2 basis points and 1 basis point respectively. Long-term swap spreads narrowed by 1.2 basis points, indicating that income flows are supporting U.S. Treasury bonds. As of 3 p.m. Eastern Time, the trading volume of US Treasury futures was roughly the same as the 10-day average, and long-term bond contract trading was the most active, 13% higher than the usual level.
U.S. interest rate strategists listed in the weekly report the possible reactions of the market to the results of the September 22nd Federal Open Market Committee (FOMC) resolution. Bank of America favors hedging interest rate downside risks, and Goldman Sachs recommends tactically short short-term bonds. The U.S. Treasury bears look forward to the decisive week, focusing on the possibility of the Fed’s underweight signal and the unexpected turn of the dot chart.
Although the Fed insists that the rise in inflation is temporary, Bianco believes there are signs that inflation may last longer. For example, without reopening components of the consumer price index, such as airline tickets and restaurants, inflation looks much higher. Excluding all the reopening, you still have an inflation rate of about 3.5%, which is too high for the Fed. If the market starts to believe that the inflation rate will remain around 3%, it may be higher or lower. This is unacceptable for 10-year Treasury bonds with a yield of 1.3%, and may cause real problems for the bond market.
The Fed may give an "advance notice" on reducing the scale of bond purchases before the end of the year
At this week's meeting, the FOMC may give an "advance notice" on reducing the scale of debt purchases before the end of the year. Rabobank expects that the code reduction will be officially announced in November and officially launched in December. Powell may also provide an initial timetable for reductions, and the bank expects the reductions to be completed before the end of 2022.
The economic forecast will be extended to 2024, which means that the dot plot will include economic forecasts until 2024. At the same time, the bitmap may be increasingly inclined to raise interest rates for the first time before the end of 2022. Although Powell may repeat his argument and explain why inflation is "temporary", inflation expectations will tell us how long the "temporary" judged by the FOMC will last. Powell may reiterate that the end of debt reduction does not mean the beginning of interest rate hikes.
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