The broader market mood is turning decidedly more defensive heading into the final trading day of the week. Oil prices are surging higher, equities are under pressure, precious metals are tumbling, and the global bond selloff continues to intensify. Crude oil is leading the move, with the July contract up $2.93 at $99.85, while the expiring June contract is trading at $103.99, up $2.82 ahead of its expiration next week. Meanwhile, gold is down sharply by $94 or -2.05% at $4,554, while silver has plunged $4.84 or -5.88%, underscoring the broader liquidation tone across markets.
At the same time, Treasury yields are racing higher across the curve as markets continue to reprice inflation and growth risks. The expectation is for a 60% chance for a Fed rate hike this year. The 10-year yield is up nearly 8.5 basis points at 4.547% — the highest level since May of last year — while the 2-year yield has climbed 6.6 basis points to 4.052%, firmly back above the key 4% threshold after trading as low as 3.70% in April. The bond market is increasingly signaling concern that inflation pressures may remain sticky, especially with energy prices surging higher again. The latest breakout in yields is now becoming too significant for equity markets to ignore after weeks of resilience in stocks despite rising rates.
US stock futures are reacting accordingly, with S&P 500 futures implying a decline of 72 points (now -92 points), Nasdaq futures down 394 points (whoops now -500 point), and Dow futures lower by 316 points in premarket trading. The stronger yield backdrop and rising risk aversion are also fueling another leg higher in the US dollar. EURUSD has fallen to a session low of 1.1618, while GBPUSD has slid to 1.3329. Sterling is facing an added headwind from mounting political uncertainty in the UK, as questions surrounding Prime Minister Keir Starmer’s future coincide with sharply higher gilt yields, delivering a double blow to the pound.
In the video above, I take a technical look at the three major currency pairs — EURUSD, USDJPY, and GBPUSD — and outline the key technical levels driving the trade. For the week, EURUSD is down -1.28%, GBPUSD has fallen -1.93%, while USDJPY is up 1.21%. The dollar is stronger against all the major currencies in a classic “risk-off” flow environment, with the commodity-linked AUD and NZD getting hit the hardest. In the morning snapshot, the percentage changes versus the dollar are: EUR -0.33%, JPY -0.14%, GBP -0.31%, CHF -0.31%, CAD -0.24%, AUD -0.97%, and NZD -1.15%.
Focus will return back to Iran where solutions are still unclear and seemingly not too near.
