Stocks Decline as Yields Keep Rising
06 April 2022
Tuesday brought a complete reversal of Monday's moves in US equity markets as investors sold equities due to rising yields, leading to a downbeat session on Wall Street.
On Tuesday, Federal Reserve Governor Lael Brainard said the central bank must shrink its balance sheet at a rapid pace and steadily raise interest rates to fight inflation. His remarks sent US yields to new cycle highs - the 10-year yield advanced above 2.6%, while the 2-year yield rose toward 2.6%.
At the same time, the 10-year US real yield jumped to new cyclical highs at -0.38%, the level last seen during the COVID crash in March 2020. Since gold and silver are usually tightly correlated to US real yields, they were sold off yesterday. Both metals trade with a risk premium due to the war in Ukraine, but it seems like the pressure from rising yields will undermine them further.
The Nasdaq 100 index failed at the 200-day moving average again and completely erased Monday's gains, posting a bearish reversal pattern, likely leading to further losses over the following days.
Later on Wednesday, the FOMC minutes from the March Fed meetings will be published, probably confirming the ongoing hawkish bias among the FOMC members. At its next meeting in April, the Fed is expected to deliver a 50bps rate hike as the central bank remains widely behind inflation.
Rising US yields and continuing hawkishness by central bankers led to another leg higher in the USD - pushing the EURUSD pair below 1.09 again, while the USDJPY pair advanced to 124. The GBPUSD pair also declined and will soon test the 1.30 level.