Sentiment deteriorates amid rising yields
28 September 2021
Tuesday brought continuous selling to equity indices while the US dollar strengthened.
EU indices were down circa 1% during the London session, while US benchmarks also lost ground, with the Nasdaq 100 index dropping below the 15,000 USD level again. The SP500 index was down half a percent.
Sentiment worsened notably as the bond market is seeing some repricing of rate expectations - traders now think the Fed will tighten monetary policy faster, mainly due to the soaring inflation. Therefore, the 10-year yield rose sharply and attacked the psychological resistance of 1.50%. As a result, the whole yield curve is moving north, indicating a broad selloff in bonds.
Rising US yields are generally bullish for the greenback, and the USD caught some bids, sending the EURUSD pair to fresh one-month lows below 1.17. The next crucial support lies at August lows of 1.1650, and if the euro drops below it, we could see another leg lower toward the 1.15 level.
From other news, the investment giant Goldman Sachs cut its forecast for China’s 2021 economic growth to 7.8% from 8.2% and for 2022 to 5.5%, citing issues at energy-intensive industries and concerns over managing stresses in the real estate market. Commodities and commodity-linked currencies were not happy about that and fell notably.
At the time of writing, gold is down half a percent, trading near six-week lows at 1,740 USD, while silver is more than 1% weaker, changing hands near 22.40 USD. Both precious metals look bearish, and we expect the decline to continue.
On the other hand, oil continues to ripe higher, supported by the ongoing energy crisis in the UK and EU. As a result, the WTI benchmark is up six days in a row, testing previous cycle highs near 76.50 USD.