Iran rejects U.S. war proposal, says no talks before conditions met
The S&P 500 finished flat on Wednesday, and there is not much to really say here, because literally nothing changed during the session, at least not from an equity market standpoint. Interest rates, on the other hand, rose sharply following the CPI report, with the 10-year climbing 7 bps to 4.23% and the 2-year rising 6 bps. The 2-year seems more interesting of the two at this point, only because of where it is and its relationship with oil over the past years.
The 2-year climbed above resistance at 3.65% and closed just above the 200-day moving average. A move back to 3.8% on the 2-year at least, based on the technical chart, seems like a real possibility.
The connection between rates, oil, and even the US dollar has been very strong in recent years, so if oil is going to be trading up to these higher levels, the more likely it is that rates will rise and US dollar will strengthen.
Meanwhile, oil continues to trend higher overall, with the 10-day exponential moving average acting as support and the upper Bollinger band as resistance. So for now, as long as oil stays above the 10-day, the higher trend will remain intact.
This is having many effects in the market that are not visible in the S&P 500. First off, HY credit spreads continue to widen, and second, cross-currency basis swaps have turned more negative, which tells a few things. Demand for dollar hedging is growing, liquidity flows have diminished, and financial conditions are tightening.
If this continues, the road to the equity market will not be fun.
