Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Yen And Tech Stocks Bleed As Yields March Higher

By XM Group (Trading Point )Market OverviewSep 28, 2021 05:28AM ET
www.investing.com/analysis/yen-and-tech-stocks-bleed-as-yields-march-higher-200603283
Yen And Tech Stocks Bleed As Yields March Higher
By XM Group (Trading Point )   |  Sep 28, 2021 05:28AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
  • Spike in bond yields plays havoc with yen and stocks
  • Oil cruises higher amid dual energy crises in Europe and China
  • Dollar firms, gold struggles, Powell testifies before Congress



Yields spike


The specter of rising interest rates has returned to haunt financial markets. The Fed breathed some life back into Treasury yields last week after it opened the door for a rate increase next year, and the rally has gone into overdrive this week thanks to some signs that inflation won’t cool anytime soon.

There are essentially two energy crises playing out simultaneously in Europe and China. In Europe it’s driven mostly by a natural gas shortage that is feeding into surging electricity prices, while in China a scarcity of coal has resulted in widespread power outages that have plagued heavy industry.
China’s power crunch threatens not only to kick the economy when it is already down, but also to ripple through global markets by exporting inflation abroad as manufacturers raise their prices to cope with the production fallout. With growing signs that inflation will be more persistent, investors have started demanding a higher return to hold bonds, hence the spike in yields.

When yields move higher, the assets that typically suffer the most damage are stocks with stretched valuations, the Japanese yen, and gold prices. That’s exactly where the hammer has fallen this time. The tech-heavy Nasdaq is under heavy pressure as future cash flows are worth less when a higher discount rate is used in valuation models. Gold held up surprisingly well but is unlikely to come out unscathed from an environment of rising real rates and a yield-powered dollar.

Oil tests multi-year highs

With coal and natural gas markets going berserk, it’s only natural that there would be positive spillover effects into crude oil as some producers switch to alternative energy sources. And since changes in oil prices correlate quite closely with changes in market-based inflation expectations, the fate of this rally could ultimately impact monetary policy too.

All eyes are now on OPEC. The cartel will meet next week and the sword hanging over oil prices is whether it will react to the unfolding energy crisis by opening its supply taps even wider. If not, panic-buying could kick into higher gear.

The Canadian dollar hasn’t capitalized much on rising oil prices as risk sentiment remains shaky and the US dollar has stood tall. That said, pairs like loonie/yen paint a much clearer picture of recent dynamics.

Dollar firms ahead of Powell testimony

The bounce in yields has re-energized the world’s reserve currency, which is currently testing its recent highs against the euro. Since the ECB isn’t expected to touch the interest rate button over the next few years, any rally in European yields tends to be limited, allowing US yields to rise faster and adding downward pressure to euro/dollar.

In other news, regional Fed presidents Rosengren and Kaplan both resigned their posts after a scandal that they were actively trading equities during the pandemic. While not illegal per-se, the optics weren’t good as there was a perception of conflicts of interest. Rosengren would have been an FOMC voter next year, so his replacement will be crucial.

As for today, there’s a heavy dose of speeches from central bankers, starting with ECB President Lagarde at 12:00 GMT. Then at 14:00 GMT, Fed Chairman Powell will testify before the Senate Banking Committee. He will most likely be grilled on inflation, the infrastructure packages the Democrats are working on and their impact on the US economy, as well as the debt ceiling drama.

The debt ceiling debate always attracts a lot of attention, but it almost never impacts markets. It’s mostly political theater - investors know a deal will come, sooner or later.

Yen And Tech Stocks Bleed As Yields March Higher
 

Related Articles

Yen And Tech Stocks Bleed As Yields March Higher

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email