At this stage, U.S. markets will remain the key driver for global investors. The Dow Jones industrial average dropped for eight consecutive days heading into Monday; the longest losing streak since 2011, but nothing dramatic here given that the total declines are less than 2%. This selloff is obviously not a good sign, but it shows that investors are not yet in a stage of fear, but are somewhat on the defensive side.
Trust me, I'm just as tired of writing about the so-called "Trump Trade" as you are reading about it, but the fact remains that investors' perception of the 45th U.S. President's competence is one of the biggest factors driving global markets.
The one market that is on the move today is arguably the most important market of all: the U.S. Treasury market. There's an old trading axiom that the bond market attracts the "smartest" traders, so it's always worth monitoring closely. Based on what we're seeing in the benchmark 10-year bond yield, bond traders are showing signs of shifting into a more defensive posture.
Federal Reserve policymakers are putting markets on notice that the central bank's $4.5 trillion balance sheet is back on the agenda in an apparent effort to give investors time to prepare for changes rather than to signal any action is imminent.
The USH traded in a below-average 2-20 point weekly range and settled up 16-ticks on the week and down 10-ticks on the session at 152-09. As expected the Ten-year successfully ground higher and tested and rejected my upper weekly and key resistance targets at 125-02 and 125-10.
So much for limited losses last week as the Bond took out my lower weekly boundary projection (148-12/10). The USH finished the week near its low as the Bond posted a new contract low and contract low settlement.
After last week’s minor recovery the 30-year U.S. Treasury Bond extended its breakout from its 2.5-year lower Bull channel line (163-26) and plunged to extend its 4-month downmove to levels not seen since the beginning of the year. Last week the 10-year broke out from its month long slumber and narrow consolidation band to extended its 4-month downmove to a 0.618 retracement of the 2.5 year upmove and is within striking distance of its 2.5 year Bull trend line.