Interest rate hikes are back on the radar at the Bank of Japan, for the first time in a decade, as the U.S. Federal Reserve's tightening cycle pushes global bond yields higher, heralding a new era for central banks retreating from post-crisis stimulus.
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.
Monday the USH should trade between possibly 150-24/20 and at least 152-03. If the upper level is broken the USH should test 152-25/28. If the lower level is broken the USH should test 150-08 or 150-00. The 10-year struggled to move higher (see last week Monday’s report) as the Note finished the week testing and holding above my lower weekly boundary projection at 124-20 (Dec contract).
In equities, developed markets are favored over emerging, cyclical sectors over defensive, banks are expected to benefit from steepening bond yield curves, while infrastructure spending could boost housing and construction stocks. That's the consensus. But what goes against that grain? Where might the wrinkles appear? And even within the broad consensus, are there any eye-catching forecasts or trade recommendations?
Last week the Bond tested and narrowly surpassed my maximum lower weekly and end of the year boundary targets at 153-24 and 152-17; Last week the Ten-year opened on its high and steadily sold-off as the Note shattered my lower weekly boundary targets (126-26 and 125-29).
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.
Before the election, there were dire predictions about a Donald Trump presidency may mean for the US stock market, with some prognosticators calling for a -7% (seven sigma!) drop on the first day. Those grim forecasts appeared on point on election night, when U.S. markets were halted limit down (-5%) at one point overnight.
Last week the Bond traded in an extremely narrow 2-08-point weekly range and posted an Inside Week and Inside Day Up as the Bond settled in the middle of the previous week’s range. The 10-year finished the week grinding higher and posted an Inside Week Up.