US close: stock collapse, higher Treasury yields, focus on the Fed and DCs

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Wall Street is at the midpoint of its first 5% decline since early May. The narrative behind today’s stock market weakness is part of a triple witchcraft, surging Treasury yields, COVID cases on the rise again in some states, and concerns about how the economy will respond to less stimulus and a potentially smaller-than-expected economic package.

The bond market liquidation could gain further momentum if the technical sell-off continues. The 10-year Treasury yield temporarily rose above the 100-day simple moving average. Investors expect Fed Chairman Powell to put in place a cut in November and maybe a few percentage points of rate hikes to move forward. While the steepening of the Treasury curve looks fairly sustained domestically, risks in Asian markets could see a flight to safety keeping demand for Treasuries strong.

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The main event in the coming negotiating week is the political decision of the FOMC. The two-day FOMC political meeting will likely be a reiteration that they are on the verge of shrinking before the end of the year. Economists will focus on the updated dot plot forecast to see if any members have advanced a rate hike through the end of 2022. Fed Chairman Powell could give clues that the cut will not be not fast, possibly indicating that the Fed won’t finish until next winter, meaning the rate hikes won’t happen until 2023. The economy appears to have survived the delta variant and the next two months of Stabilizing economic publications will pave the way for a reduction announcement in November.

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With monetary and fiscal stimulus starting to weaken, clarity on the size of the next economic package and will enter a crucial phase. President Biden has been unable to convince conservative Democrats of a $ 3.5 trillion budget and the talks will likely lead to a final price of between $ 1.5 billion and $ 2.0 billion. Some traders will pay close attention to upcoming tax increases and determine if they are retroactive to the start of the year or if they go into effect in September.

This article is for general informational purposes only. It is not an investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not for everyone. You could lose all of your deposited funds.

With over 20 years of trading experience, Ed Moya is a senior market analyst at OANDA, producing late-breaking cross-market analysis, covering geopolitical events, central bank policies and market reaction to company news. . His particular expertise spans a wide range of asset classes including currencies, commodities, fixed income, stocks and cryptocurrencies. During his career, Ed has worked with some of the leading currency brokers, research teams and information services on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently, he worked with TradeTheNews.com, where he provided market analysis on economic data and business news. Based in New York City, Ed is a regular guest on several major financial TV stations including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His opinions are endorsed by the world’s most renowned global news agencies including Reuters, Bloomberg and Associated Press, and he is regularly cited in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.

Ed Moya
Ed Moya


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