The recent announcements made by the US President regarding new levies have had a significant impact on the global financial markets. The introduction of a 10% global minimum levy and a 15% levy for countries with a trade surplus with the US has caused a correction in US stocks. Both the S&P 500 and Nasdaq have experienced a decline of more than 1% from their respective peaks.
The shift in overall macro sentiment can be attributed to the tighter than expected monetary policy in September. Following strong GDP data for the US and Jerome Powell’s press conference, there has been a shift in the probabilities of an interest rate hike in September. According to FEDwatchtoll, 60% of traders are betting on an interest rate range of 4.25-4.5%, highlighting the ambiguity surrounding inflation.
Yields of 30-year bonds in the US have stabilized at achieved levels, putting pressure on cyclical assets and prompting capital to flow back to safe havens. This has led to a rotation from speculative instruments back to the US dollar. In addition to the US dollar, the Japanese Yen has also gained strength, while other safe havens like the Swiss Franc have not shown resilience in today’s markets.
As we enter the last summer month of August, the markets are typically characterized by low volatility. However, unexpected geopolitical events could trigger volatility earlier than usual, as seen with the US President setting a deadline for the Russia-Ukraine conflict and pressuring India and China to impose more tariffs on oil purchases from Russia. This uncertainty has led to a rise in Crude oil prices in global energy markets.
Crude oil has climbed higher towards the peak of the Bollinger Bands, indicating a potential breakout. While the main trend is still downward, a mean-reversion trade back to the range could be a preferred option if the breakout is not sustained. Similarly, Gold has been pushed down by the retreating US dollar and tight yields of 30-year treasury bonds. However, the overall bullish trend may continue with a potential technical trigger for a spike to the downside.
Overall, the global financial markets are facing uncertainty and volatility due to geopolitical tensions and monetary policy changes. Investors should monitor key indicators and trends to make informed decisions in these challenging times.
