Stocks Fall On Bond Market Jitters, Dollar Drags Gold Lower

April 25th, 2018 by

Despite ongoing struggles for equities, a persistent rally for the U.S. dollar sent gold prices down sharply Wednesday.

Spot gold hit a four-week low below $1,320 an ounce, losing 0.75% (-$10).

Losses were seen across the board for the precious metals.

The silver price was likewise down 0.9% (-16¢), falling to nearly $16.50/oz.

Platinum slid $15 (-1.6%) to $915/oz. Palladium was also down 0.8% (-$8) to about $960/oz.

10-Year Yield Crosses the 3.0% Threshold

Blue-chip stocks on Wall St tumbled on Tuesday due to concerns over rising bond yields and the related issues of higher interest rates and steeper borrowing costs.

The Dow Jones Industrial Average lost over 400 points, or -1.75%.

It was the fifth straight down trading day for the Dow. The DJIA and the S&P 500 are both negative year-to-date, although the Nasdaq has gained 1.5% so far this year.

Even with the bouts of volatility for stocks in February and March, U.S. equities are facing their longest losing streak thus far in 2018.

Action on Wall St was mixed on Wednesday morning.

Higher bond yields are also making Treasurys more competitive with corporate bonds, which are currently paying about a 2% dividend on average.

If interest rates—and thus borrowing costs—also trend higher, we should expect to see fewer stock buybacks, as well.

These are among the many reasons to believe this may be the top for the stock market this year.

Bond indices

In addition to the 10-year Treasury yield hitting 3.0% yesterday, the 2-year note is also at its highest yield since September, around 2.5%.

The 10-year T-note yield was up two basis points to 3.02% on Wednesday.

Government bonds also fell across the global markets.

Most analysts expect U.S. bond yields to remain range-bound through the rest of the year, however, due to relatively muted inflation in Japan and the eurozone.

Of course, the Treasury must continue to sell new bonds to help pay for the GOP tax cut.

After selling $32 billion worth of 2-year notes yesterday, the Treasury Department plans on auctioning $35 billion of 5-year bonds today and $29 billion of 7-year bonds tomorrow.

Dollar Rally Continues, Iran Deal In Peril

The U.S. dollar gained 0.4% to trade above 91.1 on the DXY index this morning. This is a 10-week high for the greenback.

The pound and yen each lost ground against the dollar. The euro fell below $1.22, down 0.4%.

Stocks in Europe followed Wall St lower, losing about 1%.

Shares were off only modestly in Asia overnight, although the Hang Seng index in Hong Kong dipped 1%.

While traders and institutional investors are fretting over a possible bear market in bonds, consumer confidence was on the rise in April.

Inflation fears related to rising oil prices have largely been held in check.

Crude oil was steady on Wednesday after falling sharply yesterday. Even economists at times seem confused about the supply and demand dynamics of oil’s recent rally.

Looking at the geopolitical landscape, just as strife between the U.S. (and its allies) and North Korea appears to be cooling, tensions with Iran are resurfacing.

Major European powers are intent on making changes to the Iran nuclear deal in order to sway President Trump away from pulling the plug on the multilateral pact.

 

The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.

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