The recent spike in U.S. 30-Year bond yields reflects investor concerns over long-term debt sustainability and fiscal policy shifts. Rising 30-Year yields in other major economies point to a global aversion to long duration, not just a U.S.-specific issue.
Outlook
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Despite the dollar’s recent weakness, the structural advantages of deep and liquid US financial markets, its dominant role in trade invoicing and as a monetary anchor, are sustaining its primary reserve currency status.
The primary focus this coming week will remain on the bond market, with the Treasury auctions drawing significant attention. These auctions should fare better than last week’s poorly received 20-year auction.
The increasingly confrontational developments related to cross-border commerce have pushed all major equity benchmarks and sectors into the red, as well as the greenback.
With the labor market already in balance, tariff risks greatly diminished amid ongoing negotiations, and the Fed Funds rate still in moderately restrictive territory, we believe that the Fed should calibrate rates lower.
Stocks pushed higher on Monday as investors cheered weekend news that the US and China temporarily agreed to back off steep reciprocal tariffs
Stocks are climbing up again as this morning’s lighter-than-expected CPI print bolsters spirits following yesterday’s optimism sparked by tariff reprieves between Beijing and Washington.
Given the technical and fundamental backdrop, any initial gains could quickly fade, underscoring the importance of caution as markets navigate this significant technical and macroeconomic inflection point.
The prospects of tariffs continue to dominate investor anxiety. Effects from tariffs will be on consumers and corporations alike, with both likely sharing the brunt of higher prices.
The rally accelerated on Friday as a better-than-expected April jobs report eased some concerns about the economy’s strength.
April has been a struggle for the UK, with the country’s PMI Composite Index falling from 51.5 in the preceding month to 48.2. But even with dour consumer sentiment and a softening job market, UK growth could surprise to the upside.
Currencies of countries with the flexibility to implement fiscal or monetary stimulus in response to this shock are likely to outperform after the initial market turmoil.