Turbulence Is Not Just Restricted to Equity Markets
Fixed income and other asset classes are receiving a daily jolt.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
It is hard to get a good handle on the markets these days with so much uncertainty creating all of this volatility. Remember, volatility simply means a widening of the range that is up and down.
Basically, we can expect to see sharp moves up and down, simultaneously or on back-to-back sessions. The rule of 16, as it relates to volatility, means that for every 16 in the VIX we should expect a 1% move. Double that to 32 and your get a 2% move expected, and so on.
So, these big moves of late should not come as a surprise, but they certainly are not comfortable. When is this going to end? Trying to time that is a futile exercise, but when there is more certainty the markets will have firmer footing.
One thing to note about the big moves in markets has been the swings in yield, specifically in fixed-income products. U.S. 10-Year Treasury yields are pushing up towards 4.5%, which seems to be a level Treasury officials don't want to see. Further, the dollar has been weaker while yields rise, and we can only point towards a seller in our midst. We won't speculate on who, but suffice to say Japan and China are the biggest holders of U.S. debt, and they recently were slapped with tariffs.
Friday morning it was announced that U.S. chipmakers that outsource manufacturing will be exempt from China's retaliatory tariffs (Reuters). This may give some relief to our semiconductor names, at least to stop the bleeding for a bit.
Meanwhile, China raised their tariffs overnight on the U.S. to 125% on all goods but said it would not go any higher. If this is a negotiating tool we will soon find out, but I suspect it is nothing more than retaliation.
The second inflation report is out, the Producer Price Index for March (PPI). The number was expected to come in a bit hotter than last month, 0.2% on the m/m headline, 3.3% y/y, while core was expected to be 0.3% m/m and 3.6% y/y. These numbers would be going in the wrong direction, but the actual number came in better than expected, m/m core -0.1%, but y/y 3.3% is still high (better than expected). The headline numbers were very good, m/m -0.4% while the y/y number was up 2.7%. Treasury yields are rising following these numbers.
