The markets strongly consolidated this week in Europe (SXXR: -3.1%) and in the US (S&P500: -3.9%) because of the very fast rise in US 10Y interest rates which reached Friday 2.78% corresponding to a growth of nearly 40 bp since the beginning of the year. The decline affected all sectors, including those that are expected to benefit from rising rates such as financials, or defensive ones such as agribusiness and health.
The US 10-year Friday’s surge was triggered by January's good monthly US employment data, the US economy created 200,000 jobs against a consensus of 175,000. Meanwhile, the average hourly wage climbed 2,9% annual rate, against 2.6% for the consensus. This report shows that job creation is accelerating in the US, which has had an inflationary effect on wages and has caused long-term interest rates to rise, leading to renewed volatility and a fall in equity markets.
This week was also marked by the return of volatility on the markets with a VIX that reached again 15 for the first time since the summer of 2017.
Is the volatility back? ETN iPath VXX, weekly data :
On the currency front, the persistent weakness of the US dollar continued this week against major currencies, however, the strong surge in long-term rates could dampen the decline of the US dollar in the coming weeks. Strong profit-taking took place on commodities including oil, while gold did not benefit from the move because of more severe remarks by the FED which suggests a new monetary tightening at the March meeting
US long bonds under heavy pressure : iShares TLT, weekly data
Emerging countries have not escaped consolidation like India and China, which are consolidating heavily. The correction is expected to continue in the near term, as it is also due to bullish excesses and profit-taking justified by high valuations, although corporate earnings for Q417 are so far satisfactory.
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The markets strongly consolidated this week in Europe (SXXR: -3.1%) and in the US (S&P500: -3.9%) because of the very fast rise in US 10Y interest rates which reached Friday 2.78% corresponding to a growth of nearly 40 bp since the beginning of the year. The decline affected all sectors, including those that are expected to benefit from rising rates such as financials, or defensive ones such as agribusiness and health.
The US 10-year Friday’s surge was triggered by January's good monthly US employment data, the US economy created 200,000 jobs against a consensus of 175,000. Meanwhile, the average hourly wage climbed 2,9% annual rate, against 2.6% for the consensus. This report shows that job creation is accelerating in the US, which has had an inflationary effect on wages and has caused long-term interest rates to rise, leading to renewed volatility and a fall in equity markets.
This week was also marked by the return of volatility on the markets with a VIX that reached again 15 for the first time since the summer of 2017.
Is the volatility back? ETN iPath VXX, weekly data :
On the currency front, the persistent weakness of the US dollar continued this week against major currencies, however, the strong surge in long-term rates could dampen the decline of the US dollar in the coming weeks. Strong profit-taking took place on commodities including oil, while gold did not benefit from the move because of more severe remarks by the FED which suggests a new monetary tightening at the March meeting
US long bonds under heavy pressure : iShares TLT, weekly data
Emerging countries have not escaped consolidation like India and China, which are consolidating heavily. The correction is expected to continue in the near term, as it is also due to bullish excesses and profit-taking justified by high valuations, although corporate earnings for Q417 are so far satisfactory.