Market Volatility Intensifies Ahead of Key Inflation Data
Trump’s Election Sparks Bond Yield Surge
Asian markets plummeted on Wednesday as a sharp spike in U.S. bond yields sent investors scrambling for cover ahead of crucial inflation data that could shape the pace of Federal Reserve policy easing. The market reopened after the Veterans Day holiday, triggering a jump in short-term Treasury yields to their highest level since late July. This, in turn, propelled the U.S. dollar to a three-month peak against the yen.
The Trump Effect: Higher Deficits and Inflation Fears
Donald Trump’s election victory last week has sparked expectations of lower taxes and higher tariffs, which could push up the fiscal deficit and increase government borrowing. Analysts believe this could fuel inflation, potentially impeding the path to lower Fed interest rates. While U.S. stocks initially rallied on Trump’s win, the rally stalled as bond yields rose.
A Tug-of-War Between Stocks and Bonds
“The Trump trade is all about deeper deficit spending,” notes Kyle Rodda, a senior financial markets analyst at Capital.com. “However, as we’ve seen in other market melt-ups, a tug-of-war eventually emerges between stocks and bonds, as higher risk-free rates strangle valuations.”
Cryptocurrency Optimism
Bitcoin, however, continued its upward trajectory, inching closer to its all-time high of $90,000. Markets are betting on Trump to usher in an easier regulatory environment, having pledged to make the United States “the crypto capital of the planet.” It last traded at around $88,195.
Commodities Weaken on China Concerns
Commodities took a hit as traders worried about the outlook for key consumer China, which stands to bear the brunt of Trump’s threatened trade tariffs. Stimulus announcements from Beijing have failed to stir much optimism over an economic revival.
Global Markets Take a Hit
Hong Kong’s Hang Seng slid 0.9%, while Japan’s Nikkei and South Korea’s Kospi sagged 1.1% and 1.2%, respectively. Australia’s stock benchmark fell 1.1% under the weight of commodity shares. U.S. S&P 500 futures also pointed about 0.1% lower following a 0.3% decline overnight.
Dollar Strengthens Against Yen
The dollar edged up to as high as 154.94 yen for the first time since July 30, putting the currency pair on the cusp of the 155 yen per dollar level that many market participants consider a trigger point for verbal intervention by Japanese authorities.
Fed Rate Cut Odds Slip
Traders currently lay 60% odds for the Fed to cut rates by a quarter point on Dec. 18, down from 77% a week earlier. A hot reading of the U.S. consumer price index (CPI) later in the day could see those odds reduced further.
Euro and Commodities Struggle
The euro changed hands at $1.0625, after dipping to $1.0595 overnight, a one-year trough. Copper prices slumped 2% to the lowest in two months, while crude oil continued to wallow near the lowest levels this month. Gold, however, attempted to find its feet, rising 0.4% to around $2,607 per ounce.
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