How will markets react to rising yield and dollar?

2023년 1월 20일

Moving averages can be applied to many things, from stocks and currencies to fitness measures and crop harvests. Here, the candles show US10Y is finding support off the 200ma, after making a significant decline. The 20ma (blue) and 50ma (dark blue) will indicate the yield's next trend as they separate.

The green line graph shows a serious decline in the U.S. dollar. As the orange short-term trendline shows, it may be ready to move a little higher.

The yield and dollar may not rise back to the highs, but they definitely can move up for a bounce in the near term. If the recent relationship continues, then this would create selling pressure for global and tech stocks while giving another lift to defensive sectors.

Here's a little-known fact to watch out for:
Starting in January, a new formula is being used to calculate CPI (consumer price index) data. The first release of this will be in February and the numbers are expected to increase relative to Dec. data. The new calculation will update spending weights annually (using one year's data) instead of biennally. Thus be alert to the possibility that markets react negatively to a high Jan. CPI, as the majority now think prices are coming down. On the flip side if CPI is in-line or lower even with the new formula, then markets will get quite a lift.

federalregister.gov/documents/2022/08/24/2022-17994/updating-spending-weights-annually-based-on-a-single-calendar-year-of-data