Accelerated decline, three red lights lit up around the world

Source: Wall Street Intelligence Circle

Global markets saw heightened tension on Thursday:

- Oil prices made a breakthrough surge, with US crude rising above $90;

- The 10-year US Treasury yield is pushing toward the 4.7% level, while the US Dollar Index is firmly above 101—especially noteworthy is that in the past, when the 10-year yield approached 4.66%, Trump would often intervene to influence the market, but this time he seems to have done nothing;

- Gold and US equity futures accelerated their declines.

First, the three markets we are watching—US crude, the dollar, and Treasury yields—have all breached their warning lines, lighting up three red alerts at the same time. If only one does so, the market can absorb it; when all three move together, adjustment can quickly turn into “repricing.”

The market is facing three pressures at once: rising oil prices boost inflation expectations; higher Treasury yields suppress stock valuations; a stronger dollar tightens global liquidity.

This is different from past recession scares. In a recession panic, oil usually falls, bonds rise, and yields fall; now, oil is rising, bonds are falling, and yields are rising. The market isn’t getting the cushion of rate cuts, but rather the threat of hikes.

Second, next week’s Federal Reserve meeting (rate decision to be announced at 2:00am Thursday Beijing time) is therefore extremely awkward. The probability of a Fed rate hike in July has at one point approached 40% (markets no longer see a “pause” as a given). With the meeting approaching and such a rare divergence in the market, the “no forward guidance” approach from the Walsh era is making its mark—the market operates with no script and is forced to constantly reprice based on oil prices and real-time data.

Third, whether oil “closes firmly above $90” today is more important than any intraday spike. The most dangerous phase for oil is not the move from $70 to $80, but from $90 to $100. This is when the bond market and the Fed are forced to recalculate.

Fourth, tonight the real focus for US stocks should be the Nasdaq, not the Dow. If it’s just the Dow falling, energy stocks rising, and financials holding up, that’s a normal rotation. The true divide is in the late New York session. If US crude holds $90, the 10-year yield is above 4.7%, and the dollar remains above 101, US equities will have difficulty repairing and the Nasdaq will continue to face the greatest pressure—gold will also be forced to remain under pressure.