The S&P 500 finished flat on Tuesday, the Dow slipped 216 points following a rise in US treasury yields and as investors reacted to comments from Federal Reserve officials.
5 and 2-year treasury auctions were weak triggering a bond selloff.
The Nasdaq 100 gained 0.3% closing at 18,869 for the first time, driven by a 7.1% surge in Nvidia’s shares.
The chipmaker's stocks surged above $1,140 following reports that Elon Musk's artificial intelligence startup, xAI, will utilise the chipmaker’s H100 graphics processing units.
ARM jumped 8.9%, and AMD rallied 3.1%, benefiting from the ongoing AI rally.
We get inflation data this week in Australia, Europe, Japan and the U.S. Following which, over the next three weeks, major central bank meetings are on the calendar.
The easing cycle has already started in Switzerland and Sweden. The European Central Bank is expected to follow next week, and there's about a coin flips chance of a cut coming from the Bank of Canada next Wednesday.
As for the Fed, the market is now pricing in a little less than one cut by year end. Again, this is the pendulum swinging from one extreme (as many as seven cuts projected earlier this year), to (now) less than one.
As we've discussed, the Fed tends to be more comfortable adjusting policy reactively, rather than proactively. What could put the Fed in the position of reactive easing?
Losing control of the bond market … we have a potential catalyst.
Closing arguments started yesterday in the Trump case in New York. If the political opponent to the President of the United States of America is jailed, that might be the final straw for the bond market and the dollar.
We could see capital flight from the historic global safe havens (U.S. Treasuries and the dollar).
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