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 CBOE Interest Rate 30-Year (TYX.I) & S&P 100 Index (OEX.I)

Last week’s “hawkish hold” from the Fed has sent shockwaves through world markets. Traded interest rates have soared in North America and Europe, with the US 10-year Treasury Note yield climbing toward 4.60%, its highest level since 2007. Rising yields and the prospect that central banks may keep rates higher for longer have also underpinned US Dollar strength, in turn weighing down other currencies along with commodities, bonds and equities.

Selling pressure has been widespread with nearly every major country ETF that we track on the SIACharts Markets > Indices page down more than 1% in the last week. The retreat has been broad-based with none of the eleven major industry groups tracked on the SIACharts Markets > Sectors page down more than 3% with only Energy falling less than 2%.

To no surprise, the interest rate sensitive sectors, Real Estate, Utilities, and Financials have been among the most severely impacted. A look across Sector ETF charts indicates a wide variety of groups have come under pressure including Banks, Regional Banks, Homebuilders, Aerospace, Semiconductors, Real Estate, Materials, Retailers, and Semiconductors.

Fed Chair Powell speaks later today giving him the opportunity to either double down or walk back last week’s comments. For investors, its like being stuck between a rock and a hard place as continued hawkishness could support further increases in treasury yields, but a dovish turn could raise questions about the health of the economy and the risk of a recession. It’s the turn of the month and the quarter, bringing a number of key economic indicators over the next ten days including: US Core PCE inflation tomorrow, Manufacturing PMI reports from around the world on Monday, Service PMI reports and US ADP Payrolls on Wednesday and finally US and Canadian employment reports plus wage inflation numbers next Friday.

Speaking of wages, Hollywood writers and studios came to a deal this week, of which the most notable item is the first significant restrictions on the use of AI, which has been a hot topic this year. Auto Workers and actors remain on the picket lines. US politicians are working on budget details trying to avoid a government shutdown, but we have all been down that road before. The start of the new quarter also brings confession season, so far it has been pretty quiet outside of the airline sector warnings from a few weeks ago.

In this edition of Equity Leaders Weekly, we look at the significant of the current breakout by treasury yields and their impact on US equity markets.

CBOE Interest Rate 30-Year (TYX.I)

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