Friday, May 29, 2009

Markets Focused on U.S. Debt

As investors flee U.S. Treasuries and 10-year rates rise, we're seeing this morning breakout weakness in the U.S. dollar vs. the euro (top chart) and continued strength in gold (middle chart) and oil (bottom chart). Markets appear to be focused on the debt levels accumulating in the U.S., and they are expressing their lack of confidence in the greenback. It's difficult to imagine that rising rates and a shrinking dollar create an environment favorable for the long-term holding of U.S. equities.


SoundView said...

Yet the market seems poised to gap up this morning. Would you say the market stands a good chance of running higher in the face of such difficult fundamentals? Or is it more likely that we will see the gap up fail and continue to trade within the recent range?

Ron said...

Friday mornings typically gap up on the open and then sell off.

The Tranquil Trader said...

ever higher bond yields will be the ultimate killer in any greenshoots. There is no way that the housing market will stablise let alone recover if long term mortgage rates keeps on rising. However, could this higher yield environment coupled with the rapidly shrinking current account deficit be supportive of the dollar in the intermediate time horizon?