Article published at 9 a.m. CT
JJ Kinahan is Senior Vice President, Head of Retail Expansion and Alternative Investment Products at Cboe Global Markets, Inc. (Cboe).
Key Takeaways:
- The Fed decision remains the main event this week
- Treasury yields hit levels not seen in 19 years
- Crude oil prices on the upswing again
Stocks are hugging the flat line as bond prices slump and crude oil prices continue their upward climb ahead of Wednesday’s Federal Reserve’s interest rate decision.
The 10-year Treasury yield, the primary U.S. benchmark for long-term borrowing costs such as mortgages and corporate bonds, climbed above 5% for its first time since 2007 and continues to hover at that level. Yields move opposite of prices as new investors demand more return for risky debt. The 10-year yield started the year at 4.2% and has stepped up as inflation worries have spiraled, crossing the key 5% level Monday. The 30-year is up slightly to 5.37%.
The markets are likely to be slow as investors stay cautious ahead of the Fed decision, the main event this week. The Dow Jones Industrial Average is off by 0.56%, while the S&P 500 Index is lower by 0.12% and the Nasdaq Composite is flat.
The Federal Open Market Committee’s (FOMC) two-day meeting begins today with a decision on the status of interest rates Wednesday afternoon. Pressure is building toward a 25-basis point hike as inflation fears continue to rise. The CME FedWatch tool is sitting at 92.7% in early trading, scaling notably above last week’s 60% range.
Many market watchers consider that level a sure indication that rates will rise to 3.75% to 4.0%, but the FOMC has the final word. No matter what happens, investors appear to be more focused on learning what the next steps might be. Moreover, the markets like certainty and the rate decision, whether it’s raised or not, will give direction.
WTI Crude Oil prices are hanging around the mid-$101-a-barrel range after hitting $103 earlier with oil shipments still blocked in the Strait of Hormuz and as traders assess the effect of weekend strikes on Saudi Arabia’s East-West pipeline.
At the same time, oil buffers are disappearing and reserves are depleting. Brent crude is trading higher in the $107-a-barrel range. As we’ve noted, every price jump at the pump impacts nearly everything as rising fuel costs for trucks, trains and buses are passed down to consumers.
Cryptocurrency stocks are falling as investors await today’s crucial Senate vote on the so-called Clarity Act, or the Digital Asset Market Clarity Act, aimed at defining a regulatory framework for the digital currency. As it stands now, the law would split oversight between the Securities and Exchange Commission and the Commodity Futures Trading Commission. The momentum behind the Clarity Act appears to have slowed in recent sessions, as critics complain the framework is too lenient on the industry, which includes Bitcoin as well as meme and other decentralized digital coins.
Shares of Circle are off 5.4% in early trading, while shares of Coinbase are falling 4.3%. MicroStrategy is off nearly 4% and Robinhood is down 2.7%.
Happy Trading!
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