US stocks, U.S. debt, and gold fell. What message was revealed by this anomaly?

Financial news website MarketWatch reported that when the stock market plunged, funds would normally flow into bonds and gold deemed safe haven. However, on the 15th, the US market experienced an abnormal phenomenon of falling stocks, bonds and gold prices. The US debt and gold prices even fell. To the low point of several months. What is the reason for this? What information does this reveal?

US stocks, U.S. debt, and gold prices fell on the 15th, and the U.S. dollar became the only safe haven for funds. (Reuters)

The three major indexes of the US stock market closed at the same time on the 15th, falling by 0.7% to 0.8%. Among them, the Dow Jones Industrial Average fell 193 points, and the gains for eight consecutive trading days prior to the interruption were also canceled.

But what is even more striking is that, as US stocks fell, gold futures also fell in June. According to FactSet, the single-day decline was the largest since December 2016. For the most hot futures contract, it dropped to The lowest price since December last year.

The 10-year U.S. government bond price fell simultaneously, and the opposite of the price trend to soared to the highest level in 2011. According to the WSJ Market Data Group, the 10-year yield rose to 3.093%, with a one-day increase in 2017. It was the largest since March 1.

Analysts said that the traditional safe haven is no longer “safe” because of the appreciation of the US dollar. B. Art Hogan, chief market strategist at Riley FBR, said: “The only place to hide is cash, because the dollar has appreciated.”

So why are stocks, bonds, and gold prices falling simultaneously?

Analysts pointed out that the main reason for the drop in stocks, bonds, and gold on the 15th was that the 10-year bond yield rose by 3% and the market was uneasy. At the same time, the economic report showed that retail sales grew for the second consecutive month in April, plus crude oil. Rising prices show that inflationary pressures may be enough to prompt the Federal Reserve to accelerate its rate hike.

Market participants have generally expected that the Fed will raise interest rates twice before the end of the year. Today, according to the CME Group, the interest rate futures market has increased its chances of raising interest rates three times before the end of the year, raising the probability of raising interest rates four times this year to 54%.

Higher interest rates mean that borrowing costs will also become more expensive and may force investors to reassess the value of the stock. In addition, higher yields may also attract more funds to evacuate the stock market and into the bond market.

On the other hand, higher interest rates will lower the non-stifling gold charm. As the dollar soars, the buying cost of dollar-denominated gold becomes more expensive, and it also weakens the attractiveness of gold investment.

Although the overall market outlook has changed little, Wall Street is in the midst of the normalization of the Fed’s monetary policy, and the central banks of other developed economies are also brewing and pursuing the end of the easing monetary program, and the United States’ economic expansion is close to the ninth. For the first time, this stage is considered as the “end of the boom cycle”, so the market is also more sensitive to any signs that the market conditions may be reversed.


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