US10Y: Key Moment for Stock Market

TVC:US10Y   US Government Bonds 10 YR Yield
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U.S. Treasury yields climbed on Wednesday after an unexpected rise in UK inflation last month and stronger-than-expected U.S. December retail sales data strengthened the case that interest rate cuts will not be as imminent as the market expects. The UK inflation print, as well as more push-back from European Central Bank officials on Wednesday against interest rate cut bets, pushed European bond yields higher. Treasury yields, which move inversely to prices, followed suit, with the uptick gaining momentum after Commerce Department data showing retail sales in December grew by 0.6% month on month, above the 0.4% economists had expected in a poll. Weak demand for a 20-year bond auction also helped lift yields later on Wednesday.

💡 "December retail sales reflect an economy that, although slowing, continues to be underpinned by consumer spending," said Quincy Krosby, chief global strategist for LPL Financial. "For the Federal Reserve, slower consumer demand would help propel inflation to decelerate at a faster pace; however, with consumer confidence gaining momentum, the economic landscape remains on solid ground," she said in a note.

🔴 The short-end of the yield curve, more closely linked to monetary policy expectations, led the move higher. Two-year yields rose about 13 basis points to 4.354%, their biggest daily increase in over a month. Benchmark 10-year yields US10Y added about four basis points to 4.104%, their highest since Dec. 13.

🔴 From a technical perspective, chart shows a bearish impulse structure forming, and this technical bounce could form the second corrective leg (wave 4) before another bearish swing (wave 5). That said, the key resistance is around 4.23, and a rally above it could invalidate the technical structure.

We correctly predicted the surge in inflation last year, but now the geopolitical context has become more complex:
(Click on chart below)

In conclusion, if this analysis is correct, Stock Markets (SP500, Russell, DJ,...) should see another rally with potential new High Top...

Trade with care
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🔴 U.S. Treasuries maintained a bearish bias on Friday as the market digested a string of solid economic data and braced for the prospect of interest rate cuts not being as imminent as many had hoped. Treasury yields, which move inversely to prices, have been rising over the past few days as central bank officials pushed back against market expectations of a quick shift to lower rates. Data this week has also showed that U.S. economic activity remains resilient despite interest rates at their highest level in decades, which suggests Federal Reserve policymakers will not rush to a more accommodative policy stance.
U.S. consumer sentiment improved in January to the highest level since the summer of 2021 amid optimism over the outlook for inflation and household incomes, the University of Michigan's survey of consumer sentiment showed on Friday. The survey's reading of one-year inflation expectations fell to 2.9% this month from 3.1% in December. Its five-year inflation outlook slipped to 2.8% from 2.9% in the prior month.
🔴 Treasury yields rose on Tuesday as investors await economic growth and inflation data later in the week that could influence when the Federal Reserve decides to cut interest rates. The Treasury sold $60 billion in two-year notes at a high yield of 4.365% , in an auction that barely budged prices despite concerns of rising government debt issuance, which has led some investors to demand a higher risk premium. The yield on two-year notes (US2YT=RR), which reflects interest rate expectations, rose 0.4 basis points to 4.381 % after trading as high as 4.419%.
The Treasury has increased sales of two-year notes at auction from $57 billion in December and $54 billion in November. Another $61 billion of five-year notes will be sold on Wednesday and $41 billion of seven-year notes on Thursday. The likelihood policymakers cut rates in March has fallen to less than 50% from about a 75% probability a month ago after Fed officials last week pushed back on market expectations of up to 150 basis points of rates cuts this year. The recent bond rally might not have been priced for perfection, but it was anticipating a lot of good news and set up for disappointment, said Kevin Flanagan, head of fixed income strategy at WisdomTree in New York.

"Every week the Treasury market has been getting a little punch here, a little punch there, you know, trying to take some of the air out of that balloon," he said. "You had the pushback from the Fed last week. That played a big role in just resetting Treasury yields here in 2024."
Investors await the first estimate of gross domestic product for the fourth quarter on Thursday and the Personal Consumption Expenditures index (PCE) on inflation on Friday. The Treasury will issue a general financing estimate on Monday and details on any auction size increases on Jan. 31. The Treasury is likely to increase auction sizes across most maturities, with the exception of 20-year bonds, said Vail Hartman, U.S. rates strategist at BMO Capital Markets. The Treasury's refinancing estimate has gained greater focus since the government last July sparked a bond sell-off after announcing higher-than-expected borrowing needs for the third quarter.
"Who's going to buy all this Treasury debt?" said Tom Simons, money market economist at Jefferies in New York. "It's fair to expect that we're probably going to get some pushback on the supply side here through the end of the month."
📈 U.S. yields dropped sharply in November and December last year, helping shares to rally, on expectations that Federal Reserve rate cuts could come as soon as March, though they have risen this year as trades pared back bets. Economists mostly predict June for the first cut, but traders are pricing the risk of a March move at essentially a coin toss, according to CME Group's FedWatch Tool.
Friday data showed continued moderation in U.S. consumer inflation, which added to the narrative for Fed rate cuts in coming months but also suggested policy makers had little pressure to rush. The dollar and U.S. Treasury yields were in the middle of recent ranges on Monday, with the benchmark 10 year yield down nearly 6 bps at 4.101%..
Investors were also sensitive to geopolitical risks with oil rising after a Houthi missile attack caused a fire on a fuel tanker in the Red Sea and a drone attack killed three U.S. troops in Jordan.
📈 U.S. Treasury yields slid near three-week lows and the 10-year Treasury posted its largest daily loss since December on Wednesday after the Federal Reserve said it doesn't expect to cut interest rates until there is more evidence that inflation is moving lower. The Fed left benchmark rates unchanged in a rate decision that had been seen as a near-certainty by markets and followed the release of data earlier in the day showing signs of cooling in the labor market.
Investors' attention will now likely turn toward Friday's nonfarm payrolls report, which could influence whether the U.S. central bank cuts rates in March as futures markets currently expect. Yields briefly rose, indicating more selling pressure, after Fed Chair Jerome Powell appeared to take an interest rate cut in March off the table during his press conference, yet remained down for the day. Markets are now pricing in a 36% chance of a March rate cut, down from a 73% chance seen a month ago, according to CME's FedWatch Tool (FEDWATCH). At the same time, futures markets now reflect a nearly 90% chance of a rate cut in May.
Powell was "preserving some of that flexibility and he's still providing the direction that the Fed is going to be moving to (an) easing stance," said Keith Lerner, chief market strategist at Truist Wealth. "Markets were bouncing around a lot, but in general it's in line with expectations and not a major shift." The yield on 10-year Treasury notes was down 8 basis points at 3.977%. It fell 19.7 basis points during the month of January, posting its best monthly price performance since October 2023. Yields move in the opposite direction of prices.
The yield on the 30-year Treasury bond (US30YT=RR) was down 5.8 basis points at 4.220%. U.S. labor costs rose less than expected in the fourth quarter, leading to the smallest annual increase in two years, the Labor Department said. Private payrolls, meanwhile, increased by 107,000 jobs last month, the ADP National Employment Report showed on Wednesday. Economists polled by Reuters had forecast private payrolls rising by 145,000. Job growth for December was revised lower as well.
The U.S. Treasury Department said on Wednesday it plans to continue gradually raising coupon auction sizes through April, but beyond that it does not expect further increases for at least the next several quarters. The two-year (US2YT=RR) U.S. Treasury yield, which typically moves in step with interest rate expectations, was down 8.4 basis points at 4.275% and at one point was down 13.8 basis points, its largest daily loss since Jan. 12. During the month of January it rose 10.9 basis points, its biggest monthly gain since July 2023. A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes (US2US10=RR), seen as an indicator of economic expectations, was at -28.5 basis points. The curve steepened 6.2 basis points over the month of January, leaving it the least inverted since October.
📈 Harmonic Structure invalidation below 3.789% and Resistance Area around 3.96%:
📈 U.S. Treasury yields surged Friday after the closely watched nonfarm payrolls report showed a much stronger job market in January than investors anticipated, upending market expectations of imminent interest rate cuts by the Federal Reserve. Markets now expect the Federal Reserve to cut benchmark interest rates by 127 basis points by the end of the year, down sharply from more than 160 basis points in cuts expected at the start of January. The yield on 10-year Treasury notes was up 11.1 basis points to 3.974%, one day after reaching a new low for 2024 so far. The yield on the 30-year Treasury bond was up 7.3 basis points to 4.176%. The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, was up 17.6 basis points at 4.370%.
Nonfarm payrolls increased by 353,000 jobs last month, the Labor Department's Bureau of Labor Statistics said on Friday. Data for December was revised higher to show 333,000 jobs added instead of 216,000 as previously reported. Economists polled by Reuters had forecast payrolls increasing 180,000.

🔔 2024 Forex Long Term Analysis:
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By Anonymous Banker
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