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Bond Market Sell-off Rocks Stocks

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Websim is the retail division of Intermonte, the primary intermediary of the Italian stock exchange for institutional investors. Leverage Shares often features in its speculative analysis based on macros/fundamentals. However, the information is published in Italian. To provide better information for our non-Italian investors, we bring to you a quick translation of the analysis they present to Italian retail investors. To ensure rapid delivery, text in the charts will not be translated. The views expressed here are of Websim. Leverage Shares in no way endorses these views. If you are unsure about the suitability of an investment, please seek financial advice. View the original at

The July 25-26 Federal Open Market Committee (FOMC) meeting minutes revealed that most Federal Reserve officials identified “significant” upside risks to inflation, which could require further rate hikes. Although upbeat data prompted the central bank to abandon its recession forecast, participants remained concerned that tightening financial conditions since the beginning of last year could have more substantial consequences than anticipated.

Policymakers hinted at the possibility of future interest rate increases to curb inflationary pressures, leading to a sell-off in stocks and a rise in Treasury yields. However, central bank officials were divided in regard to the necessity for additional rate hikes.

While the primary objective of the Federal Reserve to bring inflation down to its target of 2% remained unchanged, concerns among investors in regard to the course of interest rates persisted. While the central bank acknowledged the economy remains resilient and the labour market is still robust, it refrained from declaring victory over inflation.

The data-dependent stance of the Fed suggested that the upcoming September meeting remained pivotal, with the decision hinging on comprehensive data analysis. According to the FedWatch Tool the market sees just a 12% chance of a rate hike in September, and a 35% chance of a hike by November.

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Source: TradingView

Equity markets have been under selling pressure this week amid data underscoring sticky inflation and a robust economy, which raises fears of interest rates staying elevated for longer, despite investors largely expecting the Fed’s monetary tightening to be near its end.

The sell-off in equities was partially triggered by the surge in Treasury yields which hints that rate hikes could return later this year. Concerns about China’s economic slowdown and widening housing crisis quashed appetite for risk and added to the selling pressure.

The rise in bond yields has the ability to dent the strong rally from the beginning of the year. Also, August and September are the seasonally weakest months of the year for equities, raising further concerns the pull back could extend deeper.

Overall, this week’s market correction accelerated after Wednesday’s publication of the Federal Reserve meeting minutes, which suggested officials are considering tighter policy, slamming hopes that the central bank was done raising rates. Investors are expecting Fed chair Jerome Powell to deliver similar remarks at the Jackson Hole symposium next week.

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Sandeep Rao

Research

Sandeep joined Leverage Shares in September 2020. He leads research on existing and new product lines, asset classes, and strategies, with special emphasis on analysis of recent events and developments.

Sandeep has longstanding experience with financial markets. Starting with a Chicago-based hedge fund as a financial engineer, his career has spanned a variety of domains and organizations over a course of 8 years – from Barclays Capital’s Prime Services Division to (most recently) Nasdaq’s Index Research Team.

Sandeep holds an M.S. in Finance as well as an MBA from Illinois Institute of Technology Chicago.

Julian Manoilov

Marketing Lead

Julian joined Leverage Shares in 2018 as part of the company’s primary expansion in Eastern Europe. He is responsible for web content and raising brand awareness.

Julian has been academically involved with economics, psychology, sociology, European politics & linguistics. He has experience in business development and marketing through business ventures of his own.

For Julian, Leverage Shares is an innovator in the field of finance & fintech, and he always looks forward with excitement to share the next big news with investors in the UK & Europe.

Violeta Todorova

Senior Research

Violeta joined Leverage Shares in September 2022. She is responsible for conducting technical analysis, macro and equity research, providing valuable insights to help shape investment strategies for clients.

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Oktay Kavrak

Head of Communications and Strategy

Oktay joined Leverage Shares in late 2019. He is responsible for driving business growth by maintaining key relationships and developing sales activity across English-speaking markets.

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Oktay holds a BA in Finance & Accounting and a post-graduate certificate in Entrepreneurship from Babson College. He is also a CFA charterholder.

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