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Senior Market Analyst
The Nasdaq plunged 5.5% and fell into correction territory, and safe-haven Treasuries are rallying as investors rotate out of tech stocks while falling oil prices ease inflation concerns. U.S. Treasury yields have dropped considerably from recent multi-decade peaks as both forces push in the same direction. The equity selloff supplies the safe-haven demand, and the slide in oil prices brings inflation concerns down. Together, they leave the Treasury rally resting on two separate drivers rather than one.
Fiona Cincotta, StoneX Senior Market Analyst, covers forex, equities, commodities and the macroeconomic themes that move U.S., UK and European markets. That coverage gives insight into how oil prices, the AI stock selloff and Federal Reserve rate expectations feed into U.S. Treasury yields.
Oil prices have fallen considerably on expectations that an escalation of the war in Iran is now less likely, adding a second driver to the decline in U.S. Treasury yields. The energy channel works in addition to the safe-haven move out of equities. "Obviously, that fall in prices brings inflationary concerns down, which also pulls those Treasury yields lower," Cincotta says. Safe-haven Treasuries are drawing support from energy markets as well as from the equity selloff, and oil now sits alongside tech stocks as a driver of the Treasury rally.
The Nasdaq plunged 5.5% and entered correction territory after Democratic control of Congress raised concerns over a slowing of the AI buildout, with the selloff starting in AI-related shares before broadening across the market. According to Cincotta, investors "rotated into safe haven Treasuries amid a major tech selloff" as they "assess the outlook following the Democratic win in the U.S. midterm elections" .
The U.S. nonfarm payrolls report, Federal Reserve rate hike expectations and the 10-year Treasury yield chart are the signals that show how the safe-haven Treasury rally is developing. Rate hike expectations, notably, show how much tightening markets still price, and the probability of a hike eased from 80% to 70% within a day. On the chart, the 10-year yield has "actually reached a really key support level", Cincotta says, with the multi-month rising trend line as the first marker, the 200 EMA below it and the 50 EMA above it.
--- Written by Frédéric Guétin, StoneX Media Producer
--- Expert: Fiona Cincotta, StoneX Senior Market Analyst
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Safe-haven Treasuries are drawing support from two directions, a tech selloff and a slide in oil prices. Lower oil eases inflation concerns, adding a second driver to the decline in U.S. Treasury yields.
November 6 – Volatility remains high on Wall Street this morning, as we add the monthly jobs report to the post-election market correction. The Nasdaq dropped sharply on Thursday amid a fear that the Democrats taking over Congress would create major challenges for tech companies – especially those involved with AI. It’s trying to bounce this morning, but the headlines over AI risks continue to flow. Today’s jobs report should help to redirect some of that focus momentarily, but the possibility of more volatility clearly remains with us. As such, the VIX – Wall Street’s “fear index” – is trading near 27 at this hour. My observation over the decades is that commodity assets struggle to sustain rallies when the VIX is above 30, unless that asset has a strong story of its own. The dollar index is trading near 102.3. Yields on 10-year Treasuries are trading near 4.86%, while yields on 2-year Treasuries are trading near 4.53%. WTI crude oil is trading near $91, while Brent trades near $98 per barrel. The grain and oilseed sector traded mixed overnight, with wheat posting double-digit losses, while corn and soybeans were either side of unchanged in early trade.
November 5 – Stock futures are pointing to a mixed open after yesterday’s surge higher, with the Dow Jones looking to add to yesterday’s 3% gain and potentially flirt with pushing to three-month highs, while the tech heavy Nasdaq is looking at a lower open as money rotates out of tech, and the S&P 500 is caught in the middle. The VIX remains notably lower than recent weeks, though up slightly from yesterday’s close, hanging near 16.8 at the time of writing. The dollar is rebounding from yesterday’s losses amid unexpectedly strong U.S. labor market data this morning, reinforcing hawkish Fed bets, as it trades near 101.65. Treasury yields are higher to start the day as well, with 2-year yields trading at 4.618%, 10-year yields at 4.909%, and 30-year yields at 5.288%. Crude oil is bouncing after incredibly sharp losses in recent days, with nearby WTI currently up 2% on the day to trade near $89.80 and nearby Brent up 2.6% to trade near $97.10. Meanwhile, the ags are higher at the break as they look to find a rebound of their own.
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