Will the cost of money wipe out markets? What will the week bring?

Recent months have seen a very consistent increase in bond yields around the world. Ten-year US government debt securities approached the 5% level last week, which clearly worries market participants. This entire movement is taking place despite clear signals of the end of the monetary policy tightening cycle Fed.

Will the high cost of money lead to a decline in shares?

Analyzing the last several decades, it can be seen that the peak in the yield of long-term US government bonds usually occurred near the end of the Fed interest rate increase cycle. In the 90s, yields reached their maximum level two increases before the end of the cycle. At the same time, falling yields supported strong growth S & P500 index. The situation was different in the early XNUMXs, when the decline in bond yields that began with the last rate hike in the cycle led to a marked sell-off in the US stock market. In the case of the global financial crisis, the decline in yields even outpaced the strong declines on Wall Street. Will it be the same this time?

Despite quite clear signals about the end of the cycle of increases by the Federal Reserve, the macroeconomic data coming from the American economy are ambiguous. Last week, the key reading was the retail sales report, which was better than expected. However, oil prices are also important and have increased again in recent days due to the ambiguous situation in the Middle East. What's worse, high interest rates will burden the American budget for years to come. Debt service spending will almost certainly exceed U.S. military spending this decade. The most important thing for the markets at this point is whether the recession scenario will materialize. Will this happen?

In today's webinar:

• Will the cost of money exhaust the markets?
• What do macroeconomic data tell us?
• Will earnings season support buyers?

About the host

Dr Przemysław Kwiecień - Chief economist X-Trade Brokers. Doctor of Economics at the University of Warsaw, graduate of the University of Warsaw and London Metropolitan University (MSc). Holder of the prestigious CFA certificate. He has been working for XTB since 2007, previously he gained experience as an advisor to the Minister of Finance, Mirosław Gronicki, and an economist at Bank Millennium. At XTB, he manages the Analysis Department.

CFDs are complex instruments and involve a high risk of a quick loss of cash due to leverage. 76% of retail investor accounts record monetary losses as a result of trading CFDs with this CFD provider. Consider whether you understand how CFDs work and whether you can afford the high risk of losing your money.