Market sentiment worsens on higher yield.

On Tuesday, all three major indices fell sharply on renewed fear of interest rate that is still capitulating equity markets. The Dow had its largest one-day plunge since March 22, while the S&P 500 is down by over 7% from the intraday high of July.

The Culprit – The Federal Reserve

Indeed, with the clear signal at its Jackson Hole meeting and recent FOMC conference, Uncle Powell had drilled the message in a slightly hawkish way that interest rate is to stay elevated for a prolonged period to tame inflation.

While the tighter monetary policy has not worked its way into the economy, given the still resilient economic data, they are likely to take effect soon due to the policy lag effect. The Fed also reminded investors that interest rate is unlikely to drop much next year, further complicating the soft landing narrative.

Treasury Yield and Vix on the March to New High

Earlier in the day, we saw treasury yield declining from its high but only to pare losses and reverse to an upward trend again. It does not help that Fed’s Kashkari released an essay indicating why the interest rate will have to remain high for a long period of time/

The market suffers from constipation from such an essay, given that he is known to be a more dovish member. Thus, the pivotal adds gravity to the determination of the Fed to kill inflation even if it means damaging the economy.

This brings us to the question: which of the two mandates of the Fed is most important? The job market or price stability? I bet you have an answer now. And the by-product: S&P 500 trading at a 3-month low.

What’s on the menu today?

1. 8.30 pm : Core Durable Goods Orders (Aug)
2. 10.30 pm : Crude Oil Inventories

It is 27 September, Wednesday , 8.50 am in Singapore and 8.50 pm in New York. We maintain our major positions and will navigate through this negative period return during this volatile period. Unless we have a soft print of inflation data on Friday and moderate GDP data on Thursday, we expect the sell-off to continue.

We hope you have a safe trading day.

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