USD Rates: Risk wobbles as September kicks off
September has been historically volatile.
Group Research - Econs, Eugene Leow4 Sep 2024
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September has historically been a volatile month for asset classes and this time was no exception. As the US market opened, risk aversion took hold, driving the S&P 500 down by 2.1%, bull flattening the US Treasuries curve in the process. There is no obvious trigger to the shift in sentiment. While US ISM manufacturing continued its poor run (actual: 47.2, consensus: 47.5), this figure on its own is unlikely warrant such a large decline in yields or stocks. The 4% collapse in WTI prices overnight towards close to USD 70/bbl is also notable. Between an upcoming increase in OPEC+ supply in October and worries on global demand (particularly from China), price action has turned decisively pessimistic. 

Putting these together, US yields are pinned down by risk aversion and lower inflation expectations, pricing in more than 225bps of cuts out to 2026 and seeing average inflation of just 2.11% over the coming ten years. Market participants may also be skittish with the memory of the carry unwind (yen and tech stocks) in early August still fresh in everyone's mind. Amidst market tumult, Friday's labour market data (the last set before the Fed meets on 17-18 September) would still have considerable sway over the USD rates path. 

Eugene Leow

Senior Rates Strategist - G3 & Asia
[email protected]

 


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