Rising Yields Deliver a Reality Check
Rising global bond yields have moved from a peripheral issue to centre stage this week, delivering a glaring reflection of the inflation outlook. The sight of the US 10-year Treasury yield crossing and holding above 4.5% has particularly caught the market’s attention, and it has continued to climb. This isn’t just an American story, with Japanese Government Bonds (JGBs), German Bunds, and UK Gilts all seeing yields move higher in tandem. Rising yields are serving as a sharp reality check, reminding investors that hotter inflation and the prospect of higher interest rates are no longer distant threats but instead are now knocking loudly on the doorstep. This is the latest obstacle risk assets must navigate in what has already been a complicated year to say the least.
While Trump’s pause on further strikes against Iran briefly opened a window for diplomatic efforts, both Brent and WTI have remained firmly anchored above $100. Shipping traffic in and around the Strait of Hormuz has been more stationary than free-flowing, and global oil stockpiles continue to deplete with every passing week of disruption. The longer this situation drags on without a proper resolution, the more structural the energy price problem becomes.
The inflationary tailwinds, combined with rising Treasury yields and elevated oil, have given the US Dollar a solid lift, pushing the DXY back above the 99 level. Last week’s hot US inflation prints are still fresh in traders’ minds, which has helped drive the USDJPY rate back into possible intervention territory, with the rate approaching the 160 level once again.
Gold continues to languish under this environment. With the market’s attention firmly fixed on rising yields, which do the non-yielding metal no favours, gold has been unable to mount any sustained recovery. It is now trading at the lower end of its recent range and may require fresh value-seeking buying to prevent further weakness, especially if oil, the Dollar, and yields remain on an upward trajectory. For gold. Support awaits at around $4420, with firmer support around $4290. On the top side, resistance is at $4680 and $4800.
US earnings season reaches a critical stage this week. We’re getting a tale of two economies, with Nvidia flying the flag for AI-driven tech optimism, while Walmart and Target tell us how the real economy and the average consumer are faring. Nvidia may well shoot the lights out again with its results, having exceeded expectations in 19 of the last 21 quarters. But recent earnings results from Nvidia have also shown that the stock is prone to being sold off sharply despite producing bumper numbers. Expectations are that we will get EPS (Earnings per share) in the $1.75 - $1.78 region, with revenue growth of nearly 80% year-over-year for fiscal Q1.
As rising yields and high oil prices sour the macro backdrop, Nvidia remains the market’s primary defence against a broader correction. However, with the stock priced to perfection, any execution misstep or conservative guidance tonight won't just hit the chip sector- it risks pulling the foundational support out from under the entire equity rally. Let’s see how the numbers from the tech behemoth pan out.
