The yield curve has inverted- what is it telling investors?

America’s recession alarm has sounded. The most watched part of the US yield curve – which plots the yields on different maturities of US government bonds – has briefly inverted for the first time since 2019.

In normal conditions, investors holding longer-duration bonds will demand higher yields than those holding shorter ones. But if markets think that interest rates in the future will be lower than they are now – eg, because a recession forces interest rate cuts – then the usual pattern can invert.

On Tuesday, yields on the two-year US Treasury note rose as high as 2.45%, a fraction above the 2.38% yield on the ten-year bond. Other parts of the curve, including the five-year to 30-year and the five-year to ten-year spreads, had already inverted, but the two-year to ten-year spread is the most closely watched. Previous inversions have predicted every US recession since the 1970s (although the curve has also sounded a few false alarms). The recessions usually follow between six to 24 months after the yield curve first inverts.

This time really could be different

Yield-curve inversion might not be what it was. Some argue that the 2019 inversion, which heralded the Covid-19 recession the following year, was a fluke. Markets don’t possess magical epidemiological foresight. Certainly, central-bank quantitative easing (QE) programmes have distorted the bond market in recent years, says Shuli Ren on Bloomberg. “The yield curve is getting flatter by design”.

The US Federal Reserve has begun to raise interest rates, with markets expecting a cumulative 2% hike by the end of the year. That raises the yield on short-term government debt (such as the two-year Treasury note). At the same time, “until early March the central bank was still buying longer-dated Treasuries”, which depresses their yields. Financiers are used to taking an inverted yield curve as a “signal of impending doom”, but it may just be that central bank meddling “has broken the most reliable barometer of recession risks”.

“The yield curve’s recession signal is distorted,” agrees Michael Contopoulos of Richard Bernstein Advisors. Take away the US central bank’s “massive purchases” of government bonds and the “ten-year yield would be closer to 3.70%”, considerably higher than the current two-year yield and far off inverted. As the Fed unwinds QE, there is scope for longer-dated yields to rise.

The end of negative yields

Regardless of the shape of the curve, government bond yields have been climbing (and prices falling) across the board. “The Bloomberg Global Aggregate bond market index has lost over 11% since its peak in January 2021,” says Robin Wigglesworth in the Financial Times. The index has “lost $2.4trn in value so far in 2022”, reckons Matthew Hornbach of Morgan Stanley. As it does so, debt that yields less than 0% is also becoming rarer. In 2020 there were $18trn in “sub-zero” bonds globally (ie, investors effectively paid some governments and firms to borrow). As yields have risen, that figure is down to $2.9trn today. The yield curve may be giving unclear signals, but another bond-market distortion is more visibly unwinding.

from Moneyweek RSS Feed https://moneyweek.com/investments/bonds/604653/the-yield-curve-has-inverted-what-is-it-telling-investors
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USDJPY H4 | Potential For A Rise

Type: Bullish BounceKey Levels:Resistance: 124.623Pivot: 121.237 Support: 119.813Preferred Case:On the H4, with price expected to bounce off the support of the stochastic indicator and moving above the ichimoku cloud, we have a bias that price will rise from our pivot at 121.237 in line with the 23.6% Fibonacci retracement from our 1st resistance at 124.623 in line with the horizontal swing high resistance.Alternative Scenario:Alternatively, price may break pivot structure and head for 1st support at 119.813 in line with the 50% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdjpy-h4-or-potential-for-a-rise"
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NZDUSD H4 Potential For Bullish Bounce

Type: Bullish BounceKey Levels:Resistance: 0.6997Pivot: 0.693Support: 0.6878Preferred Case:Price is near to the pivot level of 0.693 in line with 61.8% Fibonacci retracement and 61.8% Fibonacci projection. It can potentially rise towards the 1st resistance level of 0.6997 in line with 100% Fibonacci projection and -27.2% Fibonacci expansion. Our bullish bias is supported by price trading above the ichimoku cloud indicator.Alternative Scenario:Alternatively, price might drop to the 1st support level of 0.6878 in line with 100% Fibonacci projection, along with a graphical swing low support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/nzdusd-h4-potential-for-bullish-bounce"
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Soybeans Future (ZS1!), H1 Bearish Drop

Type: Bearish DropKey Levels:Resistance: 1679'4Pivot: 1667'4Support: 1623'6Preferred Case:With price expected to reverse off the Ichimoku resistance and the descending trend line, we see the potential for bearish drop from our Pivot level at 1667'4 in line 50% Fibonacci retracement towards our 1st support level at 1623'6 in line with the horizontal swing low support.Alternative Scenario:If price breaks out, it can potentially move towards our 1st resistance level at 1679'4 which is in line with 61.8% Fibonacci retracement and horizontal swing high resistance.Fundamentals:No major news.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/soybeans-future-zs1-h1-bearish-drop"
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Corn Futures (ZC1!), H1 Potential for Bearish Dip!

Type: Bearish DipKey Levels:Resistance: 746'6Pivot: 740'4Support: 732'2Preferred Case:We see the potential for further bearish continuation from our Pivot at 740'4 in line 50% Fibonacci retracement towards our 1st support at 732'2 in line with 50% Fibonacci retracement and 61.8% Fibonacci Projection . Our bearish bias is further supported by stochastic indicator where it is at resistance level.Alternative Scenario:Price might move towards the 1st resistance level of 746'6 in line with 78.6% Fibonacci retracement .Fundamentals:No major news.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/corn-futures-zc1-h1-potential-for-bearish-dip"
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Ligth crude oil Futures (CL1!), H4 Potential for Bearish Dip!

Type: Bearish DropKey Levels:Resistance: 108.74Pivot: 100.05Support: 94.45Preferred Case:Prices are consolidating in a triangular pattern. We see the potential for a dip from our pivot at 100.05 which is a graphical overlap and in line with an area of Fibonacci confluences towards our 1st support at 94.45 in line with 61.8% Fibonacci Projection.Alternative Scenario: Alternatively, price may break our pivot structure and head for 1st resistance at 108.74 which is a graphical swing high and in line with 50% Fibonacci retracement.Fundamentals:Biden Administration stated its intent to release around 1m bbl/day of oil from the SPR to ease the inflation situation in the country. As TA and FA are supporting conflicting news, we would ask investors to exercise prudence when trading the commodity

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/ligth-crude-oil-futures-cl1-h4-potential-for-bearish-dip"
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Silver Futures (SI!), H1 Potential For Bounce

Type: Bullish ReversalKey Levels:Resistance: 25.055Pivot: 24.670Support: 24.510Preferred Case:Prices have bounced off We see the potential for further bearish continuation from our Pivot at 24.670 which is a graphical swing low towards our 1st resistance at 25.055 in line with 61.8% Fibonacci retracement. Prices are trading above our Ichimoku cloud support, further supporting our bullish bias.Alternative Scenario:If prices were to reverse, they can potentially reach our 1st support at 24.510 which is in line with 61.8% Fibonacci retracement.Fundamentals:With inflation still being an issue in the west and stalemate circumstances in the Russo-Ukraine crisis, we might still expect bullish upside on the commodity.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/silver-futures-si-h1-potential-for-bounce"
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Gold Futures (GC!), H1 Potential For Reversal!

Type: Bullish ReversalKey Levels:Resistance: 1965.9Pivot: 1933.7Support: 1921.3Preferred Case:Prices have consolidated in an inverse head and shoulders pattern. We see the potential for a bounce from our Pivot at 1933.7 which is the break of the inverse head and shoulders neckline towards our 1st resistance at 1965.9 in line with 127.2% Fibonacci Projection . Our bullish bias is further supported prices trading above our Ichimoku clouds .Alternative Scenario:If prices were to reverse, they can potentially reach our 1st support at 1921.7 in line with 38.2% Fibonacci retracement .Fundamentals:With gradual settlement of war-negotiations, we might expect a slight bearish turn towards the precious metal.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/gold-futures-gc-h1-potential-for-reversal"
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USDCHF H4 | Potential For A Rise

Type: Bullish BounceKey Levels:Resistance: 0.92986Pivot: 0.92224Support: 0.91622Preferred Case:On the H4, with price expected to bounce off the support of the stochastics indicator and the descending channel, we have a bias that price will rise to our 1st resistance at 0.92986 in line with the 50% Fibonacci retracement from our pivot at 0.92224 in line with the horizontal overlap support and 127.2% Fibonacci extension.Alternative Scenario:Alternatively, price may break pivot structure and head for support at 0.91622 in line with the swing low support.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/usdchf-h4-or-potential-for-a-rise31"
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Daily Market Outlook, March 31, 2022

Daily Market Outlook, March 31, 2022 Overnight Headlines US Weighs Oil Release To Combat Inflation, Considering 1M Bpd, Totalling 180M Beijing Moves To Strengthen Moscow Ties In Wake Of Ukraine Invasion Ukrainian Negotiator: Side’s Will Resume Peace Talks Online On April 1 Britain's Spy Chief: Russian Soldiers Refused To Carry Out Orders In Ukraine Russia Plays Down Progress In Peace Talks, Intensifies Attacks In E. Ukraine China's Factory Activity Contracted On Covid Resurgence In March Japan's February Factory Output Rises For First Time In Three Months White House Plays Down Yield Curve Inversion As US Recession Indicator Biden May Invoke Defence Production Act For Electric Car Battery Metals Fed’s George: We Must Move Expeditiously To Neutral Funds Rate Euro Holds At One-Month High, Yen Set For Worst Month Since 2016 FCA Extends Crypto Registration Deadline For 12 Firms In U-Turn Japan's 10-Yr Bond Yield Rise After BoJ's Expanded Intervention Oil Prices Tumble More Than $5/Bbl As Biden Weighs Massive Release OPEC+ Technical Committee Replaces IEA With Wood Mackenzie, Rystad Germany Claims Putin Is Backing Off Demand For Ruble Gas Payments China Stocks Weaken On Manufacturing Data And US Shares FellThe Day Ahead Asian equity markets are mixed to lower as the first quarter draws to a close. Chinese stocks underperformed as the latest PMI surveys were weaker than expected. The manufacturing PMI fell to 49.5 and the non-manufacturing index declined to 48.4, both below the 50 growth/contraction level. Lockdown measures in parts of China to tackle Covid outbreaks will probably weigh further on the PMIs next month. Meanwhile, oil prices fell after reports that the US is considering releasing a million barrels a day from its strategic reserves. The Lloyds Business Barometer, released earlier today, showed a fall in UK business confidence of 11 points to 33% in March. It was the biggest one-month drop since the early days of the Covid 19 pandemic and brings confidence to an eight-month low, but it remains above the long-term average of 28%. The report also reveals that both pay and price inflation pressures are continuing to build, which will likely maintain the pressure for further interest rate increases by the BoE at least in the near term. Separately, the ONS revised up Q4 GDP growth to 1.3%q/q from 1.0%q/q. Consumer spending growth, however, was revised lower and the savings ratio fell. In Europe, further signs of rocketing inflation mainly due to accelerating energy costs will be in evidence today. Yesterday saw preliminary March CPI inflation estimates (EU-harmonised measures) for both Germany and Spain far exceeding consensus forecasts, with annual rates rising to 7.6% and 9.8% respectively. Earlier this morning, France reported an increase in its March annual inflation rate to 5.1%, also stronger than expected. Italy will reveal its data later this morning. It means that tomorrow’s Eurozone flash annual CPI estimate will be well above the original consensus forecast for 6.7% and probably higher than even our initial forecast for 7.3%. Although high inflation predominantly reflects imported costs, there will even intense discussions among ECB rate-setters whether to increase interest rates before the end of the year after the likely end to QE in Q3. The ECB’s Chief Economist Lane is scheduled to speak today. The US data focus today will be on personal spending figures and the PCE deflator (the Fed’s preferred inflation measure) for February, ahead of tomorrow’s labour market report. The PCE deflator is forecast to show annual inflation rising to 6.5%, a 40-year high providing further confirmation that near-term inflationary pressures remain intense. Consumer spending growth is expected to normalise to around 0.5% after a stellar outturn in January. Overall, a buoyant labour market is supportive of the consumer, but high inflation has weighed on sentiment.G10 FX Options Expiries for 10AM New York Cut(Hedging effect can often draw spot toward strikes pre expiry if nearby (P) Puts (C) Calls ) EUR/USD: 1.1000 (3.15BLN), 1.1050-60 (634M) 1.1070-80 (1.19BLN), 1.1100-05 (1.67BLN) 1.1110-15 (658M), 1.1120-25 (880M), 1.1130-35 (453M) 1.1150-60 (896M), 1.1175 (501M), 1.1195-05 (2.6BLN) 1.1230 (337M) USD/JPY: 121.60-70 (740M), 123.50 (455M) 124.00 (350M) GBP/USD: 1.3195-00 (693M) USD/CAD: 1.2500 (658M). AUD/USD: 0.7400 (500M) 0.7500 (1.73BLN), 0.7550 (579M), 0.7600 (445M)Technical & Trade ViewsEURUSD Bias: Bearish below 1.12 Bullish above Maintains firm tone in Asia as recovery extends EUR/USD opened +0.66% at 1.1158 as weak USD and short-covering underpinned After trading 1.1156, the EUR/USD extended its recovery to trade at 1.1185 Heading into the afternoon it is settling around 1.1165 EUR/USD trending higher with the 5, 10 & 21-day MAs in a bullish alignment Resistance is at the 55-day MA at 1.1197 and 61.8 of 1.1495/1.0806 at 1.1231 Support is at the 10-day MA at 1.1047 and break would ease upward pressure EUR/USD may consolidate gains ahead of EZ inflation data and US jobs on FridayGBPUSD Bias: Bearish below 1.3350 Bullish above. Busy end to Q1 – softer as EUR/GBP demand weighs -0.1% at the base of a 1.3125-1.3145 range with consistent strong flow EUR/GBP climbed 0.2% with very strong morning activity on D3 Brent -5% $108 - Biden plans largest ever oil reserve draw Should oil settle below $100 it would calm aggressive inflation expectations Charts; positive momentum studies - 5, 10 & 21 DMAs edge gently lower 21 day Bollinger bands contract - modest negative signals at familiar levels First major support is 1.3000 2022 low and 1.2990 lower 21 day Bolli band Asian 1.3145 high, then 1.3195/00 892 MLN strikes initial resistanceUSDJPY Bias: Bullish above 120 Bearish below USD/JPY steady in Asia after recent volatility, 121.83-122.45 EBS Repatriation and trade flows mostly done at fiscal year-end In gradual rise from 121.32 low yesterday, ascending 200-HMA 121.63 Resistance from 55/100-HMAs at 122.60/63, hourly Ichi cloud above Option expiries in area today - 121.60 $670 mln, 122.00-05 $305 mln US yields soggy, Treasury 10s @2.332%, 2s @2.286%, weighs on USD Nikkei off after open, recovers, now -0.2% @27,977 Some govt jaw-boning on FX but shrugged off Eyes turning to US jobs report out tomorrow, NFP +490k eyed Most JPY crosses mirror USD/JPY EUR/JPY bid with EUR/USD, Asia 136.03-84 EBS, above 134.90 low yesterdayAUDUSD Bias: Bullish above .7300 Bearish below Heavy tone as AUD – cross selling caps rallies AUD/USD opened unchanged at 0.7510 after AUD fell against EUR, JPY and NZD It fell to 0.7492 when USD/JPY gains led USD higher Buyers returned when Dalian iron ore jumped 4% and AUD/USD traded 0.7528 It fell quickly from the higher and is back below heading into the afternoon AUD/USD is struggling to rally as investors unwind long AUD/EUR and AUD/JPY Support is at the 10-day MA at 0.7482 and break would suggest top is forming Resistance is at the Oct high at 0.7555 and break would reenergize trend higher

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/daily-market-outlook-march-31-2022"
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Tesla Market Cap Returns to $1 Trillion

Tesla Inc. (TSLA) so far this week has gained 8.8% after the company announced it wanted to pay dividends in the form of additional shares by splitting its stock. The proposal has been approved by the company’s board and shareholders will vote at the annual meeting that has yet to be scheduled. If the stock split is approved, it will be the first stock split since the August 2020 five-for-one split made Tesla’s stock more affordable for employees and investors.

The electric car company, which debuted in 2010 at $17 per share, continues to be regarded by many critics as a failure, although it is currently trading above $1,000 per share. After the stock split in 2020, the stock price jumped 128%, increasing the market cap to $1 trillion once again and making the company the largest automaker in the US, after it dropped below $1 trillion in December 2021, following concerns that the stock’s valuation was inflated and due to the exercise of stock options by its CEO and co-founder Elon Musk. Tesla’s market capitalization dwarfs the total existing automaker sector, which includes Ford, GM and Volkswagen.

Its electric cars are among the most popular and the company has shipped nearly a million each year while increasing production in the US and Europe, despite competitors such as Ford and Rivian entering the market and giving consumers several new options.

The start of 2022 for Tesla hasn’t been great for investors who are seeing their holdings dwindle, as price action drops to test $710. This decline is part of a price correction near the 61.8% FR level, so traders anticipate buying opportunities around the price level there. Currently the price is near the resistance at 1115.43 and has the chance to move further to 1207.88 and peak at 1243.21.  There was more bad news on the announcement that Tesla’s factory in Shanghai would be closed for several days in light of the new lockdowns introduced in areas of China affected by the latest wave of COVID-19.

On the downside the 1000.00 level is a possibility that could be tested and price orders may indicate liquidity is in the area.

Click here to access our Economic Calendar

Ady Phangestu

Market Analyst

Disclaimer: This material is provided as a general marketing communication for information purposes only and does not constitute an independent investment research. Nothing in this communication contains, or should be considered as containing, an investment advice or an investment recommendation or a solicitation for the purpose of buying or selling of any financial instrument. All information provided is gathered from reputable sources and any information containing an indication of past performance is not a guarantee or reliable indicator of future performance. Users acknowledge that any investment in Leveraged Products is characterized by a certain degree of uncertainty and that any investment of this nature involves a high level of risk for which the users are solely responsible and liable. We assume no liability for any loss arising from any investment made based on the information provided in this communication. This communication must not be reproduced or further distribution.

from HF Analysis /324292/
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Copper Futures (HGK2022), H1 Bullish Bounce

Type: Bullish BounceKey Levels:Resistance: 4.8060Pivot: 4.7385Support: 4.7020Preferred Case:Price is near pivot level of 4.7385 in line with 50% Fibonacci retracement and 61.8% Fibonacci projection. Price can potentially bounce up to the 1st resistance level of 4.8060, in line with 100% Fibonacci projection and 127.2% Fibonacci extension, along with a graphical swing high resistance. Our bullish bias is further supported by price trading below the Ichimoku cloud indicator.Alternative Scenario:Price might continue to drop towards the 1st support level of 4.7020 in line with 61.8% Fibonacci projection.Fundamentals:No Major News

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/copper-futures-hgk2022-h1-bullish-bounce"
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Coffee Futures (KCK2022), H4 Bearish Dip

Type: Bearish DipKey Levels:Resistance: 219.25Pivot: 217.20Support: 212.45Preferred Case:We see the potential for bearish reversal from our Pivot level at 217.50 in line 23.6% Fibonacci retracement towards our 1st Support at 212.45 in line with 61.8% Fibonacci projection. Our bearish bias is supported by price trading below the Ichimoku cloud indicator.Alternative Scenario:If price continues to go up, it can potentially move towards our 1st Resistance level at 219.25 which is in line with 38.2% Fibonacci retracement.Fundamentals:No Major News.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/coffee-futures-kck2022-h4-bearish-dip"
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EURUSD, H4 | Potential for Bearish Reversal

Type: Bearish ReversalKey Levels:Resistance: 1.12191Pivot: 1.11375Support: 1.10394Preferred Case:We see the potential for a bearish reversal from our pivot level of 1.11375 in line with 61.8% Fibonacci projection and 50% Fibonacci retracement towards our 1st support at 1.10394 in line with 50% Fibonacci retracement and 61.8% Fibonacci projection. Our bearish bias is supported by the stochastic indicator where price is at resistance level.Alternative Scenario:Alternatively, price might continue to rise up to 1st resistance level of 1.12191 in line with 78.6% Fibonacci projection and 61.8% Fibonacci retracement.

from Tickmill Expert Blog - Forex Traders Blog https://www.tickmill.com/blog/eurusd-h4-or-potential-for-bearish-reversal30"
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