Declines accelerate, and the world lights up three red warning lights

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On Thursday, the tense atmosphere in global markets intensified:

- Oil prices saw a breakthrough surge, with U.S. crude oil stations/benchmarks rising above $90;

- The yield on 10-year U.S. Treasuries launched an attack toward the 4.7% level, while the U.S. Dollar Index held steadily above 101—especially noteworthy is that over the past 10 years, when the 10-year Treasury yield hovered around the 4.66% level, Trump would affect the market by changing his own behavior, but this time it seems he did nothing;

- Gold and U.S. stock index futures accelerated their decline.

First, the three markets we are watching—U.S. crude oil, the U.S. dollar, and U.S. Treasury yields—have all broken through their warning lines. If it happens one at a time, the market can still digest it; but when all three appear together, it is easy for an “adjustment” to turn into “re-pricing.”

The market is facing three pressures at the same time: oil prices rising, pushing up inflation expectations; Treasury yields moving higher, compressing stock valuations; and the U.S. dollar strengthening, tightening global liquidity.

This is different from the recession panic of the past. During recession panic, oil prices usually fall, bonds rise, and yields move lower. Now it is oil prices rising, bonds falling, and yields rising—the market is not getting protection from rate cuts, but threats of rate hikes.

Second, the Federal Reserve meeting next week (the rate decision will be released at 2:00 a.m. Beijing time next Thursday) also becomes extremely awkward because of this. The probability the market assigned to a July rate hike had once risen to the edge of nearly 40% (the market no longer treats “holding steady” as a given). As the meeting approaches, the level of disagreement among market participants is so large that it is truly rare. The “no forward guidance” of the Volcker era is starting to work—the market has no script, so it can only revalue in real time based on oil prices and data.

Third, whether oil prices “hold above $90 at the close” today matters more than the intraday spike to new highs. The most dangerous stage for oil prices is not the move from $70 to $80, but the shift from $90 to $100. Because once this stage begins, it forces the bond market and the Federal Reserve to re-do the accounting.

Fourth, tonight, what U.S. stocks really need to watch is the Nasdaq, not the Dow. If U.S. stocks only see the Dow fall, energy stocks rise, and financials hold up relatively well, that would still count as normal sector rotation. The real dividing line comes in the second half of the New York session. If U.S. crude holds $90, the 10-year U.S. Treasury yield stays above 4.7%, and the dollar remains above 101, it will be difficult for U.S. stocks to repair; the Nasdaq will continue to be the place under the most pressure, and gold will also be forced to continue bearing pressure.