Risk of U.S. 30 yr Treasury Yield hitting 5.30% is real

FOMC Latest Meeting and the Damage done:

1. Bullish Break out in U.S. 5yr, 10 yr, 30Yr treasury yields. 30 Yr yield could eventually hit 5.30-5.35%.

2. Golden Cross Formation on Dollar Index - expect 109.25 over coming months.

3. CHF strength is likely over. Use the USD-CHF rate differentials to your advantage.

4.Sayonara SPX bulls? Bearish Head & Shoulders pattern, similar to NDX 100 which we highlighted last week. 4190-4200 should be the first real test. A close below would open floodgates of forced selling towards 3800.

Risk of U.S. 30 yr Treasury Yield hitting 5.30% is real

In our 2nd Aug Note titled " Rates Higher for Longer", we had predicted 10 & 30 Yr UST yield to touch 4.34% and 4.425%. Subsequently, on 21st Aug we raised 30Y UST yield to 4.75%. After, Wednesday’s "Hawkish Pause" and subsequent move on the yields, we revisited the charts. In line with our earlier stated view 5 Yr, 10 Yr, 30 Yr yields have now broken above the neckline of rounding pattern. This is a bullish signal and we continue to foresee 30y move towards 4.75-4.80% over coming days/weeks. Those are the levels investors should start to add duration.

A word of caution here - we do not recommend investors to go all in, as and when above stated level on yields are reached (or rather I should say if we see those levels at all).

Why is that so? 2 reasons - Firstly from technical perspective, beyond the likely immediate 4.75-4.80%,  the 30 yr yields' rounding pattern breakout targets 5.30 - 5.35% in medium term. Now, what could really drive the yields that high? Its the potential Stagflation risk. With tight labour markets, wage pressures, potential energy super cycle feeding into inflation on one side and consumer spending taking a hit due to excess savings' depletion, higher interest rates, tighter lending conditions, restart of student loan repayment on the other hand - the stagflation risk looks real.

And if Federal reserve indeed whiffs stagflation risk, it would be forced to raise interest rates to the point where it severely harms the economic activity to bring down the inflation. There goes the soft-landing narrative. And this explains the U.S. equity market selling we witnessed after the FED meeting; something which we have been stating since start of Aug.

Break-out Chart : U.S. 30 yr Treasury Yields

U.S. 30 yr Treasury Yields - Short Term & Medium-term Targets

Global Stagflationary Outlook

Stagflation risks in U.S. have also risen as services sector has started to slow down alongside prolonged manufacturing downturn; while price pressures remain amidst sharp rise in Oil prices.

Golden Cross Formation on Dollar Index

50 DMA has crossed above 200 DMA, leading to bullish Golden Cross formation. A close above neckline at 105.90 is required for a sustained move higher towards 109.25 initially followed by 111.

CHF Strength is likely Over

Swiss headline CPI currently is at 1.6% and Core CPI is at 1.5% -- they have both come down consecutively since late February. Current, FED-SNB rate differential and potential widening of this spread should favor CHF weakness. We expect paid to crawl back up to 0.9360-0.9475 region.

SPX index closed the week below neckline of bearish Head & Shoulders Pattern.

Expect selling pressure to continue; 200 DMA and trend line support at 4190 - 4200 should be the first real test. A close below would open floodgates of forced selling towards 3800.

Best Regards,

Rauman Trehaan

Chief Investment Officer

Jupiter Wealth Advisors Limited - Regulated by the DFSA

Office 910, Liberty House, DIFC, PO Box 482045, Dubai, UAE

Mobile: +971 55 219 8090 |Office: +971 4 558 4099

Website: www.jupiter-wealth.com

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