Investors continue to trade in a defensive manner with stock indices trading lower , the US dollar holding on to recent gains , and bond yields pushing higher. European markets are struggling with the Retail , Technology , Auto , and Luxury Goods sectors all in the red due to concerns that the Chinese economy will slow down and reduce demand.
The US PPI number came out at 0.2% for September as expected with the CPI number due out Thursday night to be closely watched as an indicator of future rate rises. Current indications are that the US Fed will raise interest rates in Dec of this year and then 4 times next year. This would give a cash rate around 3.25% and would imply a 10 year yield around 3.50%
Stock indices have struggled in the past week as bond yields have run up to 4 year highs and some analysts are talking about the need to slow the pace of interest rate rises.
In FX markets we have seen relative strength in the GBP as the Brexit negotiations draw to a close and it looks likely that a reasonable deal can be made. The US dollar has dropped in the past two sessions , but the overall trend continues to be higher as the US economy continues to be stronger than most countries.
Current US 10 year bond yields are at 3.22% and the market may consolidate in this new range between 3.00-3.25%. Watch for an increase in volatility and an extension down in stock indices.
Daily Chart - Nasdaq 100 Index - USNAS100.I - Set to fall to the 7100 level.