Market observation: the yield of US bonds hit 3%, and the dollar hit 104. Investors held their breath and waited for the guidance of the Federal Reserve

The market fully digests the expectation of interest rate hike in May

The interest rate resolution in May has a huge impact on the financial market. Since the interest rate hike of 25 basis points in March, the Federal Reserve has officially announced that it has entered the interest rate hike cycle, and the sudden military conflict between Russia and Ukraine has brought uncertainty to the U.S. and global economic recovery, especially the rise of crude oil, agricultural products and other bulk commodities, and global inflation is extremely severe.

On the one hand, members led by US Federal Reserve Chairman Powell believed that US inflation peaked within the year, on the other hand, they were prepared to continue tightening to suppress inflation, and even frankly supported a 50 basis point increase in interest rates in May. Investors were shocked, and strong tightening expectations suppressed the performance of stock markets and commodities, supporting the continued strengthening of US dollar and US bond yields.

Close to the meeting, the market has fully digested the expectation that the Federal Reserve will raise interest rates by 50 basis points and even start to shrink the table, which can be felt from the trend that the US dollar will not reach a new high after hitting 104, the yield of 10-year US bonds will stop at 3%, and the short-term decline of US stocks will stop. At the same time, the weak gold price also starts to rebound.

Obviously, the Fed's statement will determine the market volatility in the next stage.

Aftermarket conjecture

If the Fed still releases the words of accelerating tightening after raising interest rates by 50 basis points, it will arouse investors' bets on the FOMC meeting in June. The dollar will break through 104 and continue to break through the multi-year high. In the short term, it is expected to be 105, and in the medium term, it is expected to be 5 to 108, and the bull market in the US dollar will continue;

U.S. bond yields have a high probability of breaking through the 3% threshold, while U.S. stocks continue to weaken, driving risk sentiment to continue to tighten, and gold increases the risk of falling below $1800.

If the wording of inflation and tightening is significantly eased after the Federal Reserve raises interest rates by 50 basis points, the short-term market sentiment is likely to heat up again. The dollar falling below 103 will start a correction, and the risk of dropping 102-101 will increase, while the US stock market will start a sharp rebound.

It is worth noting that the remarks on the reduction of the table at this meeting are more important. The process of the Federal Reserve reducing its balance sheet will greatly affect the dollar liquidity in the financial market, and the risk assets represented by the stock market will be impacted.

In addition, we also need to pay attention to the performance of the 10-year US bond yield at the 3% level. In terms of historical performance, the yield of 10-year US Treasury bonds has been above 3%,

It will suppress the trend of U.S. stocks, because the rising bond yield will affect the financing cost of listed companies and inhibit the profit expectation of growth stocks.

This time, the Federal Reserve continued to strengthen its tightening expectations. The yield of 10-year US bonds exceeded 3% and the US stock market was sideways at an all-time high, which greatly increased the callback risk of US stocks and thus affected the global stock market. On the contrary, the US stock market is expected to continue to attract buyers to rebound, but it is unlikely to break the record high.

At present, the short-term market trend has entered the U.S. dollar sideways and non-U.S. rebound. Investors are waiting for the key guidance of the Federal Reserve. Traders should concentrate and wait for the opportunity to follow up the market trend in the next stage.