Pro Perspectives 4/2/24





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April 02, 2024

We've started the second quarter of the year with a move up in global government bond yields, up in commodities prices, and down in stocks.
This start of the second quarter coincides with the beginning of the new fiscal year in Japan.  And as we've discussed in recent weeks, the Bank of Japan recently "began the end" of its role as the global liquidity backstop/support to Western world economies.
They raised rates, ending negative interest rates in Japan. 
They ended ETF purchases (exchange traded funds).  This was the Japanese central banks explicit involvement in, not just Japanese equity markets, but global equity markets — via ETFs. 
They ended yield curve control.  And by the design of that policy, in order to defend the upper limit of the 10-year Japanese government bond yield, they had the license to buy Japanese bonds in unlimited amounts (which pushed bond yields down). Those bonds were bought with freshly printed yen, which finds its way into foreign asset markets (like Western world government bond and stock markets).
With the above in mind, as we've also discussed in recent weeks, this move by the Bank of Japan may afford global central banks (led by the Fed) less leeway to hold rates too high, for too long — with the risk of global liquidity swinging in the direction of too tight (i.e. a liquidity shock). 
That (risk) includes the potential for rising government bond yields, which we are getting — the 10-year yield has jumped as much as 20 basis points to open the quarter …
The pop in rates is putting pressure on stocks.  And the S&P futures are testing this big trendline, after a 29% run-up from the late October lows (when Jerome Powell signaled the end of the tightening cycle) …
Add to this trendline test, yesterday the S&P futures put in a technical reversal signal (an outside day).  So did the Russell 2000.  So did the Dow.  And the German stock market (DAX futures) did the same today. 
So, this looks like a set up for some more weakness in stocks, as we head into this Friday's big jobs report.  Remember, the Fed is watching the job market "carefully" for "cracks" as a condition to start the easing cycle.  
Meanwhile, commodities are breaking out. 
Is it demand driven, given the outlook on the technology revolution? 
Or are commodities (finally) repricing against fiat currencies, now that the BOJ has signaled the final exit from the global central bank money printing era, which has delivered record (and unsustainable) global government debt.  
Maybe a bit of both. 
The chart below is silver.  We have a technical breakout.  It was up 4% today …  
We have a breakout in copper …
We have a breakout in crude oil …
And gold is making new record highs by the day.