MOVE Index On the Move?

1.) YIELDS – IF, and this is a big IF right now…the US 10 YR Yield is going to back off some. This is the spot. Given the renewed inflation issues, even if it does back down some, I wouldn’t expect it to be much…but a reversal here toward 4.35% would also not be surprising. Here’s a longer-term picture of yields bumping up against their downward-sloping longer-term trend. The MOVE Index (bond volatility) has now spiked to 86 from last month’s low of 65, which is not ideal for a calm market. The next level of resistance for the MOVE is at 95. That would be elevated, but still would not be a level where bond volatility yells "fire." In fact, it could easily break down after tapping that area. But if volatility breaks out above 95, yields likely would move higher as well. Equity markets would not like bond volatility breaking out like it did at the end of Feb. Would that mean an end to the bull market? No, but it might make it a bit more bumpy as markets digest/correct.

2.) SENTIMENT – Lots of time and effort is expended trying to determine overall investor sentiment, and there are a lot of indicators that help you do that. Right now, most would believe that after a big rally like we had in April, sentiment would be euphoric and that markets are SURE to get whacked. Well, despite the blistering rally in US equities, risk sentiment remains neutral on the US Risk Sentiment Indicator, which suggests the rally could be durable as many investors have not actively participated. Is that to suggest that a correction can’t happen? Nope. In fact, given the Iran tensions, re-spiking oil and rates, the Nasdaq and broader markets have actually been correcting over the last couple of days. It’s just been fairly controlled and calm. That’s what we’d expect with the VIX in the teens, even though that feels a bit disconnected from the actual macro backdrop. VIX expiration hits tomorrow, so we could definitely see a short-term spike in volatility as hedges get adjusted.

3.) US DOLLAR – The US Dollar Index (DXY) has been strengthening lately as markets not only price out rate cuts but start to price in rate hikes. It is also strengthening simply as a safe haven amidst the geopolitical turmoil. Global demand for US Dollars is also quite strong as they are needed for debt repayments. We could see the DXY rally toward $100.33, where it would meet very strong resistance. Oil has a positive correlation with the DXY, and Gold has a negative correlation. What does that mean? If the Dollar rallies, it is a tailwind for Oil (bullish trend) and a headwind for Gold (bearish trend).