Bassanese Bites: A Truss moment? – June 03 2024
Global markets – week in review
Global stocks eased back for the 2nd week in a row, with a series of poorly received US bond auctions helping to push up bond yields and push down equity values.
Probably the main highlight last week was several US bond auctions which were met with tepid demand and placed upward pressure on global bond yields. Along with sticky inflation and geopolitical upheaval, concerns over the still-huge US budget deficit is a third – but so far less considered – risk to the global market outlook.
No one quite knows when and if America will face its “Truss moment”*, whereby markets start to demand a higher bond yield risk-premium due to mounting bond supply.
What we do know is if and when that day arrives, it would likely also cause ructions on Wall Street, with higher yields threatening economic growth and hence corporate earnings, but also currently elevated equity valuations. The Fed might try to stem the disruption by buying bonds (or engaging in some form of yield curve control), but this might only cause more market disquiet.
Also weighing on the US market last week was a surprise revenue downgrade by tech-darling Salesforce, which saw its share market value shed by a lazy 20%. It momentarily also knocked valuations among some of the Magnificent 7.
A few Fed speakers also chimed in, continuing to suggest a low risk of another US rate hike – though with the first possible rate cut not until later this year.
