U.S. stocks and bonds both decline, gold and silver plunge sharply, and the probability of Federal Reserve rate hikes soars

Reporter丨Jin Shan Pang Huarwei

Editor丨Jiang Peixia

On March 20, all three major U.S. stock indexes fell sharply. The Nasdaq and the Dow dropped by more than 200 points. Large tech stocks and chip stocks broadly declined, and Chinese concept stocks plunged. (See details)

Spot gold briefly fell below 4,550 USD per ounce, and the latest was 4,573 USD per ounce, down 1.66%. Spot silver also briefly fell below 69 USD per ounce; the gains for the year were wiped out entirely. The latest decline narrowed, at 70 USD per ounce. Spot palladium was down more than 1.7% during the day, and was currently at 1,420 USD per ounce.

The U.S. Treasury market saw another wave of selling. Among them, the yield on 2-year U.S. Treasuries led the rise. The yield on 5-year U.S. Treasuries first broke above 4% since July last year. The yield on 10-year U.S. Treasuries rose to 4.39%, the highest level since August last year.

According to the latest report from Xinhua News Agency, Reuters on the 20th cited three U.S. officials as saying that the United States will deploy several thousand more troops to the Middle East.

In addition, multiple Federal Reserve officials made their latest remarks on the rate-cutting path. According to Securities Times, Fed Governor Bowman said she still expects the Fed to cut rates three times this year. Bowman said it is still too early to assess the impact brought by the Iran war, and she expects—thanks to the government’s supply-side spending—that the U.S. economy will grow strongly this year. She said she has not heard any news that companies are cutting jobs, but she remains concerned about the jobs market. Fed Governor Waller, meanwhile, said that due to oil prices rising, he had “urgently withdrawn” the rate-cutting ticket.

Contrary to the Fed officials’ stance, the market is betting that the Fed will raise rates this year. According to Caixin Global, traders believe the probability that the Fed will raise rates before October is 50%. Short-term interest rate futures prices show that the market expects the Fed is very likely to raise rates in December.

Gold could become a risk asset

According to 21st Century Business Herald, Li Chunyu, manager of the Rongzhi Investment FOF fund, said that affected by concerns about global stagflation expectations and tighter liquidity triggered by the geopolitical conflict in the Middle East, stocks, bonds, precious metals, and commodities have recently fallen in sync. With major markets in China, the U.S., and Europe dropping, U.S. and European bond yields rising, international gold prices swinging sharply, and a more than 6% plunge in a single week, commodities have also weakened—aside from energy and chemical sectors, industrial products and agricultural products, among others, have weakened. The synchronized decline across major asset classes means that for multi-asset strategies, this is tail risk—the most unfavorable market environment.

Yang Delong, chief economist at Qianhai Open-Source Fund, said: “The crisis from recent geopolitical conflict has led to a ‘double blow’ to both stocks and bonds—this time is different from before. The Middle East conflict would normally boost risk-aversion sentiment and push up gold. Instead, because the Strait of Hormuz was blocked, oil prices surged, rekindling U.S. inflation expectations, which caused the Fed to postpone the timeline for rate cuts, leading to gold falling.”

Liu Yong, fund manager in the Multi-Asset and Solutions Investment Department at China Europe Fund, analyzed that the core reasons the difficulty of multi-asset allocation has increased recently and that drawdowns have been larger are : under major narratives such as geopolitical conflicts, the AI narrative, and weakening dollar credit, the existing differences among global assets have been partially leveled**, and price movements are starting to converge.** Second, against the backdrop of falling bond market yields, heightened volatility in the equity market has also constrained the negative correlation between stocks and bonds, increasing the difficulty of allocation. In addition, traditional safe-haven products such as gold have weakened safe-haven capacity because of the excessive advance in prior gains and too much speculative capital; before experiencing a clear deleveraging, in the medium to long term they may even become risk assets. (See details)

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(Statement: The article is for reference only and does not constitute investment advice. Investors act at their own risk.)

Produced by丨21 Finance and Economics Client 21st Century Business Herald