Tag: Dollar Index

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Bond Market Deja Vu from 2022

Key Points

  • Investors are dumping long-term government bonds, with the yield on 30-year Treasuries rising to 5.13%.
  • Sovereign bonds across the UK, the EU, and Japan are all affected by the sell-off.
  • The S&P 500 and the Dow retreated on Friday by 1.2% and 1.1%, respectively.
  • Gold and silver fell steeply.
  • Copper, Lithium, Critical Materials, and Uranium are also experiencing a sell-off.
  • President Trump hinted at another major strike on Iran, with his Sunday “The Clock is Ticking” post on Truth Social.
  • Brent futures jumped to above $111 per barrel early Monday.

Investors are dumping long-term government bonds. The 30-year Treasury yield broke resistance at 5.0%, rising to 5.13% on Friday before easing slightly to 5.12% early Monday.

30-Year Treasury Yield

High bond yields, above the rate of inflation, increase the risk of a solvency crisis where the borrower can’t meet its interest payments. Issuing new debt to cover interest payments accelerates debt growth, causing debt-to-GDP to spiral out of control.

UK Gilts 30-year yield jumped to 5.85%.

30-Year UK Gilts Yield

The French 30-year climbed to 4.67%.

30-Year UK Gilts Yield

Italian 30-year yields are at 4.75%.

30-Year UK Gilts Yield

France and Italy have higher debt-to-GDP ratios than the UK. The primary reason they enjoy lower yields is that their long-term yields are suppressed. The Bank of England, on the other hand, is shrinking its balance sheet to restore fiscal stability.

The yield on the 30-year German Bund is even lower because of Germany’s strong fiscal position, with much lower debt levels.

30-Year German Bund Yield

The Japanese 30-year yield is shooting upwards. JGB yields should be much higher because of Japan’s precarious debt-to-GDP ratio. However, the Bank of Japan buys government bonds (JGBs) to suppress the yield and avoid a solvency crisis.

Adding to the selloff on Monday was news that Japan’s government will likely issue fresh debt as part of funding for a planned extra budget to cushion the economic blow from the war, worsening already strained government finances. Yields on ​the 30-year Japanese government bond (JGB) jumped more than 10 bps to their highest on record at 4.200% while the 10-year yield touched its highest since October 1996 ​at 2.800%. (Reuters)

The yield on the 30-year JGB has since weakened slightly to 4.10%.

30-Year JGB Yield

The chart below, by Robin Brooks, compares long-term government bond yields (on the left axis) to countries’ debt-to-GDP ratios (on the bottom axis). Yields in Japan (JP), Greece (GR), and Italy (IT) are being suppressed, while yields in Australia (AU), New Zealand (NZ), and the UK (GB) are higher due to more conservative central bank policies.

JGB Yield & Debt-to-GDP Ratio

Why are Long-term Yields Rising?

There are several overlapping reasons why long-term yields are rising:

Increased defense spending expands government deficits and raises debt-to-GDP ratios, increasing the risk of fiscal dominance.

Fiscal dominance is where the central bank prioritizes bond market stability over currency stability, lowering interest rates while tolerating higher inflation, to prevent a solvency crisis in the bond market.

The US-Iran conflict has caused oil shortages, driving crude oil prices higher. High oil prices are fueling a steep rise in inflation, increasing the risk of capital erosion for bond investors.

The US Fed has entered into a $100 billion currency swap agreement with the United Arab Emirates. The facility will help the UAE to survive the loss of oil revenues while the Strait of Hormuz is closed. Further currency swaps with other Gulf States will likely follow. The currency swaps are effectively a medium-term loan from the Fed, but risk becoming a standing facility if the conflict in the Gulf is not quickly resolved. Their primary purpose is to avoid the Gulf States selling reserves to make up for lost oil revenue. The sell-off of hundreds of billions of US Treasuries would flood the market and drive up yields.

The AI boom has driven a massive surge in capital spending by mega-cap technology companies as they vie for market share in a rapidly expanding market. Much of the capital spending is funded through long-term debt issuance, leading to a steep increase in the supply of high-quality long-term debt.

US-Iran Conflict

President Donald Trump on Sunday again threatened Iran:

“For Iran, the Clock is Ticking, and they better get moving, FAST, or there won’t be anything left of them,” Trump said in a Truth Social post. “TIME IS OF THE ESSENCE!” (CNBC)

Trump’s post caused a sharp jump in Brent crude futures prices when the market opened on Monday.
Brent Crude Futures (ICE July'26)

Stocks & Financial Markets

The S&P 500 retreated below 7500, falling 1.2% on Friday.

S&P 500

The Dow similarly retreated below 50,000, falling 1.1%. A decline below support at 49,000 would signal a correction.

Dow Jones Industrial Average

Bitcoin1 retreated below support at 80,000, warning of further market risk aversion.

Bitcoin (BTC)

10-year Treasury yields jumped to 4.6%. The breakout above 4.5% offers a short-term target of 4.75%. Rising Trend Index troughs indicate strong upward pressure on long-term yields.

10-Year Treasury Yield

Dollar & Gold

A Dollar shortage is driving up the US Dollar Index as global markets struggle with crude oil shortages and rising prices, a fiscal crisis among Gulf States that have lost their primary source of revenue, and lower US trade deficits.

Dollar Index

The Dollar enjoyed similar strong demand after Russia invaded Ukraine in February 2022, followed by a steep fall in November, when energy markets had stabilized.

Dollar Index

Gold is testing support at 4500. A breach of 4400 would signal a test of 4000, but respect of support remains more likely.

Spot Gold

In 2022, Gold initially shot up after Russia’s 24 February invasion of Ukraine, but then declined for 6 months until energy markets stabilized and the Dollar weakened.

Spot Gold

Silver fell steeply last week and is headed for a test of support at 71.

Spot Silver

Energy

Brent crude continues its uptrend, and another test of resistance at $120 per barrel is likely.

Brent Crude

The Dow Jones Global Oil & Gas Index respected support at 580, headed for a test of resistance at 620. Trend Index troughs above zero signal buying pressure.

Dow Jones Global Oil & Gas Index

Uranium

Uranium is taking a beating, with the Sprott Uranium Miners ETF2 (URNM) breaking secondary support at 64. A breach of support at 58 would signal a primary downtrend.

Sprott Uranium Miners ETF (URNM)

Lithium

All strategic materials are under pressure, even Lithium, which has enjoyed strong demand from booming EV sales. Sprott Lithium Miners ETF2 (LITP) broke its new support level at 16.50. Follow through below 15 would signal a correction.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials show similar selling pressure, with Sprott Critical Materials ETF2 (SETM) testing support at 35.50, while a lower Trend Index peak warns of selling pressure.

Sprott Critical Materials ETF (SETM)

Copper

Copper retreated below 14,000 after a strong run-up.

Copper

Sprott Copper Miners ETF2 (COPP) reflects similar selling pressure, breaking initial support at 42, while a lower Trend Index peak signals selling pressure.

Sprott Copper Miners ETF (COPP)

Conclusion

We expect a similar playbook to 2022, after Russia’s full-scale invasion of Ukraine: rising energy prices, followed by rising long-term bond prices, and a stronger Dollar.

S&P 500

The S&P 500 suffered a 26% drawdown in 2022, and stock prices will likely weaken, though partly cushioned by the AI boom. We also expect weakness in Gold, Silver, and strategic materials like Uranium, Lithium, Critical Minerals, and Copper — until energy markets stabilize.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
  2. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
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S&P 500 Rallies on Job Gains, But Peace Deal Hopes Crash

Key Points

  • President Trump rejects Iran’s peace proposal.
  • Iran continued attacks on its Gulf neighbors.
  • Brent crude July futures jump to $104.50 per barrel.
  • Confidential intelligence sources say that Iran can survive a US blockade for at least 3-4 months.
  • The US labor market added 115,000 jobs in April 2026, while unemployment held steady at 4.3%.
  • The S&P 500 reached a new high, while the Dow Jones Industrial Average threatens a breakout.

DUBAI/WASHINGTON, May 10 (Reuters) – President Donald Trump on Sunday rejected Iran’s response to a US proposal for peace talks, dashing hopes for an imminent end to the 10-week-old conflict….

“I don’t like it — TOTALLY UNACCEPTABLE,” Trump wrote on Truth Social, without giving further detail. Oil prices rose $3 a barrel after the United States and Iran failed to reach agreement.

Iran’s proposal includes a demand for compensation for war damages and an ​emphasis on Iranian sovereignty over the strait, state media said. It also calls on the US to end its naval blockade, guarantee no further attacks, lift sanctions and end a US ban on Iranian oil ​sales, the semi-official Tasnim news agency said.

Brent Crude July’26 (Nymex) futures jumped to $104.50 per barrel while December’26 futures (orange) rallied to $89.25 per barrel. December prices reflect the oil market’s longer-term assessment of crude shortages. Damage to existing production and shipping facilities will take time to repair, even if the Strait of Hormuz is reopened.

Brent Crude Nymex Futures (July'26 & Dec'26)

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Trump Talks “Peace Deal” But Nothing Stops This Train

Key Points

  • President Trump again baits financial markets with the prospect of a peace agreement.
  • Brent Crude (July’26 futures) is testing support at $100 per barrel.
  • However, the crude market faces critical shortages even if a peace deal is signed.
  • The S&P 500 rallied to a new high at 7365, while the Dow threatens a breakout above 50,000.
  • The ISM Services PMI warns that growth is slowing, while soaring prices signal inflationary pressures.
  • Lithium is in a strong uptrend, while Copper, Critical Materials, and Uranium show signs of a recovery.
  • The RBA hiked rates this week and would like to hold for a while, but rising prices may force further hikes.

ISLAMABAD/WASHINGTON/TEL AVIV, May 7 (Reuters) – U.S. President Donald Trump predicted a swift end to the ​war with Iran as Tehran considered a U.S. peace proposal that sources said would formally end the conflict while leaving unresolved key U.S. demands that Iran suspend ‌its nuclear program and reopen the Strait of Hormuz.

An Iranian foreign ministry spokesperson cited by Iran’s ISNA news agency said Tehran would convey its response, while Iranian lawmaker Ebrahim Rezaei, a spokesperson for parliament’s powerful foreign policy and national security committee, described the proposal as “more of an American wish-list than a reality.”

“They want to make a deal. We’ve had very good talks over the last 24 hours, and it’s very possible that we’ll make ​a deal,” Trump told reporters in the Oval Office on Wednesday, saying later “it’ll be over quickly.”

Trump has repeatedly played up the prospect of an agreement to end the war ​that started on February 28, so far without success. The two sides remain at odds over a variety of difficult issues, such as Iran’s nuclear ⁠ambitions and its control of the Strait of Hormuz, which before the war handled one-fifth of the world’s oil and gas supply.

A Pakistani source and another source briefed on the mediation ​said an agreement was close on a one-page memorandum that would formally end the conflict. That would kick off discussions to unblock shipping through the strait, lift U.S. sanctions on Iran and set ​curbs on Iran’s nuclear program, the sources said.

A separate senior Pakistani official involved in the talks told Reuters on Thursday that negotiators were hopeful of reaching a deal but noted gaps between the sides remained.

Brent Crude (July futures), buoyed by optimism over a prospective peace deal, is retracing to test support at $100 per barrel.

Brent Crude Futures (ICE July'26)

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S&P 500 Uptrend Against Gold

Key Points

  • The S&P 500 index made a new high at 7230, reversing its long-term downtrend against Gold.
  • However, the Dow is struggling to break resistance at 50,000.
  • The ISM Manufacturing PMI indicates the sector is expanding, but producer prices are soaring.
  • Lithium is in a strong uptrend, while Copper remains rangebound.
  • Japanese intervention to support the Yen underlines the long-term reason for buying Gold.
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Rising Crude is Bearish for Gold

Key Points

  • Brent crude futures (June’26) rose to $103.68 per barrel.
  • The S&P 500 reached a new high. However, the bull signal has not been confirmed by the Dow and the S&P 1500 Transportation Index.
  • The Fed has injected $170 billion of liquidity into financial markets since December 2025.
  • 10-year Treasury yields found support at 4.25%, while gold is headed for another test of support at $4,500 per ounce.

Brent crude futures (June’26) broke resistance at $100 per barrel and are now testing $104.

Brent Crude Futures (ICE June'26)
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First Wave of Gulf War Hits CPI

Key Points

  • CPI jumped by almost 0.9% in March, fueled by a steep rise in crude oil prices.
  • A 21.2% jump in gasoline prices accounted for nearly three quarters of the monthly ​CPI increase.
  • We expect further waves as rising costs reach agriculture, mining, and transportation before filtering through to the broader economy.
  • The S&P 500 stalled at 6800.
  • University of Michigan consumer sentiment plunged to its lowest level since the late 1970s.

The first wave of price hikes hit CPI in March, with the index jumping 0.865%, fueled by a steep rise in crude oil prices driven by the war in the Persian Gulf.
CPI & Core CPI - Monthly

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Ceasefire But No Long-term Peace in Sight

Key Points

  • President Trump announced he had agreed to a two-week ceasefire with Iran.
  • Iranian Foreign Minister Seyed Abbas Araghchi confirmed that Iran will allow safe passage through the Strait of Hormuz for two weeks.
  • Brent crude futures (Jun’26) plunged to $93.86 per barrel.
  • Gold climbed to $4,800 per ounce as the Dollar weakened.

President Trump has agreed to a two-week ceasefire with Iran.

Truth Social Post

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No Quick Exit

Key Points

  • Brent crude futures (May’26) rose after President Trump paused his threatened attack on Iran’s energy facilities until April 6.
  • The S&P 500 broke primary support at 6550.
  • The Dollar strengthens with the prospect of higher interest rates.
  • Gold tests primary support at $4,400 per ounce.

Brent crude rallied to $109 per barrel on news that negotiations may take longer than initially indicated. Retracement will likely respect support at $105 per barrel, signaling another test of $114.

Brent Crude Futures (ICE May'26)

Markets continue to receive conflicting messages on the war with Iran.

President Trump said he would extend a pause to attack Iran’s energy facilities to April 6, a little over a week after the original deadline that was set to end Friday.

“As per Iranian Government request, please let this statement serve to represent that I am pausing the period of Energy Plant destruction,” Trump said in a Truth Social post. “Talks are ongoing and, despite erroneous statements to the contrary by the Fake News Media, and others, they are going very well. Thank you for your attention to this matter!” (CNBC)

Iran’s Foreign Minister ruled out direct talks with the US but says they are reviewing the US 15-point proposal submitted through Pakistani intermediaries.

House Speaker Mike Johnson said Wednesday that Operation Epic Fury is “almost done” and is “wrapping up.”

….Johnson said that the objectives of the operation “have been met,” but access to the Strait of Hormuz still needs to be “straightened out.” (CBS)

The military buildup continues:

WASHINGTON, March 24 (Reuters) – The Pentagon is expected to send ​thousands of soldiers from the U.S. Army’s elite 82nd Airborne Division to the Middle East, two people familiar with the ‌matter told Reuters on Tuesday, adding to a massive U.S. military buildup even as President Donald Trump talks about a possible deal with Tehran to end the war.

The New York Post:

The Pentagon is reportedly considering a plan to send an additional 10,000 troops to the Middle East amid the war with Iran.

The potential deployment would likely include infantry and armored vehicles and would be on top of the 5,000 Marines and sailors and roughly 2,000 members of the Army’s 82nd Airborne Division who have already been dispatched to the region, according to the Wall Street Journal.

When one party threatens the other, it is normally a sign that the negotiation is not going well:

President Trump is ready to “unleash hell” on Iran if Tehran does not accept a deal to end the war in the Middle East, the White House warned on Wednesday.

“If Iran fails to accept the reality of the current moment, if they fail to understand that they have been defeated militarily and will continue to be, President Trump will ensure they are hit harder than they have ever been hit before,” Press Secretary Karoline Leavitt said in a briefing.

“President Trump does not bluff and he is prepared to unleash hell.” (CBS)

Iran and Israel seem to have longer-term objectives, but President Trump is desperate for an off-ramp. Opinion polls show the war is unpopular in the US:

Reuters/Ipsos Opinion Poll

The Iranians know that the closer it gets to the US midterms in November, the greater their leverage.

Trump has few good options: escalate the conflict or settle on a potentially bad deal with a weakened yet defiant Iran that has choked off much of the world’s oil supply….

A clear and quick victory could pay dividends for Trump politically. But a settlement that credibly contains Iran appears to be far off….

The terms required to wind the war down may involve concessions to Tehran that do not satisfy Israel, which appears to want to press ahead. (Reuters)

Copper continues its downtrend, warning that the global economy is slowing.

Copper

Mega-cap technology stocks are dragging the major indices lower. The Roundhill Magnificent 7 ETF (MAGS) signals a strong bear trend after breaking primary support at 63 in early February.

Roundhill Magnificent 7 ETF (MAGS)

The S&P 500 has now followed with a breach of primary support at 6550, confirmed by the recent dead cat bounce.

S&P 500

The Dow Jones Industrial Average is testing the primary support band between 45,500 and 46,000. A breach would confirm the S&P 500 bear market signal.

Dow Jones Industrial Average

The S&P 500 Equal-Weighted Index ($IQX) shows that large caps are now outperforming mega caps, which had led the market for several years. It’s all relative, however. Declining Trend Index peaks below zero warn of selling pressure.

S&P 500 Equal-Weighted Index

Bitcoin1 continues to test the support band between 64,000 and 70,000, indicating that financial markets have become risk-averse.

Bitcoin (BTC)

10-year Treasury yields respected support at 4.3%, offering a short-term target of 4.65% as the prospect of further rate cuts fades.

10-Year Treasury Yield

The US Dollar Index is testing resistance at 100, driven by the prospect of higher interest rates.

Dollar Index

Gold is testing primary support at $4,400 per ounce. Respect, indicated by recovery above $4,600, would indicate another test of $5,000, while a breach would offer a target of $4,000.

Spot Gold

Conclusion

Mixed messaging over negotiations with Iran indicates that progress is slow. Conflicting objectives between the US and Israel may also prevent a quick resolution to the war against Iran. A quick exit is unlikely.

A downtrend in copper prices warns that the global economy is slowing.

The S&P 500 broke support at 6550, signaling a primary downtrend. A Dow Jones Industrial Average breach of primary support at 45,500 would confirm a bear market.

The prospect of higher interest rates, with the market pricing out further rate cuts, has strengthened the Dollar, triggering a selloff in gold. A breach of primary support at $4,400 per ounce would offer a target of $4,000, while respect of support would signal another test of $5,000.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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Supreme Court Setback for Trump

Key Points

  • In a 6-3 decision, the Supreme Court ruled that the International Emergency Economic Powers Act of 1977 doesn’t authorize President Donald Trump to impose tariffs.
  • The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the Supreme Court ruled against the tariffs.
  • However, Trump administration officials previously said they would use different legal pathways to achieve an outcome similar to the IEEPA tariffs.
  • President Trump signed a proclamation Friday night that will impose a 10% duty on most imports for up to 150 days, as permitted under Section 122 of the Trade Act of 1974.
  • Businesses may be able to claim refunds for IEEPA tariffs paid, but are unlikely to pass these on to consumers.

Last year, President Trump used the International Emergency Economic Powers Act of 1977 (IEEPA) to impose tariffs on US trading partners.

He declared a national emergency, saying an influx of illegal drugs from Canada, Mexico, and China had created a public health crisis, and that large and persistent trade deficits had undermined US manufacturing. His administration used IEEPA to levy tariffs on imports to manage the perceived crises: a 10% baseline tariff on all US trading partners and higher duties on Canada, Mexico, and China.

Chief Justice John Roberts

Chief Justice John Roberts

In a 6-3 decision, the Supreme Court ruled on Friday that the IEEPA doesn’t authorize the president to impose tariffs.

“The Government reads IEEPA to give the President power to unilaterally impose unbounded tariffs and change them at will,” according to the court.

“That view would represent a transformative expansion of the President’s authority over tariff policy,” their opinion argued. “It is also telling that in IEEPA’s half-century of existence, no President has invoked the statute to impose any tariffs, let alone tariffs of this magnitude and scope.”

The Yale Budget Lab estimated that households’ average cost burden would fall by about half in 2026, to between $600 and $800, if the IEEPA tariffs were overturned.

Before the ruling, Trump administration officials had said they would use different legal pathways, if overruled, to achieve roughly the same outcome as the tariffs. (CNBC)

President Trump signed a proclamation Friday night that will impose 10% tariffs on most imports to the United States, to replace the 10% IEEPA baseline tariff rate overturned by the earlier Supreme Court ruling.

The new tariffs take effect Monday and are levied under Section 122 of the Trade Act of 1974, which allows the president to impose duties of up to 15% for 150 days to address “large and serious” balance-of-payments issues. (CBS News)

Businesses will likely claim refunds for the estimated $175 billion in IEEPA tariffs paid to date, but consumers will not receive any direct benefit. (Reuters)

Treasury Markets

10-year Treasury yields increased on news of the Supreme Court ruling, but remain close to primary support at 4.0%.

10-Year Treasury Yield

Stocks

The S&P 500 rallied on the prospect of reduced tariffs, but will likely reverse on news of Trump’s Friday night proclamation.

S&P 500

Financial Markets

The Chicago Fed National Financial Conditions Index reached -0.568 on February 13, signaling loose monetary conditions.

Chicago Fed National Financial Conditions Index

However, Bitcoin1 (BTC) remains below 70,000, indicating that financial markets are shedding risk assets.

Bitcoin (BTC)

Inflation

The Fed’s favored measure of underlying inflation, the core PCE index, jumped by 0.355% in December 2025, warning of an upsurge in price pressures.

Core PCE Inflation - Monthly

Annual growth in the core PCE inflation index lifted to 3.0%, and the headline PCE index increased to 2.9%.

PCE & Core PCE

The University of Michigan (UOM) survey of consumers reported a median expected price increase of 3.4% over the next year, with the 3-month average declining to 3.9%.

University of Michigan: 1-Year Inflation Expectations

Consumers

Consumer sentiment from the February UOM survey remains near record lows since the survey commenced in 1960.

University of Michigan: Consumer Sentiment

Participants’ assessment of current economic conditions is also near the lowest ebb in more than 60 years.

University of Michigan: Current Economic Conditions

Economy

Real GDP growth slowed to 0.35% in the fourth quarter, or 1.4% annualized, according to the US Bureau of Economic Analysis. Aggregate weekly hours worked grew at a slower 1.0% over the 12 months to January 2026, suggesting that GDP growth will likely slow further.

Real GDP & Growth in Total Hours Worked

Dollar & Gold

The US Dollar Index met resistance at 98 after news of the Supreme Court ruling, and we expect the downtrend to continue.

Dollar Index

Gold rallied to above $5,100 per ounce, signaling another test of resistance at $5,500.

Spot Gold

Conclusion

The Supreme Court ruling against President Trump’s tariffs checks his expansive use of emergency powers in pursuit of his economic agenda. The ruling also increases the economic uncertainty that has bedeviled Trump’s economic policy, making it difficult for corporations to make long-term investment decisions.

Declining real GDP growth in the fourth quarter highlights that the US economy is heavily reliant on massive capital investment in AI data centers to keep the country out of a recession, while the broader economy shudders from one mishap to the next.

Consumer sentiment and perceptions of current economic conditions are near sixty-year lows, again reflecting the narrow economic recovery, which has failed to benefit most Americans despite low unemployment. Republicans are going to find it difficult to hold a majority in Congress after the November midterm elections, delivering a further setback to Trump’s economic agenda.

The Supreme Court decision, led by conservative Chief Justice John Roberts, is a sign that conservatives will increasingly resist Trump’s disregard for the checks and balances built into the Constitution. We have likely passed “peak Trump” on the economic front, though he will likely try to stay in the spotlight with his geopolitical agenda.

We maintain our overweight position in gold and defensive stocks with stable cash flows, while avoiding high-multiple technology stocks and long-term financial instruments.

Acknowledgments

Notes

  1. Cryptocurrencies are the highest-risk asset class, and we analyze Bitcoin (BTC) solely to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell BTC, nor is it a commentary on the merits of cryptocurrency.
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Bitcoin Plunge Signals Risk-Off

Key Points

  • Bitcoin plunged to $71,200, warning that financial markets are becoming risk-averse.
  • Brent crude surged to nearly $70 per barrel amid heightened US-Iran tensions.
  • Volatility following the CME margin hike, effective Monday, triggered a broad selloff in precious metals and energy transition metals.

Bitcoin2 (BTC) broke support at 85,000, the steep decline warning that financial markets are shedding risk assets.

Bitcoin (BTC)

The S&P 500 index retreated below 6900, but long tails and a rising Trend Index indicate strong buying interest.

S&P 500

However, the Roundhill Magnificent 7 ETF (MAGS) is headed for a test of primary support at 63, while Trend Index peaks at zero warn of selling pressure. A breach of support would be a strong bear signal.

Roundhill Magnificent 7 ETF (MAGS)

10-year Treasury yields are testing resistance at 4.3%. A breakout would offer a short-term target of 4.4%.

10-Year Treasury Yield

Dollar & Gold

The US Dollar Index is testing resistance at 98, but remains in a long-term downtrend. Respect of resistance will likely signal another decline.

Dollar Index

Gold is testing resistance at $5,000 per ounce after Friday’s sharp fall.

Spot Gold

The primary reason for the sharp fall in copper and precious metals was not Trump’s nomination of Kevin Warsh as the next Fed Chair. On January 29, the CME announced that it was again increasing margin requirements on futures contracts, effective Monday, February 2.

Comex Margin Increase

Comex Margins

The increase in CME margin requirements is intended to discourage leveraged speculation in key contracts that show signs of overheating.

Silver had a higher speculative interest, making it more susceptible to the margin hike, with the metal testing support at $70 per ounce.

Spot Silver

Energy & Energy Transition Metals

Brent crude is testing resistance at $70 per barrel on heightened US-Iran tensions.

Brent Crude

The Dow Jones Global Oil & Gas index is in a strong uptrend, with rising Trend Index troughs reflecting buying pressure.

Dow Jones Global Oil & Gas Index

Copper

The margin hike had less effect on copper, which retreated to $13,000 per tonne from its recent peak of $13,500 per tonne.

Copper

Copper miners were more susceptible to the risk-off shift in financial markets, with Sprott Copper Miners ETF1 (COPP) testing support at 40.

Sprott Copper Miners ETF (COPP)

Uranium

Uranium was not directly affected by the CME margin hike but was caught up in the broader selloff, with the Sprott Uranium Miners ETF1 (URNM) testing support at 70.

Sprott Uranium Miners ETF (URNM)

Lithium

Lithium suffered a similar fate, with Sprott Lithium Miners ETF1 (LITP) breaking support at 14.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials experienced a similar selloff, with Sprott Critical Materials ETF1 (SETM) testing support at 34.

Sprott Critical Materials ETF (SETM)

Conclusion

The CME margin hike, which took effect on Monday, was intended to cause a correction in copper and precious metals. However, the selloff spread to uranium, lithium, and critical materials. Risk aversion also spread to financial markets, as evidenced by a steep fall in risk assets such as Bitcoin.

Mega-cap technology stocks have experienced a selloff, with the Roundhill Magnificent 7 ETF (MAGS) approaching its primary support level. A breach of support would be a strong bear signal for the broader S&P 500 index, with market leaders falling behind their second-tier counterparts.

We can expect further CME margin hikes as the exchange seeks to curb speculative excesses. Volatility will likely discourage speculation but have minimal impact on the secular rise in demand for gold, copper, uranium, lithium, and critical materials.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  2. We analyze Bitcoin (BTC) — the most volatile risk asset — to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell, for which we are ill-equipped to express an opinion, nor is it a commentary on the merits of the cryptocurrency.
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