This is nuts - when's the intervention?

Welcome to the Saxo Market Call. Before we get started, it's important we emphasize that the views and opinions expressed in this podcast are those of the host and guests, and do not constitute investment advice or recommendations. All information provided is for educational and entertainment purposes only. Hey everyone, it's Thursday, 24th of September, 2026, and we have a bond market that is in meltdown mode. I'm wondering when the intervention is incoming. We are bringing it forward sharply with a move like we saw yesterday, really around the world, and most importantly, as I've noted before, those longer yields becoming unseated as well from the range. Two things conspiring to spook the market yesterday, the fixed income market that is, and to a degree, the equity market. And that was a very robust move. A robust set of preliminary US S&P Global, if that's who's still running it, this private sector PMI that does a flash number. So we hit 57 on the manufacturing versus 53.7 expected, 53.9 in August. That's a big acceleration in what people are seeing in terms of improvement in activity rates. And on the services side, 58.7 versus 55.8 expected, 56.5 the prior month. So, so far, these big price rises for energy. Don't seem to be slowing down the economy. And we have a U.S. economy that is maybe accelerating here. And this is coming at a time when bond yields are pinned near the high. So you see a big fall through a higher in yields. Now, the yield curve shape is flattening quite aggressively and almost getting close to an inversion. Still 20 basis points from that for the 210 part of the yield curve. But that's some half of what it was a year ago. And actually, if you look across at banks, they're not doing very well. That is largely a function. Of that yield curve flattening. And if the FOMC really does deliver here, then we're seeing, of course, the front end yield to the very front of the curve coming up further. But so, yeah, the whole U.S. yield curve lifting. And we were up almost 15 basis points at one point yesterday on the two year. And we've been testing. I believe we tested those highs already this morning and getting close to 5 percent, only a few basis points, 10 basis points or so short of that. And the highs this morning in the U.S. two year benchmark, the 10 year again, importantly, it's been anchored recently around 5 percent, sort of allowing some of these risk on moves, at least in parts of the U.S. equity market to continue to bull higher. But I think spooking the market quite thoroughly that we saw a sprint above 5 percent. We even tested about 5.14 percent early today in the U.S. 10 year benchmark, a really critical one to keep on your radar screens here. That's the highest level, of course, post global financial crisis. And by a significant margin, not just this sort of teasing the highs, but a big, big blast higher. There was a very nasty five year auction result in terms of the bidding metrics. One person I highly respect essentially calling it a failed auction. It was certainly the worst in terms of those bidding metrics, except for one oddball auction at the very end of 2018. If you recall, when the bond market was a little bit in a meltdown mode on what the market felt like was a policy mistake from Powell at the time. So, you know, this is this has really got the market on edge for good reason. And this is this is, you know, hit the wall stuff, really, if we continue anything resembling the current pace. And it really begs the question, you know, do will the authorities, quote unquote, allow this? And if they are going to move, when will they move? And what would that move intervention move that is look like? I've been taking random stabs at the answer. Be surprised if it's just straight up QE because that aggravates the risk of sending to accommodate of a signal. We have a economy. That is running quite strongly, et cetera. Could look more like, again, these things like forcing pension funds into bonds, maybe at the margin, trying to signal a little bit of austerity, but you can't signal too much of that. And then, you know, commercial banks may be being forced to to hold more or changing the rules around how they how they are assessed penalties for leverage ratios based on their treasury holdings, et cetera, maybe some kind of tax status changes to people holding fixed income. These types of things. And this is less, of course, less risk on or less, you know, this is not dovish. This is more about just keeping things under control. And it might be seen as relief initially. But if you look at the structural implications, it's not the same as just straight up old fashioned QE if this happens. So I think it's, you know, it makes things very dangerous to trade because we have this risk of a headline policy impulse and you're sitting there in a foreign exchange trade suddenly. You can hit that the wrong way around. The dollar suddenly going weaker after heading stronger, stronger, stronger, linked to this rise in yields. Same obviously goes for anybody holding interest rate, whether it's curve trades or absolute trades, long or short and futures and basic rates, markets, big risk there. And, you know, two way volatility risks potentially in equities. I would guess the first move would be risk on, but then again, the structural implications here are not. Necessarily a bullish signal for them for equities, although you are taking away the sort of immediate, you know, for alarm fire, if you will, if yields and especially long yields continue higher. So I want to put that out there as the main headline today. This is getting into, you know, hit the wall sort of boat here. If it doesn't stop, intervention risk is ratcheting higher by the hour. OK, just how did the market perform yesterday? We saw an. Ugly day, basically, but not a horrific day on the U.S. equity market. The Nasdaq 100 finally correcting and some of those high momentum stuff correcting a bit more, but not nearly as much as it was rising before this. So the SOX index, for example, of semiconductor stocks only off minus one point to the Nasdaq 100 was off minus zero point eight five S&P 500 a little bit less than that equal weight, a little bit less than that. But then the Russell 2000, a bit more interest rate sensitive minus one point seven seven percent. Pretty ugly there, really. And if you look at the chart there, you're thinking. Boy, this market really looks in a bad shape. We're not there yet at all on the market cap weighted indices, even if we are on the equal weight. Again, we've talked about the very narrowness of this advance being a big, big concern here, especially with rates where they are. And, you know, we might hit that nominal new high. It was so close, so tantalizingly close. Now we've backed a bit further away from that all time high. Who knows? Maybe we won't reach it. And I don't think we will reach it if we start to see two or three hundred percent or three more days of these 10 basis point plus advances in yields. But we're still only at even the indices that look a bit uglier, something like the S&P 500 equal weight. We're only a little over five percent off of the all time highs here. This is a peanut. So it's not even. Well, it is actually half of a, you know, officially defined correction of 10 percent. And then, yeah, I mentioned financial stocks being on the defensive because the yield curve flattening. That's one thing to track there. We have some other signals coming in here that are that are quite interesting and not really parking the whole geopolitical issue at all beyond at least two months. Apparently, that's what we're seeing flagged here ahead of the Trump-Xi photo op is which I what I would essentially call it today. A two month extension of the current terms of the trade relationship between the U.S. and China makes a lot of sense. If you think about that, China has been kind of slow walking a lot of its agricultural purchases. It's only reluctantly and not fully complying with the deal of the previous or sorry, the previous deal agreed last November. And this sets up, you know, the U.S. gives them a little bit more time, but they're not going to give them a full year where China can just, you know, not do anything and come back to the table in a year's time. So and that gives both sides a chance to jockey around and think about how their leverage position can change over the next couple of months. So managed managed brinkmanship is one way I saw this being characterized. And it also means that if China is not delivering, we set up maybe a more hostile situation in a couple of months time from the U.S.'s point of view as well. It's nice to punt this issue for now because we don't immediately lurch into risk off because of a big new U.S.-China showdown. Just before coming in here to record the podcast, already oil was back on the bid. Our skepticism around. What the U.S. Administration would agree to in terms of Iran's posturing on the Hormuz Strait shipping turned out to be sort of the right approach to this. Like, why would the U.S. suddenly agree to this when they hadn't been all along? And then we get a fresh ultimatum now. That's the fresh news item that saw crude adding even further to the upside here. One week ultimatum, in fact, that the U.S. needs to stop this naval blockade or and I love their formulation here. It will resume. Unrestricted asymmetric interdictions is the wording they used. What that could mean. They've shown quite an ability to target and hit with accuracy. Is that an empty threat or do we see something material happening? Especially the concern could be around regional, obviously, oil production and refining capacity now that they have this global diesel market really, really in stress mode. Yeah. So, of course, besides the general. You know, stress level measurements here in the treasury market, look out for any signals from Besson. We know that Besson was trying to. to manage and massage the message on the treasury market ahead of this bit of a wipeout. And he's wearing a decent amount of egg on his face. Can he back it up with more? Will the Fed get involved in some material way? I don't know what the timing is here. I know Besant is working overtime and sending his team to work overtime to figure out what to do here. But we do have a seven-year auction today at 1,700 GMT as one of the next steps. And we have in Europe, of course, this Germany-France yield spread has been in focus, remains in focus. Blue-white are once again at 112 basis points on the 10-year spread between Germany and France this morning. This is becoming a boiled frog situation. At what point does this become a bigger issue and require, from the European perspective, its own response function? So we have basically euro yields lifting to new cycle highs here. And no less than three central banks here this morning. I didn't see the market reaction, but Norway's central bank did go ahead with that 25 basis point hike that was the sort of favorite option. It wasn't unanimous by any means, but so they went ahead and moved forward with that. 4.5% is the new policy rate. Earlier in the day, a different look from the Rijksbank and the S&B. So the Rijksbank's sort of nudging in the hawkish direction by, indicating clearly they are going to hike rates this year. But then they had this bizarre set of core CPI inflation forecasts where they sort of raised it for next year and 2028, but then lowered it quite a bit for the following year. No, sorry, they raised it for 26 and 27, but lowered it for 28. And so I guess that yield rise looks a little bit hawkish. They're saying they are going to hike rates this year. That looks a little bit hawkish. But then they say things like, there's still spare capacity in the economy. So it doesn't look exactly like an emergency. So there was sort of a polite appreciation from the Swedish krona. And I think we'd go back to risks of further weakness if there's a general risk off and B, further rises in European yields there. The Swedish krona does not like that combination. And then we get the more interesting Swiss National Bank meeting today. This one was a dovish one. I mean, this is a really interesting, given this backdrop of where yields are. I mean, Switzerland is just in a whole different universe here. You know, they've got their forecast for 0.7% inflation this year, and for 27 and 28 as well. So they think this is the appropriate monetary policy to keep inflation in its range. So this is not exactly looking like S&B is in any hurry to pull the trigger and obviously a decent little leg of Swiss franc weakening on the back of that. But the focus is on the stronger dollar. And as I noted yesterday, these yield spreads, as we rip higher in U.S. yields, especially with that strong PMI data, if we get any other strong data, it does show the U.S. leading the pack here locally in terms of the yield spreads. And the interesting one being that UK versus U.S. yield spreads are getting down there into the lows, stretching back quite some way. Same for the dollar, U.S. versus Japan. That just is the case, despite this whole situation. Transformation of Bank of Japan yield policy. It's just that those spreads widen at the moment when yields are going higher. A little bit of stress into sterling as well. If we look across at other sterling crosses, makes a little bit of sense in a risk off world. So watching that Euro sterling 86 plus level again. And then in terms of level, once again, this dollar yen level 158.50, it has been tested. It was tested almost to the pip just before I came in here. That is the local key for unlocking the range and messing up all the classic technical resistance levels. There's a 200-day moving average. There's all these Ichimoku technical framework levels, et cetera. And then you get into the 160 level. But again, if we're nearing the intervention point in global fixed income, that's the risk there for traders as well, that that intervention feeds through to Japan quite strongly. There was some brief verbal-ish or intervention light, if you will, rhetoric from Japan's finance minister on, is it Katiama? There's no change in the policy, coordinated in policy, but did not want to mention specific levels. All right. So clear to say, this is a fraught environment. As we said, it was yesterday, the prior day, that the move index, the volatility index for bonds is the driver here. If it fades, then yeah, maybe we can get risk on. Maybe or maybe not, we can get risk on in the U.S. and other equity markets, the VIX, in other words. But if the move index is spiking higher, and what a spike it saw yesterday, then it is the dominant force here across markets and is certainly putting the pressure on risk sentiment for very good reason. All right. I will round out with a couple of links in today's podcast episode description, linking one of those to this announcement from Meta. They've got this new device, a, quote, palm-sized device to use AI on the go, unquote. Don't we already have this? And isn't it called our smartphone? Do we really need another device? Supposedly, one of the killer apps is that you can sort of more quickly deploy it. I'm a bit skeptical there. And then, you know, there's this feature that's being touted that it has a way for two of these Meta, what is it called, a charm, the Muse charm device to sort of, you know, contact each other and learn each other or sort of negotiate with each other, if you will. I guess you have to give it permission. And then those two could, I guess, negotiate calendar appointments or something like that on the basis of each owner's situation or schedule. Color me skeptical, but obviously, Meta is in a existential scramble because the whole growth rate for its core business does face speed limits, given how large it already is in the maturing market for the likes of Instagram. So there's a good Verge article. I didn't get a chance to read all of it, but I had it summarized for me by AI, making some really key points about Meta and this constant need for pivots in its business. The link provided was from FT Alpha, by the way, to an archive, which is nice because the Verge is a bit of a nightmare to read for all the stuff with advertising links, et cetera. So again, the whole structural outlook for what that means for bondholders, for what types of equities one might ought to focus on in such a regime, and the whole general idea that savings need to be confiscated and wealth needs to be confiscated in favor of labor. That means a hell of a lot for people's portfolios for long term, if Russell Napier is correct in his general thesis. So again, the whole structural outlook for what that means for bondholders, for what types of equities one might ought to focus on in such a regime, if Russell Napier is correct in his general thesis. And, you know, a sign of Burnham having his finger on the pulse, I think, of what is going on here and understanding his voter base and populism writ large is his moving to, you know, ban – this ban on beer at UK football matches. You know, let's lift that. I think that's an interesting move. Let's say, you know, just not viewing your population as a bunch of children that need to be limited in what they do. So I found that little news tidbit quite interesting as a signal and then sort of dovetailing that with what Russell Napier was talking about in that podcast. All right. We have a super interesting hours and days and everything ahead. Again, this bond market is pressing everything else, and it is the prime mover certainly for everything until the powers that be. And I say until more than unless. The question is the timescale. Until the officials. Until, you know, the powers that be do something about it. So stay tuned for that. Stay very careful out there, and we'll take things as they come, and we'll be back soon with the next Saxo Market Call. This has been the Saxo Market Call podcast. Thanks for joining today's episode. We're always happy for your feedback and questions of all kinds. To reach out, you can drop us an email at marketcall at saxobank.com. That's saxobank.com. Market Call at saxobank.com. Saxo. Serious trading worldwide.