While many were focused on the US jobs report which was weaker than expected, showing a 134,000 headline versus a 185,000 market consensus by the top banks, we have been focusing on bond and equity. Shocks to the bond market with unemployment at 3.7 percent, a near 50 year low, are going to become more pronounced.
We are very concerned about one key point – No Inflation. This situation cannot last and when inflation does start to surface, the US yield curve, with short positions in bonds growing, will likely see shockingly fast moves. Keep in mind that sell-offs in bonds will be met by buying as the safe haven status for the US bond market will be important for global investors who will gravitate to the yield curve ….. chaos in the Middle East and Asia will indirectly support US bonds.
Faster-than-expected interest rate hikes – and yield on the benchmark 10-year, which hit a seven-year high on Thursday will dominate even equity discussions in the coming weeks.
Chaos in geopolitics has arrived and clearly the fear factor will rise as 2019 will bring the US and China closer to confrontation at all levels. Iran and Saudi Arabia will continue to fight proxy wars in the Middle East as Turkey and Iran see street protests.
Equity markets could see a 10 percent correction in the coming months. Global chaos and market disruption will likely dominate in November and December.