Key Events of the Week
- Middle East Crisis
- Beige Book
- Powell’s Speech
Major Market Movements this Week:
- Bonds: US 10-year Treasury Yield +0.3 (4.6% → 4.9%), yield curve flattening. Japan 10-year Bond Yield +0.08 (0.75 → 0.83).
- Commodities: Gold +2.5%, Silver +3.3%, Precious Metals +2.8%, Cocoa +5.7%, Coffee +6.5%, Oil +0.6%
- Stocks: N225 -3.2%, TOPIX -2.3%, DOW -1.6%, SP -2.4%, NAS -2.9%, STOXX -2.7%, CHINA -4.2%
Analysis:
While crude oil has risen, other stocks have fallen. However, the ETF XOP, related to crude oil, only rose by 1.04% this week. The actual increase in crude oil prices was only 0.6%, indicating a less significant rise than perceived. Metals are up, but the mining ETF XME fell by 3.07%.
Despite increasing geopolitical risks, aerospace and defense ETF XAR fell by 0.57%. Stocks related to personal consumption, such as MCD (McDonald’s), have risen.
Outlook
The focus continues to be on bond yields. The yield curve narrowed this week, reversing the widening trend since the beginning of the year. With many stocks at their yearly lows, the flattening yield curve is concerning. If the yield curve normalizes and long-term bond yields drop, it might be a good time to buy stocks. The recent rise in bond yields was anticipated, but the magnitude was not.
If bond yields keep rising, a significant stock market decline is expected. If indices breach recent lows, it might be wise to sell stocks in recently overheated sectors like banks, trading companies, semiconductors, and steel-related stocks. For banks, consider SMFG and Kyushu FG. For trading companies, Mitsubishi Corp and Itochu Corp. For semiconductors, Laser Tech and Advantest. For steel, Nippon Steel and Kobe Steel.
If bond yields decline, high-tech stocks should be the focus. Buy stocks that have been continually hitting yearly lows when they return to their 5-day moving average. For stable stocks, set stop orders at recent lows and hope for an upward trend. For large-cap stocks, consider M3 and GMOPG. For small-cap, any option should suffice, but watch out for liquidity.
Conclusion
It’s unlikely that this price range will hold. A crucial decision point is approaching.
