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US Close: Stocks sink on rising rates and risks, Debt drama, Dollar down but still king,

US stocks are lower as fiscal policy remains up in the air, high energy costs are now a given, no one can answer how long peak supply chain constraint problems will last, global growth concerns for the upcoming quarter continue to worsen, all while the what was the never-ending safety net of central bank stimulus seems poised to end soon.  Last week, Wall Street finally saw the S&P 500 index give back 5% in an intra-day move and now everyone wants to find out if we will see a 10% drop from record high territory before the bulls roar back.  The Nasdaq is the punching bag as global bond yields rise and as many investors anticipate the cyclical rotation trade will become the playbook after the DC debt drama.

The outlook has many risks and growth will decrease slightly, but stagflation is not one of them.  As long as demand remains strong from the consumer and business, perma-bulls should not lose sleep over the next year.  

Debt

President Biden’s comments over the debt ceiling was a reminder of how far apart Democrats and Republicans are over increasing the country’s borrowing limit.   Congress will undoubtedly bring the US to the brink of failing its debt for the first time ever, before some agreement is reached.  Dragging the debt ceiling as close to the October 18th deadline will undoubtedly unnerve some investors.  

DC looks like it is poised for a couple more weeks of posturing before Democrats trim the $3.5 trillion spending bill.  Risk appetite is struggling as the blue wave’s last major initiative will likely be chopped down to something closer to $2 trillion and while markets widely anticipate a Fed taper announcement on November 3rd.  

FX

The dollar is lower across the board, but undoubtedly still king.  The dollar still looks bullish over the short-term as risks to the outlook from Evergrande and tensions between Xi/Biden will drive safe-haven flows, while inflationary pressures will keep the Treasury curve steepener trade going.  If EUR/USD has 1.1550 breached, momentum selling could peak around the 1.14 level.  

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Ed Moya

Ed Moya [4]

Senior Market Analyst, The Americas at OANDA
With more than 20 years’ trading experience, Ed Moya is a senior market analyst with OANDA, producing up-to-the-minute intermarket analysis, coverage of geopolitical events, central bank policies and market reaction to corporate news. His particular expertise lies across a wide range of asset classes including FX, commodities, fixed income, stocks and cryptocurrencies. Over the course of his career, Ed has worked with some of the leading forex brokerages, research teams and news departments on Wall Street including Global Forex Trading, FX Solutions and Trading Advantage. Most recently he worked with TradeTheNews.com, where he provided market analysis on economic data and corporate news. Based in New York, Ed is a regular guest on several major financial television networks including CNBC, Bloomberg TV, Yahoo! Finance Live, Fox Business and Sky TV. His views are trusted by the world’s most renowned global newswires including Reuters, Bloomberg and the Associated Press, and he is regularly quoted in leading publications such as MSN, MarketWatch, Forbes, Breitbart, The New York Times and The Wall Street Journal. Ed holds a BA in Economics from Rutgers University.
Ed Moya