The everything rout

The selloff in stocks, bonds, and Bitcoin deepened on Monday. Even commodities sank and crude oil tumbled more than 8% on the back of mounting worries of a seriously tighter, and potentially ineffective Federal Reserve (Fed) policy that would, to fight back the skyrocketing inflation, pull back support aggressively enough to cause recession.  

Another worry is that, even with a significantly tighter monetary policy, the Fed may not be able to tame inflation as much as desired. This is what the inflation expectations tell us.  

Red hot 

The S&P 500 dive another 3.20% yesterday, and slip below the 4000 points for the first time this year. Nasdaq tanked another 4.30%, and the technology heavy index, more sensitive to changes in interest rates, is down by almost 30% since last November peak; near half of its constituents are down by more than 50% below their 52-week highs.  

And money doesn’t flow to ‘safer’ US sovereign bonds, as investors are rapidly unloading the US treasuries as well, given the Fed is now letting its holdings mature to reduce the size of its balance sheet which went through the roof since the 2007 subprime crisis.  

The US 10-year yield hit 3.20% yesterday, the highest level since November 2018.  

Gold lost more than 1.50% along with the everything rout yesterday, as the rising US yields continue weighing on the yellow metal, as they increase the opportunity cost of holding the non-interest-bearing gold, and making it look like a dull hedge against inflation.  

And Bitcoin slipped shortly below the $30K level, as investors unloaded cryptocurrencies along with the other risk assets. Despite the rebound near the $30K mark, which brought some courageous dipbuyers in, the risks remain tilted to the downside for a deeper selloff below the $30K support.  

And speaking of traditional safe haven, even the yen and the Swiss franc are completely out of the game right now, with the yen trading above the 130 level against the US dollar for the first time in more than 20 years, and the dollar-swissy flirting with parity for the first time since December 2019. 

USD: Safest, and the only safe haven 

So, where does the money go? To the US dollar. When everything goes bust, the US dollar is the safest safe haven. The dollar index consolidates near two decade highs. Geopolitical and economic uncertainties support a broad-based dollar appreciation. The US dollar index gains when all other assets tumble. The dollar will remain King, until the stress level in the market eases back to more reasonable levels.  

There is one potential catalyzer this week, that could eventually slow down the market selloff: US inflation data due Wednesday. The consumer price index is expected to have eased to 8.1% in April from 8.5% printed a month earlier. A softer inflation is the only thing that could give hope to investors.