Yields cap stock rally, Boris survives, oil softens

2 mins read

By Edward Moya

US stocks rallied Monday as improvement with China’s COVID situation, optimism that a strong labour market will help the US consumer handle the latest wave of inflation, and after a wrath of positive news.

With no US economic data releases and a quiet Fed due to the blackout period, US equities followed the rally that started in Asia.  With the exception of the latest Musk/Twitter drama, it was mostly positive news from corporate America, which translated to a good start for shares of Amazon, Eli Lilly, Spirit Airlines and Didi Global.

The stock market rally couldn’t hold with Treasury yields edging higher as expectations grow for a slower deceleration with pricing pressures.

Friday’s inflation report will likely show that inflation is not easing just yet, but that the odds of a recession are still low.  Wall Street will need to wait for more inflation reports before anyone can confidently make a call as to when the Federal Reserve may alter their tightening course.


Boris Johnson will remain the Conservative leader and UK prime minister.  A leadership election won’t be needed after 211 Tory MPs voted for Johnson, while 148 MPs voted against, shy of the 180 needed to sack the PM.  This rebellion against PM Johnson was larger-than-expected and may have weakened his position on delivering tax cuts.

The British pound held onto some of its gains as traders only cared if this confidence vote would lead to a change in leadership. The path for the pound will still be determined by the pace of tightening by the BOE.


Bullishness for crude prices have hit some exhaustion as the energy market has mostly priced in the EU’s ban on Russian oil imports, a modest boost by OPEC+, and elevated prices that will lead to some demand destruction over the coming months.

Crude prices started to weaken after US trade representative Katherine Tai’s comments suggested tariff relief was not coming anytime soon. Expectations were growing that the Biden administration might be doing whatever it takes to ease inflation, but a softer stance on China apparently is not happening.

Oil rallied towards a three-month high after the Saudis delivered a large price increase to Asian customers for July. Despite the modest weakness with oil, energy traders anticipate a tight oil market will last for a while.


Gold prices could not shake off a major move higher with Treasury yields.

The move in Treasury yields might be more of a reflection of a ton of supply that is going to hit markets, so the weakness for gold might not last too long.  Investors will fixate over Friday’s inflation report, which many believe should show that inflation is close to peaking.

If the bond market selloff accelerates, gold could be vulnerable to a plunge towards the $1800 level.


Bitcoin is definitely forming a base as prices advanced despite some choppiness in equities.

Bitcoin above $30,000 is key for some short-term investors and a move above $33,5000 could trigger some technical buying.


Edward Moya is Senior Market Analyst, The Americas at OANDA

Opinions are the author’s, not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.