The balance between fear and greed is tilting in favor of the former today. The significant write-downs observed at several US regional banks come in the wake of the notable failures of Tricolor and First Brands. They capitalize on concerns regarding increasing late-cycle pressures. US bank reserves have declined past a significant threshold of $3 trillion, raising concerns about a potential recurrence of the events observed in 2019. Trade tensions between Washington and Beijing have intensified, while the US federal government continues to be closed. US rates have experienced a significant decline, while the Dollar Index is enduring its most challenging week in over two months.

The greenback exhibits a mixed performance against the G10 currencies, as the Antipodeans and Scandis experience declines, whereas the Swiss franc stands out as a leader. Emerging market currencies are predominantly experiencing depreciation, as the PBOC has established the dollar’s fix at a new annual low. Equity markets are experiencing downward pressure. Indices from Japan, China, Hong Kong, and Taiwan experienced declines ranging from 1% to 2.7% today. South Korea’s Kospi and India’s primary indices stood out as notable exceptions. If maintained, the 1.65% decline currently exhibited by the Stoxx 600 in Europe would represent the most significant drop since August 1. US index futures appear poised to open lower, indicating a potential gap down at the market’s commencement. In Europe, benchmark 10-year yields have decreased by as much as three basis points. The yield on the US 10-year Treasury is currently approximately 3.95%.

The prevailing risk-off sentiment appears poised to test the resolve between the US and Argentina. Gold reached a new peak, approaching $4380. It concluded the previous week marginally under $4018. December WTI has continued its downward trajectory, nearing $56 today, marking its lowest point since May 5. The Dollar Index’s upward trajectory following the September 17 FOMC meeting seems to have concluded last week around 99.55. It experienced a low yesterday near 98.40 and approached 98.00 today. The Dollar Index rebounded to approach the 98.30 level during the European morning session, coinciding with the position of the 20-day moving average. The DXY has maintained its position above this level since September 23.

The prevailing sentiment in the market suggests a strong belief that the Federal Reserve is poised to implement a rate cut later this month, with probabilities exceeding 99% in the futures market, followed by an anticipated additional cut in December, where the likelihood stands at over 95%. In summary, despite remarks from several Federal Reserve officials, including Chair Powell, there has been effectively no alteration this week. The write-off at two regional banks resulted in a significant decline in US rates yesterday, with critical thresholds being breached. The two-year yield has fallen to below 3.40%, marking its lowest point in three years. The 10-year yield has decreased to nearly 3.93%, marking its lowest point since “Liberation Day” in April. The US government remains in a state of closure, with both Washington and Beijing expressing discontent, leading to heightened tensions.