The financial media are running wild with their coverage of the Bank of England's surprise announcement of its temporary purchase of UK bonds. Reporters on both sides of the pond are seeking "experts" to weigh in on the action and its implications for interest rates and inflation.
Let's check out four charts to see what we might glean from the moves.
In this daily bar chart of the yield on the 10-year U.K. gilt, below, we can see that yields have climbed rapidly from around 0.75% back in December to around 4.50% earlier today. Yields are firmly above their rising 50-day and 200-day moving average lines. We do not know what volume might be, but the 12-day price momentum study shows that the pace of the advance has not slowed.
In this daily Japanese candlestick chart of the 10-year U.K. gilt, below, we can see a large red (bearish) candlestick marking a one-day reversal. A top reversal may mean a sideways move in rates and not a decline.
In this weekly Japanese candlestick chart of the 10-year U.K. gilt yield, below, we can see that yields were close to zero back in 2020 and they have gradually turned higher. The 12-week price momentum study shows no slowing in the pace of the rise.
In this daily Point and Figure chart of the 10-year U.K. gilt yield, below, we can see a yield target of 12.31%. Ouch!
In this weekly Point and Figure chart of the 10-year gilt yield, below, we see the same 12.31% target.
Bottom line strategy: Intervention in any market is a problem for technical analysts and technical analysis. The price action suggests one conclusion but government intervention thwarts it. Without government intervention, the path is for higher interest rates in the months ahead.
Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.
Caution and stock market congestion may lie ahead as interest rates stay higher for longer, while the stock market decline has now assumed a global character. Plus, more lessons from Howard Marks.
Markets are apprehensive into the September FOMC. But we think the risk/reward is actually somewhat positive into this meeting. Stay with Technology, Energy and Industrials.
We see multiple reasons to expect improved market performance going into the second half of September.
Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation.
If you have questions, please contact us here.
Email
Email sent
Thank you, your email to has been sent successfully.