All global interest rates are climbing right along with US treasuries as the end approaches for central banks' support for the economies around the world.  China said that there is a reasonable amount of liquidity in the financial system and urged banks to control risks, signaling that there will be no relief from a cash squeeze.  There has been a stampede out of fixed income investments and stocks momentarily, with much of the money likely siting in no risk accounts until order in the markets can be sustained.

The markets  were completely unprepared for the rapid increase in interest rates and China's depleting economy.  Bonds dropped around the world with mounting speculation that the U.S. will begin curbing stimulus, while commodities declined and the dollar strengthened.  Based on the way the markets have reacted, it appears  that the fear is mounting that the Fed's withdraw will be swifter than previously anticipated.

This week we expect more selling in the stock market.  The 10yr. note 100 bps to 2.61%, resulting in an increase of 75 bps in rate since early May.  Bernanke's comments last week propelled the long anticipated correction in the stock market and interest rates are now as high as they were in 2011 before the Fed's QE implementation.

How much more increase is in the cards?  The next two weeks are heavy on key data points, including the June employment report on July 5th.  A soft employment report will change the outlook for Fed tapering, but increased volatility is expected.

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-Michael Corboy