Global financial markets turned sharply volatile ahead of the U.S. Federal Reserve’s two-day policy meeting, which starts Tuesday. Markets are pricing in a 25-basis-point rate cut on Wednesday, and the probability of another cut in December has now risen to 75%.
Even so, inflation remains above the Fed’s 2% target, leaving Fed Chair Kevin Warsh under significant policy pressure.
Treasury yields climb to the highest level since 2007
The 10-year U.S. Treasury yield rose to its highest level since 2007 in Tuesday morning trading after moving above the 5% mark during Monday’s session. The continued sell-off in Treasurys has added to the pressure on the Fed’s effort to control inflation.
AI trade reverses as NVIDIA and other names come under pressure
At the same time, the AI trade saw a clear reversal. AI-related stocks fell sharply on Monday after several leaders in the AI industry warned that the pace of model development needs to slow. NVIDIA and other widely watched AI assets were sold off.
U.S. President Donald Trump also stepped in during the All-In Summit, placing a call to NVIDIA CEO Jensen Huang and saying concerns around AI were "all a hoax." The comment still failed to stop U.S. stocks from weakening into the close.
Oil moves above $100 as U.S. stock futures edge lower
International oil prices continued to rise, with both Brent crude and WTI futures moving above $100 a barrel. Concerns about supply disruptions intensified after Houthi attacks on Saudi Arabia and attacks on ships in the Strait of Hormuz.
The correlation between oil prices and Treasury yields has also reached its strongest level since 2019. U.S. stock futures slipped modestly after broad weakness in Asian markets.