Global risk assets stayed under pressure this week, and the market’s main question has shifted, according to Chloe, an HTX DeepThink columnist and researcher at HTX Research.
In analysis cited by BlockBeats on July 31, Chloe said Federal Reserve Chair Kevin Warsh made his first attempt to soften forward guidance, aiming to let market prices function as a more direct feedback mechanism for the economy. Markets did not interpret the rise in long-end yields as a natural tightening of financial conditions. They read it instead as a sign that inflation risks were picking up again and that confidence in the Federal Reserve’s policy credibility was fading.
Higher long-end yields are being read as a demand for more risk premium
Chloe said the 30-year U.S. Treasury yield has climbed to 5.2%, while the dollar weakened and U.S. stocks pulled back. In her view, that combination shows investors are asking for a higher risk premium rather than betting on an improvement in economic fundamentals.
She argued that the market’s core tension has moved away from whether rate cuts will happen and toward whether the Fed still has the ability to keep inflation under control.
Warsh’s ambiguity keeps rate-hike expectations alive
According to Chloe, Warsh said tighter market-driven financial conditions had partly substituted for additional rate hikes. Even so, he remained vague on whether more tightening would still be needed. That stance has led markets to question the Fed’s capacity to execute policy effectively in a high-inflation environment.
At the same time, escalating tensions between the U.S. and Iran have pushed energy prices higher, reinforcing inflation expectations and keeping the probability of rate hikes in September and December on the rise.
Tech equities and crypto are both facing macro pressure
For U.S. equities, Chloe said a continued rise in long-term yields means valuation pressure is still building on growth and technology stocks. The core logic behind the earlier AI rally was based on low discount rates and strong growth expectations. If the risk-free rate keeps moving up, the discount rate applied to future cash flows rises as well, putting pressure on high-valuation sectors.
Before earnings fully catch up, AI, semiconductor and high-beta technology stocks may continue to see elevated volatility, she said.
She added that the crypto market is also exposed to macro liquidity conditions. Although mainstream assets such as BTC have not shown systemic risk, tighter dollar liquidity and higher real rates usually weigh on risk appetite, with capital showing more preference for cash and short-duration assets.
If the Fed ultimately chooses to rebuild policy credibility through rate hikes, the crypto market could remain under valuation pressure in the short term. If inflation comes back under control, risk assets may see another round of liquidity recovery.
The market is now pricing central bank credibility
Chloe said the market is no longer focused only on the level of interest rates. The key variable now is central bank credibility. Over the next few weeks, inflation data, energy prices and comments from officials before the September Federal Open Market Committee meeting will be the main factors shaping the direction of global risk assets.