The global tightening cycle has already made investment more difficult, and now a wide range of markets are increasingly breaking away from past models, such as the rise of the dollar and commodities, and the decline of US stocks and Treasuries, making it impossible to learn from past investment experience.

On Tuesday, April 19, the dollar index briefly broke the 101 mark for the first time since March 2020. Earlier, St. Louis Fed Chairman Brad said at an online meeting of the Committee on Foreign Relations that he "does not rule out the possibility of raising interest rates by 75 basis points at a time."

Brad said the Fed raised its target for the federal funds rate to about 3.5% by the end of the year to help curb inflation, which is currently at a 40-year high. On the recession talk, Brad said it was too early to talk about a recession because the Fed has raised interest rates only once. He expects the US economy to grow at a healthy rate that exceeds the long-term trend in 2022 and 2023, and expects the unemployment rate to fall below 3 per cent. Brad is a voting member of the Federal Open Market Committee (FOMC).

A sharp increase in interest rates by the Federal Reserve is bound to cause a return of the dollar, thereby boosting the dollar index. In the past, there was a strange relationship between the dollar and commodities, and a strong dollar would suppress the performance of commodities, but this time this has not been seen yet.

Commodities, both energy and food, are skyrocketing. Cloth oil is up more than 45% year-to-date, gold is approaching the $2000 / oz mark, US natural gas May futures have broken through US $8, the highest level in more than 13 years since September 2008, and US corn futures have risen 2.8% to break through US $8 per bushel, the highest level in nearly a decade since September 2012.

The resonance rally in the dollar index and commodities has been going on for nearly 10 months since June 2021. The main reason is that the apparent recovery in the global economy in 2021 led to a rise in demand for commodities, and the return of funds to the United States in anticipation of a rise in interest rates pushed up the dollar index. Increased geopolitical risks, Fed interest rate hikes and sanctions against Russia since February 2022 have accelerated further resonance between the dollar index and commodities.

In the short term, expectations of interest rate hikes and risk aversion support the dollar to continue to rise. There is still room for the dollar index to continue to rise in the next quarter or two, as expectations of a Fed rate hike rise. With the global epidemic still not completely over and the conflict between Russia and Ukraine deadlocked, it is difficult to change the situation of high commodity prices in the short term.

The Fed's shrinking table means a surge in the supply of Treasuries, with falling prices pushing yields higher. Borrowing costs have risen sharply since early March, when interest rates are expected to rise. After the contraction table is opened, this trend is expected to accelerate further. Under the current shrinking process, facing an environment of increased volatility and a lot of uncertainty, the market needs to absorb a large amount of treasury bonds, and the liquidity of the US Treasury market has deteriorated to the worst since the epidemic. The Barclays u.s. composite bond yield index is down 8.03% so far this year.

As for US stocks, "Don't fight against the Fed" is good advice, and it is difficult for stock indexes to perform well in the US interest rate hike cycle. According to the Federal Reserve Watch of CME Group, the probability of the Fed raising interest rates by 25 basis points by May is 9.0%, and the probability of raising interest rates by 50 basis points is 91.0%.

So far this year, the three major u. S. stock indexes are still negative, with the NASDAQ falling the most, down nearly 15%. Jeffrey Gundlach, the "new debt king" on April 12, said that the recent stock market pattern is very similar to that of 1999, warning that "the economic tragedy of the US stock market crash is likely to repeat itself."

Inflation seems to be the source of all this, when inflation peaked, the market is likely to return to the "normal" trend.