Global interest rates rise, the global financial landscape is witnessing a continued rise in interest rates, driven by a decline in demand for equity leverage.

The S&P 500 closed the day essentially unchanged, rising by 16 basis points. The market's focus remains on the critical 5870 level, which was tested once again yesterday. We've highlighted this level multiple times as crucial; a break below it could trigger a more significant decline, possibly through a gap lower as early as Friday morning. Such a move could form an island reversal top, completing the head-and-shoulders pattern we've been monitoring for weeks.
 

Anticipating the Jobs Report

As equity markets reopen on Friday, investors will be looking forward to the highly anticipated jobs report. The market's activity yesterday likely reflected some positioning ahead of this news, as seen in the VIX one-day index, which increased by 4 points to 18.25.

Once the event risk passes, implied volatility typically drops sharply, leading to a decrease in put option values. This decline can prompt market makers to adjust their hedges, often resulting in market rebounds, regardless of the news. However, these rebounds are usually short-lived, with markets normalizing soon after.
 

Options Activity Insights

For the January 10 S&P 500 expiration, substantial put activity was noted at the 5790, 5800, and 5850 levels, while call options were active at the 6000, 5950, and 6150 levels. The predominance of put activity suggests a focus on downside protection. Following a decline in implied volatility post-event, these puts could lose value, potentially driving markets higher due to the dynamics of hedging.
 

Global Interest Rate Trends

Interest rates are trending upwards globally, particularly in the UK and Japan. The UK 30-year rate rose nearly 13 basis points yesterday to 5.37%, breaking out of an ascending triangle. The UK 10-year yield also reached its highest level since July 2008, with the 2-year yield climbing to levels not seen since April 2024.

In Japan, the 10-year yield surged to 1.18%, the highest since June 2011. Expectations suggest that if Japan’s overnight rate rises to 0.75% or 1% by year-end, the 10-year yield could increase further.

Conversely, China’s 10-year yields fell to 1.61%, indicating a different trend.
 

Currency Dynamics

One critical area to watch is the Chinese yuan, which is nearing the upper limit of its trading range. Speculation arises that China may be selling U.S. Treasury bonds to support its currency. If the USD/CNY exchange rate rises above the 7.30–7.32 level, it could create instability in global markets.

Bitcoin and Liquidity Signals

Bitcoin's recent sharp decline may also signal liquidity issues. Should Bitcoin drop below the $92,000–$91,000 range, it could retrace to $87,000 or even $68,000. The current chart indicates a potential head-and-shoulders pattern with a neckline at $92,000, adding to concerns.
 

Declining Equity Financing Costs

Equity financing costs have seen a notable decrease. For instance, the January BTIC S&P 500 total return futures, which previously traded at 227 basis points above the Fed funds rate, closed yesterday at just 1 basis point above it. March and June contracts have also experienced significant declines, reflecting a waning demand for leverage.
 

When considering shares, indices, forex (foreign exchange) and commodities for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. 

Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice. Trading cryptocurrency CFDs and spread bets is restricted for all UK retail clients.