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Compared to last week, this one should be much slower. There are no central bank meetings and no major economic releases. The only notable event will be Micron’s earnings. Treasury will auction 2-year, 5-year, and 7-year notes on Tuesday, Wednesday, and Thursday, but settlements for these auctions won’t occur until next week.
For the most part, this week will be about digesting last week’s leftovers from the Fed, BoE, BoJ, and options expirations. The BoJ left rates unchanged on Friday, as expected. What wasn’t expected was that two members dissented, favoring a rate hike. As a result, the odds of an October hike have climbed to nearly 50%, up from virtually zero before the meeting.
As a result, Japan’s 2-year yield jumped 3 bps to its highest level in decades. The breakout from a bullish ascending triangle pattern suggests it could move significantly higher, with a target above 1.1% looking reasonable.
Meanwhile, the 5-year JGB also broke out of its ascending triangle, and a simple extension points to a move toward 1.4% or higher.
So far, the impact on USDJPY has been limited, which is puzzling given the collapse in Treasury–JGB spreads. One explanation may be that the FX market doesn’t expect U.S. rates to fall and instead anticipates the spreads correcting through higher U.S. yields.
In the meantime, 63-day realized volatility for the S&P 500 fell to 8.86 on Friday, below the levels seen in July 2024. The last time it was lower was in January 2020, October 2018, December 2017, and July 2014. Each of those periods was followed by a surge in market volatility, and given how overbought the market is now, it wouldn’t be surprising to see history repeat.
Finally, the idea that rate cuts automatically fuel the market higher isn’t entirely correct when viewed over time. Raising rates in 2023 didn’t stop stocks from rallying, even though theory suggested they should fall. Historically, the outcome has been more of a 50/50, data-dependent story. The chart below shows plenty of instances in recent history where Fed rate cuts were followed by stocks heading straight down. In the 1970s, rate cuts often lifted equities, but that hasn’t consistently been the case from the 1990s onward.
-Mike
Glossary
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Ascending Triangle – A bullish technical chart pattern formed by a rising trendline and a horizontal resistance level, often signaling a potential breakout higher.
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BoE (Bank of England) – The United Kingdom’s central bank, responsible for monetary policy and financial stability.
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BoJ (Bank of Japan) – Japan’s central bank, which sets the nation’s interest rate and monetary policy.
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bps (basis points) – A unit equal to one-hundredth of a percentage point, commonly used to describe changes in interest rates or yields.
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JGB (Japanese Government Bond) – A debt security issued by the Japanese government, similar to U.S. Treasuries.
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Realized Volatility – A measure of actual past market volatility, calculated using historical price data over a specified time frame.
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Treasury–JGB Spread – The yield difference between U.S. Treasury bonds and Japanese government bonds, often tracked to assess relative attractiveness and currency implications.
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USDJPY – The currency pair representing the exchange rate between the U.S. dollar and the Japanese yen.
Disclosure
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Subscribe to receive this FREE daily commentary directly in your email
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
Liquidity Tightening And Volatility Patterns Suggest Risk Ahead
Mott Capital's Market Chronicles September 19, 2025 1:26 PM