Interest Rate Fears Replace Tariff Fears as Crypto Pulls Back

The latest in a series of reversed tariff threats by President Trump isn't having the hoped-for effect on risk markets at least halfway through the U.S. trading day on Thursday.

The stock market initially bounced off a sharply lower opening and bitcoin (BTC) rose through $91,000 as Commerce Secretary Howard Lutnick — in an appearance on CNBC — said the president would exempt Mexico from his new 25% tariff for any goods or services covered under a previous trade agreement. The nicer stance toward the country's neighbor to the south was confirmed later by a social media post from Trump.

The positive moves in markets were short-lived though, with the Nasdaq at its session low just past the noon hour on the east cost, down 2.3%. Bitcoin has pulled back to $88,500, down nearly 1% over the past 24 hours.

This just in: Stagflation

Possibly lost in the unending ebb and flow of news emanating out of D.C. is a sharp rise in interest rates across the developed world.

With U.S. military support for Europe possibly on the decline, governments across the continent are pledging budget-busting increases in defense spending. Germany, for instance, this week saw one of its worst bond crashes ever, with the 10-year Bund yield jumping more than 40 basis points to the current 2.83%.

In Japan, where long-term Japanese Government Bond (JGB) yields were little more than a handful basis points for what seemed like decades, the 10-year JGB yield rose another 6 basis points to 1.51% overnight. That's more than double the level of six months ago.

The moves haven't been ignored by U.S. markets. The 10-year Treasury yield — which had previously had declined about 70 basis points since the Trump inauguration — has risen more than 20 basis points in the last 48 hours to 4.30%.

"The recent move in global bond yields has put me on high alert," wrote Lekker Capital's Quinn Thompson. Particularly concerning to Thompson is that yields are rising as growth slows.

"We are witnessing the exact definition of stagflation which historically has not treated risk assets well," he continued.

Friday brings the latest U.S. jobs figures

The large gains in interest rates brings a renewed importance to the February U.S. Nonfarm Payrolls Report to be released Friday morning.

Economists are expecting payrolls to have risen 160,000 versus 143,000 in January. The unemployment rate is seen remaining steady at 4%. A strong print — and employment reports have tended to run ahead of expectations for many months running — could send rates pumping even higher, and risk markets, crypto among them, into a new leg down.