The equity market is hit by deja vu from August 2024. Back then, a BOJ rate hike combined with weak US jobs data, and investors rushed to unwind positions financed by cheap yen. As a result, the Nikkei plunged 12% in one session, marking the largest one-day drop since 1987 and dragging the S&P 500 and Bitcoin down with it. Today, US equity indices are enduring a fourth consecutive day of declines, the longest run since June, and Wall Street increasingly draws the historical parallel.

Stock index performance

This time, the trigger is relentless oil gains and fresh evidence of sticky inflation. The Producer Price Index rose 0.4% month-on-month in August, the highest reading since May. ECB President Christine Lagarde also issued a hawkish warning that eurozone inflation will remain materially above the 2% target through 2028. Both signals imply the global central bank tightening cycle is not over, leaving little near-term support for risk assets.

Treasury yields jumped again on the oil surge, a strong wholesale inflation print, and US President Donald Trump's pledge to send Americans $5,000 checks if Republicans retain Congress — a promise that would add more than $1 trillion to the federal deficit. Infrastructure Capital Advisors warns that the Treasury yield rally is unequivocally negative for equities. Higher rates not only raise borrowing costs but also pull capital from risky stocks into safer bonds.

Yen and currency interventions dynamics

However, KBC Securities sees the main market threat not as bonds but the yen. It is the indicator the company is watching closely as a warning sign for global equities. Analysts point to still-elevated speculative positioning.

A rapid unwind of carry trades could force funds to sell the most liquid, high-return assets for cash, hitting the tech names that powered the S&P 500's rally this year — and cryptocurrencies — hardest. Those were exactly the assets that suffered most in 2024.

Investors now pin hopes on Friday's CPI report. Traders have already pushed the odds of a September Fed hike to about 70%, pricing in further tightening by October. For equities to recover, yields and oil need to come down. A soft CPI is arguably the only scenario that would make that happen.

Technically, the daily chart shows that the S&P 500 is completing both a narrowing-wedge and a 1?2?3 pattern. Short positions opened at 7,675 should be held and scaled in occasionally. Targets to watch are 7,520 and 7,460.