US-policy-driven market stress in Asia ex-Japan FX markets: Nomura’s market-stress indicator climbs to +2.8 standard deviations as US yield pressure intensifies

Overview

This Asia ex-Japan FX strategy note assesses whether market stress is becoming large enough to create pressure for a moderation of US policy actions or rhetoric. Nomura finds that its proprietary stress indicator has risen sharply, with higher US Treasury yields becoming the principal driver since 10 September.

Core views

Nomura’s market-stress indicator (MSI; Bloomberg ticker: NOMUMSI Index) rose sharply to +2.8 standard deviations on the report date, from a recent low of -0.10 standard deviations on 27 August. The report dates the turn in stress to the period beginning with Fed Chair Warsh’s hawkish Jackson Hole speech on 28 August. Nomura uses the indicator to gauge the degree of financial-market strain that could prompt President Trump to retreat from policy actions or rhetoric. The report separates the drivers of the move higher. At first, the indicator rose as US equities weakened; higher global energy prices then added to the stress. Since 10 September, however, Nomura says the predominant driver has been the sharp increase in the 10-year US Treasury yield. It links that yield rise to inflation concerns, higher energy prices and evidence of US economic resilience, including the September US S&P PMIs. Nomura concludes that the higher stress reading is increasing pressure on the Trump administration to soften aggressive policy actions or rhetoric, citing actions against Iran as an example. The report also flags a separate risk: strong action or resistance by the US Treasury against the rise in US yields could alter the market dynamic.

Analysis framework

Nomura tracks a proprietary cross-market stress indicator and attributes its change over time to movements in US equities, global energy prices and the 10-year US Treasury yield. It then interprets the stress level as a potential constraint on US policy rhetoric and actions.

Methodology notes

• Other

  Nomura market stress indicator (MSI)

  A proprietary indicator used to assess the extent of market stress and whether that stress could pressure US policymakers to moderate their actions or rhetoric.

• Fixed Income and CreditYield curve analysis

  Attribution of market stress to the rise in the 10-year US Treasury yield

  The report treats the rise in the benchmark long-term Treasury yield as the dominant recent transmission channel for market stress, linking it to inflation, energy prices and US economic resilience.

Key data

• Nomura market stress indicator+2.8sdRecent high on the report date.
• Nomura market stress indicator-0.10sdRecent low on 27 August.
• Key recent driver10-year US Treasury yieldSince 10 September, its sharp rise has predominantly driven the MSI higher.
• Reference event28 AugustNomura dates the start of the stress build-up to Fed Chair Warsh’s hawkish Jackson Hole speech.

Impact & implications

The report indicates that worsening market stress may raise political pressure for a moderation in aggressive US policy rhetoric or actions. It also identifies potential US Treasury resistance to rising yields as a factor that could change the market response.

Risks

• Strong action or resistance from the US Treasury against rising US yields could alter the market dynamic.

What to watch

• Whether the market-stress indicator remains elevated or rises further.
• Movements in the 10-year US Treasury yield, particularly those linked to inflation concerns, energy prices and US activity.
• Whether the US administration moderates aggressive policy actions or rhetoric.
• Any strong US Treasury response to the increase in US yields.