FX Trader, Loonieviews.net
No one is asking “who let the dogs out?’ The question de jour instead is “who let the dollar bears out?” The US dollar retreated across the major G-10 spectrum since New York opened. The answer may be a combination of US inflation disappointment, the ECB, and Turkish central bank actions.
US August CPI was weaker than expected but the disappointment was tempered to a degree by the robust Initial jobless claims data.
The ECB left rates unchanged to no one’s surprise and confirmed that the net asset purchase program (non-standard) monetary policy would continue until December. Markets were concerned that the program would be extended due to the Turkey crisis. Draghi warned of rising risks from trade disputes, financial market volatility, and emerging market volatility.
Turkey took a big step in alleviating some financial market stress today when they hiked interest rates by 6.25% to 24.0%. USDTRY plunged to 6.0200 from 6.3850.
Wall Street opened with gains led by the Nasdaq which was yesterday’s worst performing index of the US “big three.” The gains are being attributed to improved sentiment stemming from the US offer to restart trade talks with China. The Nasdaq is bolstered by a 1.61% gain in Apple (AAPL: xnas) which more than reversed yesterday’s 1.29% decline.
The Bank of England monetary policy meeting lived up to its “non-event” expectations. They left interest rates unchanged at 0.75% and warned of increased risks from Brexit.
GBPUSD soared after France’s Europe Minister Nathalie Loiseau said that although the EU27 were united and they won’t bend the rules, there was good will. Stretched short GBPUSD positions may have exacerbated GBPUSD gains from 1.3028 to 1.3122.
USDCAD traded lower in line with the broad greenback weakness, The US/Canada trade talks have stalled, and despite reports to the contrary, access to Canada’s dairy industry and the dispute resolution mechanism continue to be stumbling blocks.
Bond. Long Bond(s)
With real rates being too positive, we see three scenarios: Opportunity to lock in rates at cycle high, government overreach to keep the economy afloat or a complete reset of the economy.
Steen Jakobsen,
Chief Investment Officer
Is a bond bull market ahead? Inflation still poses a risk for investors, but the moment for increasing duration to your portfolio may be approaching towards the end of the year, when central banks might be forced to cut interest rates.
Althea Spinozzi,
Senior Fixed Income Strategist
The furious rate hike cycle has brought gains in the US dollar, but with stagflation risks in Europe and the UK and weakness in the Chinese economy, USD may have more room to run. But a strong dollar could also have repercussions for US growth, emerging markets and commodity prices.
Charu Chanana,
Market Strategist
With the cost of capital rising painfully, stagflation fears are back, illuminating the fragile state of the green transformation, while giving a tailwind to nuclear power, and threatening the growth of AI-related stocks.
Peter Garnry,
Head of Equity Strategy
With supply tightness not only in energy but all commodities, the momentum in commodity prices may continue, pressuring central banks to lower real rates. That could be a good setup for precious metals, including gold, silver and potentially platinum as well.
Ole S. Hansen,
Head of Commodity Strategy
As the pandemic showed, even the US Treasury can experience seismic shifts. With the government increasing the pace of issuing bonds to support fiscal spending, the complex Treasury market and regulatory constraints could spark a liquidity event.
Redmond Wong,
Market Strategist
The tide has turned for bonds. Given the current yields, bonds have become an attractive investment, with added benefits including lower risk than stocks, increased diversification and a steady stream of income unaffected by economic changes.
Peter Siks,
Investment Coach
