Financial markets are continuing in the path they've taken the past few days with US yields and the dollar still climbing, equities suffering and emerging markets looking like they're heading for trouble.
"The key events across markets was the US bond yields breaking higher, with the 10-year benchmark closing near 3.09%. One wonders if this is bad for the dollar in the longer run but for now the focus is on the advantage to the US in terms of yield advantage," says John J Hardy, Saxo’s Head of Forex Strategy.
For the moment though, he adds, this is very bad for emerging markets, given the greenback's status as the world's reserve currency. "When the US dollar goes up and when US yields go up too all of this EM exposure to dollar-denominated debt puts a lot of focus on these countries," Hardy says. The Turkish lira is especially exposed to systemic risk and the lira is plumbing new lows ahead of the June election there.
Meanwhile, Japan's GDP was very disappointing with "unbelievable nominal growth at a negative 0.4% QoQ" Hardy says. This economic contraction, he adds "will keep the Bank of Japan away from any move on policy," he adds.
A side effect of the dollar/US yield developments is that equities are "stuck in the mud", reports Peter Garnry, Saxo’s Head of Equity Strategy. The S&P futures index, for example, met pretty hard resistance and has been selling off since. Other hurdles for equities include North Korea's cancellation of scheduled talks with its southern neighbour and some fresh and disappointing macro news out of Europe.
Finally today, Althea Spinozzi, from Saxo’s bond trading desk, notes that the US 10-year yield was very close yesterday to 3.10%, with its highest intraday being 3.09%. "The US 30-yr to 2-yr spread widened up a little but we're nowhere near a steeper curve," she adds. In Europe, these's pain for the price of sovereigns too because of that fresh evidence of that the economy is slowing.
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.
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