Markets:
- US Dollar Advances, NZD Lags
- West Texas Intermediate crude oil fell $2.53 to $80.29 a barrel.
- US 10-year Treasury yields rise 5.3 basis points to 4.24%
- Gold falls $46 to $2,399
- S&P 500 down 0.7%
There’s nowhere to hide today as stocks, bonds, commodities and precious metals all plunge. The one exception is bitcoin, which has seen a stunning 5% gain, perhaps because the CrowdStrike scandal has highlighted the fragility of the tech ecosystem.
For the rest of the market, the event was a deleveraging amid heightened political and economic uncertainty. That meant selling everything as the market looked forward to a Fed blackout and a calmer summer. Given the recent turmoil, that may be a pipe dream, but the temptation to cash out after a 16% stock market rally to date is real.
In contrast to some other pockets of the market, the FX market was muted. The dollar’s weakness early in the week continued to erode with the euro retreating from the 1.10 level and the pound retreating after briefly breaking the 1.30 level. This appears to have been a break after an extended move after the election.
USD/JPY weathered Wednesday’s rout and held steady despite hesitation to approach 158 today. Yields were a tailwind and talk of the Bank of Japan holding off on further rate hikes helped. But there is concern about intervention or whatever the MoF’s guidance is.
Commodity currencies offer the most compelling story as they slide as the outlook for growth deteriorates both domestically and globally. China gave no hint of a change in course at the third plenary session, though there is some hope for post-parity announcements in the next week or two. Domestically, a weak Canadian retail sales report has bolstered next week’s interest rate cut and sparked talk of a deeper and faster rate-cutting cycle.
Have a great weekend. I’ll be off work next week, so I’ll see you in a few weeks.