FXTM information and reviews
FXTM
93%
IronFX information and reviews
IronFX
92%
Libertex information and reviews
Libertex
91%
FXCC information and reviews
FXCC
90%
Markets.com information and reviews
Markets.com
89%
FxPro information and reviews
FxPro
88%
EUR/USD
1.1720
BTC/USD
43 049.60
GBP/USD
1.3652
USD/JPY
109.3010
USD/CHF
0.9238
USD/CAD
1.2806
EUR/JPY
128.0989

Stocks and dollar stabilize as bond chaos cools


9 July 2021

After a week of mayhem across global markets, calmer tones are finally prevailing. The source of all the stress was the bond market, where yields started to break down. Such a move usually signals worries about weaker economic growth, which would ultimately translate into slower rate increases by central banks. 

Is the bond market short squeeze done?

When the bond market says something might be wrong, other asset classes pay attention. Stock markets came under fire yesterday and commodity currencies got hammered, while safe havens like the yen and Swiss franc shined bright. It was a classic risk-off move, with concerns around the rampaging Delta variant being blamed as the catalyst. 

However, that may be only half the story. The other part may be more technical in nature. Positioning in the bond market was stretched-short before this debacle, which means everyone was betting on higher yields by shorting the actual bonds. Fears around the Delta variant might have sparked the initial move, but it was likely amplified by a ferocious short squeeze in Treasuries. 

What does it all mean? In a nutshell, this pandemonium could fade soon as the short squeeze runs its course. We are already seeing signs of that today, with Treasury yields rebounding and Wall Street stabilizing. If that is the case, the latest gains in the yen and franc could evaporate soon. 

Dollar claws its way back, gold struggles

The US dollar declined yesterday but is on track to close the week higher overall. That is quite impressive considering that falling Treasury yields are usually the dollar’s kryptonite, and is a testament to the reserve currency’s safe-haven appeal. If the world economy - and especially emerging markets - are going to take a hit as the Delta variant spreads, then the dollar is probably the place to hide. The US is among the leaders in the global vaccination race and its economy will likely suffer the least thanks to the gargantuan spending programs. 

The dollar is essentially an all-weather currency. It can shine both when markets are fearful and when optimism is riding high, amid expectations of US economic exceptionalism. 

Over in commodities, gold could not advance yesterday even despite a softer dollar and falling real yields, which is a bad look. On the bright side, the precious metal is set to close the week with decent gains. Still, the big picture remains gloomy. It will be tough for bullion to regain its former glory if the havoc in bonds was truly a short squeeze that will fade out, and with inflation fears subsiding. 

ECB minutes, Canadian jobs, and earnings

As for today, the spotlight will fall on the minutes of the latest ECB meeting and jobs numbers out of Canada. We already heard from the ECB yesterday when it raised its inflation target, so the minutes are unlikely to move the needle for the euro. 

The Canadian data could bring some relief to the loonie, which has been demolished by the pullback in oil prices this week. Even so, vaccination rates are high and the outlook for the economy remains bright with US spending spilling over. The Bank of Canada could be among the first central banks to raise rates this cycle. 

Finally, Wall Street is headed for a higher open today as the stabilization in the bond market has given investors the green light to buy another dip. The recovery’s mettle will be tested next week when US banks get the earnings season rolling. 

By XM.com
#source

Related

Stocks bounce back after Evergrande panic
Stocks bounce back after Evergrande panic

As investors increasingly liken the Evergrande crisis with the collapse of the Lehman Brothers in 2008, they remain in the dark about the Chinese government's intentions...

21 Sep 2021

Oil Was Put on Hold
Oil Was Put on Hold

The oil price is falling after rallying before. Early in another September week, Brent is trading at $74.50 and has a lot of room to correct. The strong greenback...

20 Sep 2021

Dollar starts Fed week on front foot, stocks hit by Evergrande fallout
Dollar starts Fed week on front foot, stocks hit by Evergrande fallout

Fears of global contagion from the worsening crisis in China's property sector continued to weigh heavily on sentiment at the start of trading on Monday as markets...

20 Sep 2021

Dollar jumps, gold slumps, stocks nervous
Dollar jumps, gold slumps, stocks nervous

Worries that the US consumer is rolling over were dealt a major blow yesterday after the nation’s retail sales for August overpowered some gloomy forecasts. The retail sales...

17 Sep 2021

Energy is the play: how we get to $100 crude
Energy is the play: how we get to $100 crude

Natural gas futures in Europe and the UK are flying, while our natural gas (NG) CFD (the underlying is traded on the NYMEX) pushed over $5.60 and into 7-year highs...

16 Sep 2021

Are investors sleeping on systematic risk in China?
Are investors sleeping on systematic risk in China?

It’s time to talk about China. The situation is getting dicier as the nation’s second-largest property developer - Evergrande - is on the verge of default. Trading in the company...

16 Sep 2021


Forex Forecasts

OctaFX information and reviews
OctaFX
86%
HotForex information and reviews
HotForex
85%
XM information and reviews
XM
80%
FXCM information and reviews
FXCM
79%
Vantage FX information and reviews
Vantage FX
78%
Moneta Markets information and reviews
Moneta Markets
77%

© 2006-2021 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.