FXTM information and reviews
IronFX information and reviews
Libertex information and reviews
FXCC information and reviews
Markets.com information and reviews
FxPro information and reviews
42 303.99

Yield meltdown boosts yen, RBA holds the line

3 August 2021

The sense of nervousness that haunted the bond market in recent months has returned, putting investors across every asset class on red alert. Yields on government bonds continue to melt down, indicating spectacular demand for safe assets even despite their negative real returns. 

The question is whether the bond market is sensing something sinister ahead or whether the latest moves can be explained away as technical. There are solid arguments on both sides. 

The rampaging Delta variant is being blamed for these jitters. It has started to infect China and it could hamper the recovery in unvaccinated economies, fueling the narrative that ‘peak growth’ is behind us. That said, central banks are still buying an absurd amount of bonds and some players like banks are simply forced to buy truckloads of Treasuries as top-tier collateral. 

Therefore, it is difficult to say how much of the meltdown in yields is an economic signal and how much is just noise in a market heavily manipulated by central banks. For now, the global slide in yields is boosting the Japanese yen. The yen is one of the lowest-yielding currencies, so when foreign yields drop, its chronic interest rate disadvantage is reduced and it becomes more attractive. 

Stocks take notice but don’t panic

The catalyst for this latest round of nerves seems to have been the ISM manufacturing survey from America. The index fell a little in July, amplifying concerns that global industrial momentum is slowing. That sent chills through markets. The S&P 500 erased some early gains to close the session in the red and oil prices tanked. That said, this whole episode seems like an overreaction. The ISM index still stands at 59.5, which is very elevated by historical standards, and the Markit manufacturing index even hit a new record high. 

Some hawkish remarks by Fed Board Governor Christopher Waller may have contributed to the reversal in sentiment. He stressed that if the next couple of employment reports are strong, around the 800k range for nonfarm payrolls, then the Fed could announce tapering in September already. 

This is the most explicit any Fed official has been so far. Waller gave markets both an economic condition for tapering and a specific timeline. He is a permanent voter in the FOMC, so his views carry weight. The dollar got a small boost after his comments but nothing spectacular. Markets still think the Fed won’t pull the trigger so soon, which sets the stage for some powerful moves if the upcoming jobs data are truly impressive. 

RBA refuses to backpedal on tapering

Elsewhere, the Reserve Bank of Australia kept policy unchanged today. Policymakers stuck to their earlier plans to trim asset purchases, even despite the onslaught of negative economic developments over the past few weeks. The overall message was that the RBA isn’t ready to hit the panic button yet, but it might if the situation escalates any further. That lifted the Australian dollar as most investors were expecting the Bank to put its tapering plans on ice immediately. 

Meanwhile, the kiwi got its own boost overnight after the RBNZ announced it will begin to tighten mortgage lending standards soon to cool the housing market. 

There isn’t much on the agenda for today, but there could be some more fireworks in the kiwi early on Wednesday, when New Zealand’s jobs numbers for Q2 will be released. This will be the last major dataset before the RBNZ meets on August 18, where markets are pricing in an 80% chance for a rate increase.

By XM.com


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
HotForex information and reviews
XM information and reviews
FXCM information and reviews
Vantage FX information and reviews
Vantage FX
Moneta Markets information and reviews
Moneta Markets

© 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.