Global equity market futures are struggling to make gains today, likely for no other reason than with rising daily Covid-19 cases in the US remaining front-page news, the headlines are proving to be a weighty burden to bear this morning (so far). It's challenging to envision markets pushing much higher ahead of tomorrow’s US claims, but every time I ring in a cautionary tone these days, I usually end up eating my words.
The trough in global growth is indeed behind us, but the recovery trajectory in H2 remains uncertain. I get the sense that no one has any idea what normal will look in Q3 while deferring to throwing a lot of spaghetti at the wall, hoping that some sticks (good or bad).
The North Korean leader Kim Jong-Un has suspended plans for "military action" against South Korea and the KRW has quickly expunged the residual geopolitical tail risk hanging over the Won. I hate to sound like a broken record, but escalating Korean threats remain one of the best fade trades in the business.
There's a lot of macro focus on declining US real yields.
Ten year real yields are trading at a 7-year low of -0.67%. I’m not an economist so I’m not going to wade in if those negative real rates reflect secular stagnation or a global savings glut, but what I do know from history is that if low real yields are exceptional for gold, then negative real interest rates must be a godsend.
Concerns over a weaker US dollar and that a jump in coronavirus infections will lead to more stimulus measures Against this backdrop, bullion should remain on a reasonably constructive path paved with golden bars and should continue outperforming other safe-haven assets.
This week's trade of the week has worked to perfection, the AUDNZD surging higher as the RBNZ waxes dovish after the Monetary Policy Committee agreed to continue with the Large Scale Asset Purchase (LSAP) program to keep interest rates low for the foreseeable future. So, is the next step negative rate territory if the economy warrants?
Looking ahead to the August statement when the Committee will re-set its economic forecasts, it keeps the door open to providing additional policy stimulus, implicitly suggesting that it's prepared to cut beyond the zero bound: "As well as potentially expanding the LSAP program, the Committee continues to prepare for the use of additional monetary policy tools as needed.”
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Soaring US yields trigger the wrecking ball effect as yields become a source of volatility for risk, rather than a source of support