The dollar and yen have continued to be floated by haven demand, while risk-off positioning has continued to weigh on the dollar bloc and many developing-nation currencies. The pound, being apt to weaken during periods of risk aversion, has continued to underperform peer currencies, with an unexpected contraction in UK July retail sales and a dip in UK August consumer sentiment only adding to the bearish sentiment. Beijing’s regulatory clampdown continued today with the announcement of tighter consumer privacy laws.
The pandemic also remains a pressing concern. Israel, which was the first country to vaccinate the majority of its adult population, is — alarmingly — now amid a fourth wave of the pandemic that is turning out to be as bad in terms of daily infection rates and deaths as previous waves. The reason is the combo of the delta variant and a waning in immunity in vaccinated people.
The vast majority of vaccines administered in Israel were the Pfizer version, and a growing body of evidence is suggesting that the protection offered by this vaccine recedes after about six months. New cases and deaths continue to rise in the U.S., meanwhile, and many countries in the Asia region are now being impacted significantly, having managed to avoid a serious public health consequence in previous waves. The isolationist policies in Australia and New Zealand also appear to be failing.
I live in Florida that has kept businesses open and does not allow mask mandates or vaccine passports. Business is booming here and life appears to be “normal.” I talked to some family members that are nurses and the hospitals are filling up. Many of the people are “unvaccinated.” However, an increasing number of vaccinated people are getting the virus. This has to lead the government to look at a 3rd booster shot. As of this morning, the government has pulled back on the 3rd shot.
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This leads me to think that we are going to have Covid for some time and that neither vaccines nor shutdowns will have a lasting effect in stopping them. I expect there were continue to be “shutdowns” in Democrat-controlled areas and worldwide for the next 1-2 years.
Against this backdrop, investors are wary and are acting accordingly. The MSCI Asia Pacific equity index tumbled by nearly 1% and hit lows not seen since last November. European stock markets are coming under fresh pressure in early trading, as are U.S. index futures in overnight trading. Oil prices remain heavy, although are above yesterday’s two-month lows. The narrow trade-weighted DXY dollar index pegged a nine-month high at 93.59.
Treasuries recovered and found a bid Thursday after Wednesday’s FOMC minutes unnerved some investors that QE tapering could begin as soon as September. That sparked some modest selling pressure yesterday. But in retrospect, that is now being seen as something of an overreaction and dip-buying re-emerged. The long end of the curve led the way with yields falling over 2 bps to 1.235% on the 10-year and 1.874% on the 30-year.
Positive Note: It may be a great time to refinance your mortgage to a lower rate.
The Federal Reserve is in a no-win scenario when dealing with the next financial crisis or recession. There’s a case that the Fed won’t allow the bubble to burst, instead of reviving asset prices through more buying programs. If the Fed does nothing, then they risk allowing a multi-trillion dollar bubble to unwind, which would likely plunge the United States into a depression.
Yesterday Wall Street was generally soggy in choppy trading. Concerns over growth were manifest in another sizeable drop in energy. The Dow was the underperformer late in the session and closed with a -0.19% dip. The S&P 500 and NASDAQ rallied to finish with respective gains of 0.13% and 0.11%. The data mix showed further declines in jobless claims to post-pandemic lows, while the Philly Fed was weaker than expected as producer sentiment unwinds its lofty levels from the spring. The small $8 bln 30-year TIPS reopening garnered solid results, especially from indirect bidders.
This morning the stock markets are broadly lower once again, with risk aversion still dominating and Asian markets underperforming. Media reports that authorities have agreed new regulations on data privacy weighed on tech giants. Virus developments across the region also remained in focus, and tapering concerns linger with investors cautiously eyeing the upcoming Jackson Hole Symposium for signals on the Fed’s schedule.
Haven assets remained supported, while Europe’s Stoxx 600 index is on track for the biggest weekly loss since February, as Bloomberg has pointed out. DAX and FTSE 100 are currently down -0.5% and -0.3% respectively, the Eurozone Stoxx 50 has lost -0.3%. U.S. futures are posting losses of -0.2-0.4%. Asia markets underperformed and the Hang Seng was down -1.8% at the close, the CSI 300 lost -1.9%. Shanghai and Shenzen declined -1.1% and -1.2%. Outside of China, the Kosdaq lost more than 2%, while Topix and Nikkei were down -0.87% and -0.98% at the close, the ASX -0.05%. The front-end WTI future meanwhile dropped back to USD 63.22 as confidence in the global recovery weakened.
Today’s U.S. economic calendar is bare to end the week which will give traders lots of time to assess positions in a very uncertain world. The only larger-cap earnings report comes from Deere. Attention will be fixed squarely on the Jackson Hole central banker meeting on August 26-28.