Safety-Seeking Hot Money Flows Dominated Overnight Financial Markets – Currency Thoughts
Safety-Seeking Hot Money Flows Dominated Overnight Financial Markets
August 2, 2024
The mood of investors around the world has suddenly become very guarded. The possibility of a broader Middle Eastern War has increased. An increasingly isolation-minded American public doesn’t seem properly prepared for that event, let alone the even more challenging risks associated with a Sino-Russian-led alliance of authoritarian rule. Initial euphoria when President Biden withdrew from the presidential election campaign has given way to a more sober assessment that the odds still favor the return of the far-right to running the U.S. government.
That being said, the specific trigger for today’s investor anxiety and move into perceived less risky financial assets relates to monetary policy worries. On the same day that Bank of Japan officials made their most significant move thus far toward abandoning an ultra-loose stance, the Federal Reserve sent a mixed signal that was received with confusion. On the one hand, Chairman Powell’s press conference offered an upbeat summary of current U.S. economic trends and suggested that an initial rate cut at the September meeting appeared highly likely. But the ensuing Q&A session pointedly questioned the decision not to ease this month and pre-emptively blamed hesitant policymakers if a recession now ensues. Even more regrettably, the press conference was swiftly followed a series of weaker-than-anticipated U.S. data releases that lent credence to the concerns of journalists participating in Wednesday’s press conference.
The maelstrom of market jitters provides a fragile backdrop for today’s scheduled release of U.S. July labor statistics. The forecaster consensus (175k of job creation, with an unchanged 4.1% unemployment rate and marginally lower on-year wage growth of 3.7%) would still be a pretty good outcome. Something worse could feed market fears, and even the consensus figures might not be enough to allay the concerns.
Meanwhile, in overnight equity market action, Japan’s Nikkei-225 index plunged 5.8%, and share prices also tumbled 3.7% in South Korea, 4.4% in Taiwan, 2.1% in Australia and Hong Kong, and 1.1% in India and Singapore. Stock markets are down 1.7% in Italy, 1.6% in Germany and 2.8% in Switzerland, whose market had been shut Thursday for a national holiday. U.S. stock futures are 1-2% lower with about an hour to go before the U.S. data arrive.
Ten-year sovereign debt yields fell so far today by nine basis points in Japan, four bps in Germany and the United States, and three bps in Great Britain.
The dollar has not exhibited refuge currency properties this Friday, dropping by 0.6% against the Chinese yuan, 0.4% relative to the Swiss franc, Japanese yen and New Zealand dollar, and 0.2% versus the euro. One currency against which the dollar kept rising was the Mexican peso, poised to be victimized if Trump returns to power.
The king of safety havens, gold, jumped 1.1% overnight and set a new all-time high of $2,513.40 per ounce. Bitcoin, a wannabe challenger to most-favored haven status, fell 1.3% instead. Oil has been an oasis of stability, by comparison.
Among released data today from overseas, South Korean consumer prices rose 0.3% on month in July, most in five months, which lifted their 12-month increase to 2.6% from 2.4% in June, 2.3% in July 2023 and 6.3% in July 2022.
Georgian consumer prices fell 0.4% last month and were just 1.8% higher than a year earlier.
Higher housing costs lay behind Australia’s great-than-anticipated 1.0% advance in producer prices last quarter. That jump lifted the on-year producer price inflation rate by half a percentage point to a five-quarter high of 4.8%.
Romanian producer price inflation of 1.1% turned positive in June for the first time in a year.
The Swiss and Mexican manufacturing purchasing manager indices fell in July to 3- and 18-month lows of 49.6 and 43.5.
Swiss consumer price inflation held steady at 1.3% last month, and Georgian CPI inflation declined 0.4 percentage points to a 3-month low of 1.8%.
French industrial production recovered 0.8% in June from a 2.2% dive in May but remained 1.6% below its year-earlier level.
Italian industrial production and retail sales were respectively 2.6% and 1.0% below their year-earlier levels in June.
Turkey’s $50.3 billion trade deficit over the first seven months of 2024 was down from a $74 billion shortfall a year earlier.
Copyright 2024, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Australian producer prices, financial market flight to safety, French and Italian industrial production
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