 Global stock market crashed last week as the US finally joined the others. It should be reminded that as DOW made record high in early October, all other major markets suffered selloff already. It's stretched to blame rising US treasury yields as a factor as it's easy to see that yields haven't took out prior week's high before US stock market crash. To put the blame of the selloff on Fed is even more far-fetched. Just look at what happened. DOW enjoyed only a brief recovery when US released tamer than expected CPI reading on Thursday. US indices then ended another day in deep red. After all, the world is so interconnected that what goes around will almost certainly comes around. IMF's downgrade of global growth forecasts is a proof of the impact of trade tensions started by the US, as also reflected in deteriorating German and Japanese investor sentiments. Such deterioration just went back to haunt the US and will continue to do so. In the currency markets, Dollar ended the week broadly lower, except versus Canadian, after Trump attack the Fed as going crazy, wild, loco for rate hikes. Though, the greenback reclaimed some ground with a general consensus that Fed will continue with its professional world based on economic data, and ignore the ignorable. Swiss Franc was the third weakest despite risk aversion. Gold looked like the better safe haven asset. Yen ended the week as the strongest one, which was rather natural based on risk averse sentiments. But in a rare development, New Zealand Dollar was the second strongest, Australian the third. As we discussed below, investors have just slightly pared back bets on Fed's rate hikes despite Trump's crazy attack on Fed. The retreats in US treasury yields are seen as nothing more than retreats in up trend. Such developments will continue to support Dollar and give it the strength for another rally eventually. Meanwhile, Euro will be weighed down, relative to Dollar, on sluggish German yield, which Italy is a constant drag. US stocks have entered into medium term correction and risks will continue to stay on the downside despite some interim recoveries, in tandem with global stocks. Japan 10 year JGB yield, currently at 0.15, would continue to find it very hard to move further away from BoJ's allowed band of -0.1 to 0.1%. But risk aversion, in particular in Asia, could help support the Yen. |
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