Yen And Bond Bulls Charged While Stocks Struggle Again

Marco Green
August 13, 2019

Yen and bond bulls charged on Monday while stocks struggled again, amid ongoing worries that a prolonged US-China trade war and damaging Brexit could tip top economies into recession. -China trade war will impact American economic growth pushed the dollar lower on Monday. In the U.S. Dow futures pointed to a higher open after China fixed the yuan at stronger-than-expected level.

Gold resumed its rise while FX safe harbour, the Japanese yen, shot to its highest in almost a year and a half at 105.15 yen against the dollar having also gained smartly against the euro and Brexit-bruised British pound.

Worries about the damaging effects of the trade war were underscored by a warning from Goldman Sachs of the rising risk of a US recession, and that it no longer expects a trade deal before the 2020 USA presidential election.

Wall Street futures were down 0.5 per cent. Blue-chip shares rose 1.04%, with listed brokerages boosted by a late-Friday announcement from China's securities regulator of relaxed margin financing rules.

Stocks in the near term lack a catalyst either from company earnings, the Federal Reserve or a trade deal, said Rahul Shah, chief executive of Ideal Asset Management in NY. I don't think there's any particular super-positive news behind that. "That does set up the market possibly for a correction at this point", he said.

Stocks could dip between 5% to 10% but lead long-term investors to enter the market as valuations fall, he said. The benchmark S&P 500 index is now nearly 5% off its all-time high set just 11 sessions ago.

European shares also fell, with the pan-regional FTSEurofirst 300 of leading European shares down 0.25%, while Germany's export-heavy DAX off 0.1%.

Sterling was last at US$1.2020 (RM5.03) and eyeing support at US$1.1979, which marks a low from January 2017.

A flight to perceived safe-haven assets helped to lift the price of gold above $1,500 last week for the first time since April 2013.

The dollar remained on the defensive against the safe-haven yen today as the Sino-US trade dispute looked set to drag on with no settlement in sight, while holidays in Japan and Singapore made for very thin trading.

Increasing expectations that the U.S.

The dollar dropped 0.26% against the yen to 105.39, and the euro added 0.1% to $1.1209.

"The longer the trade war drags on, the more likely it would weigh (on) the global outlook and crimp the world economy, a negative for market morale", said Joe Manimbo, senior market analyst at Western Union Business Solutions.

US long-term yields have fallen in six of the past nine sessions, reflecting investors' diminished risk appetite.

In bond markets, the demand for guaranteed income was also unrelenting.

Benchmark 10-year U.S. Treasury notes rose 28/32 in price to push their yield lower at 1.6386%.

Argentina's markets were ready for a slump too after voters soundly rejected President Mauricio Macri's austere economic policies in primary elections at the weekend, raising serious questions about his chances of re-election in October.

With 99% of the ballots counted, a coalition backing opposition moderate Peronist candidate Alberto Fernandez - whose running mate is former president Cristina Fernandez de Kirchner - had won by a far wider-than-expected 15.5 percentage points with 47.65% of votes.

Apart from its status as a perceived safe-haven currency which gains during periods of economic stress, the yen was also benefiting from growing expectations that the USA dollar may be ending a period of extended weakness after recent comments. -China trade war, which has reduced demand for commodities such as crude.

USA crude was down 0.48% to $54.24 a barrel and global benchmark Brent crude shed 0.43% to $58.28 per barrel.

Other reports by Click Lancashire

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