Following a week of lacklustre performances global equities markets appear poised for a comeback as turmoil in the bond markets has faded and Asian, European and US equity futures are on firmer ground. For the last several trading sessions, the tumult in global bond markets had spilled over into other asset classes as the close of last week handed a number markets their worst performance in years. Much of the commotion had been kicked off last week by a slide in European and American bond pricing as investors re-evaluated the prudence of investing in an asset class which Federal Reserve chair, Janet Yellen, indicated was clearly overvalued. However, with today’s report that both the broader Eurozone and German GDP growth came in less than expected this slide has been reversed as capital has flowed back into bonds pushing yields back to their historically low levels. Despite this shift in risk appetite and corresponding flow into fixed income securities, not much has changed in terms of the valuation of the common currency, as today’s trading has the euro changing hands in the low 1.12 handle versus the greenback and high .71s versus the sterling.
Moving onto the British Isles, after posting its best performance in months on the back of a conservative majority and solid economic data, the sterling has taken a knock. The pound is off nearly a cent and a half against the greenback in the wake of the Bank of England’s latest inflation report which included a reduction in growth forecasts for the British economy with the implication that despite solid wage and employment growth, interest rates within the United Kingdom will be likely to stay at their historic lows for some time with the BoE disclosing that their timetable for rate rises extends well into 2016.
After today’s retail sales that missed expectations and a resurgence in the fortunes of oil and commodity producers, the greenback is on a sharply weaker footing against its pairs. The poor read on retail sales has further eroded the buck after a week of the DXY index trading in red as the USD gave up ground against its major counterparts, particularly against commodity producers such as Australia and Canada. With the USD trading below the 1.20 level against the loonie there is a risk that today’s release of crude oil inventories further depresses the value of the dollar against the CAD such that unhedged Canadian exporters planning on a quick revival in the dollar will be surely disappointed.
Further reading:
AUD/USD approaches to 0.81 – extending gains on poor US retail sales
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