Rising virus cases leading to weak equities, lower bond yields, mixed dollar

News of rising coronavirus cases and deaths around the world is fueling a rush out of equities and into safe-haven bonds. US 5-Year Treasury yields dropped to a record low at 0.27%. News that two state-backed funds in China were taking profits on equities fueled a sell-off in global equities. The US dollar is mixed against its peers. The Japanese yen as a safe-haven is stronger, the USD/JPY dropping below 107 for the first time since late June. Oil fell below $40 a barrel and gold is back over $1,800 per oz.

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    July 10, 2020

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  • USD

    There was an overnight rush to the safety of bonds, the US dollar and Japanese yen amid record Covid-19 fatalities in several states and renewed travel restrictions in Italy and Australia. US Treasury yields dropped to fresh lows as investors moved out of equities: in addition to record low 5Y low yields, US 10Y Treasury yields dipped below 0.60% and US 30Y yields fell to 1.27%.


    The UK pound is showing good strength today. It’s risen by nearly 0.4%, trading well above $1.26, after UK Chancellor Rishi Sunak announced a £30bn tax cut and additional fiscal spending.


    The euro is lower on broad dollar strength and despite upbeat eurozone economic data: Italy’s Industrial Production for May rose an amazing 42.1% MoM, better than expectations of 24% and April’s contraction of 19.1%; France’s Industrial Production was not as strong, but impressive nonetheless, up 22% compared to April’s contraction of 21.9%.


    The Canadian dollar rallied from earlier weakness after news that Canada’s economy added 933k jobs in June, and its unemployment rate dropped to 12.3%, after a record high of 13.7% in May. The upbeat data was attributed to businesses reopening after having been closed to the pandemic.


    Two state-funded funds in China apparently took profits following the strong rally in Chinese equities over the last few weeks. The Chinese yuan moved little, and is hovering around the 7 level.

    The USD/JPY dropped below 107 as traders rushed to the safe-haven currency. Traders await a slew of economic data for Japan to be released early next week.

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Scott Petruska, CFA
Scott Petruska, CFA

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