Investor mood sours from Hong Kong and Argentine turmoil, safe havens gain, dollar mixed
August 13, 2019
Investor mood continues to sour from the ongoing turmoil in Hong Kong and the political upheaval in Argentina. Risky assets are under pressure, while demand grows for US Treasuries, gold and the Japanese yen as safe havens. The US dollar did not similarly benefit, and had a mixed performance against its peers. The highly-regarded German ZEW Index today showed that Germany’s economic outlook worsened more than expected.
August 13, 2019
EUR/USD 1.1207 GBP/USD 1.2073 USD/CAD 1.3258 AUD/USD 0.6767 USD/JPY 105.45 USD/CNH 7.0853 USD/ILS 3.4878 USD/MXN 19.6042 USD/CHF 0.9685 USD/INR 71.3975 USD/ARS 58.7000
The dollar had a mixed performance overnight, making slight gains against the Canadian dollar, the Hong Kong dollar and the Chinese yuan, and slight losses against the euro and UK pound. US equities continue to fall and US Treasury 10-year yields dropped to 1.62%. This morning’s core CPI, which excludes food and energy, unexpectedly rose 0.3% in July from the previous month, lowering the odds for future Fed rate cuts, and pushing the UST yield back up to 1.65%.GBP
The UK pound bounced hard off session lows following the release of upbeat UK wage data for Q2. Wages rose unexpectedly by 3.9%, the fastest rate in 11 years and far outpacing current inflation at 2%. UK employment growth for Q2 was 115,000, also above expectations.EUR
The euro edged slightly higher, but seems anchored around the $1.12 level. The Stoxx Europe 600 Index fell for a third day amid weak investor sentiment data in Germany. According to the ZEW index, investor confidence in Germany’s economic outlook fell for the fourth straight month. The report suggests that Europe’s largest economy probably contracted in Q2, as slower global growth and the US-China trade war take a toll. The index fell to its lowest level since 2011, and was below even the most pessimistic forecasts.CAD
Higher US CPI figures impacted the Canadian dollar - it is the worst performing currency in today’s trading. Oil and commodity prices in general have been declining over the last month, negatively impacting the key commodity currencies – CAD, AUD, and NZD.ASIA/PACIFIC
The Chinese yuan was set at an 11-year low, but was still stronger than expected. Offshore yuan traders continue to hold short positions, anticipating an eventual decline in the RMB. An official at the PBOC told Reuters today that the yuan is at an appropriate level.ARS
The Argentine peso did not fall further today, but remains weak. Argentina’s sovereign ‘century’ bonds continued to weaken, falling to another record low and taking yields to more than 12.2% as investors priced in increased odds of a default.