- Gold up to $7 to $1,628
- WTI crude oil up $1.75 at $78.46
- US 10-year rates up 7 basis points to 3.95%
- The S&P 500 loses 8 points to 3647
- GBP leads, AUD lags
We are now clearly in a trading environment where good news is terrible, as a set of four strong US data points helped trigger another rout in the bond market and turned a US dollar pullback into a modest rally. Alongside the data, comments from the BOE indicated that no immediate help is forthcoming and gilts have once again led the rout.
Every extra day of sales in governments is another nail in the coffin of the era of easy-to-spend governments. We have priced in +400bps of global central bank tightening and now may need to forecast at least the equivalent of government fiscal tightening.
This way of thinking is one of the reasons why risk appetite has once again turned into risk aversion today. On the forex side, the Aussie dollar was hit hard, dropping 35 pips on the day to hit a new two-year low at 0.6430, around 85 pips off the day’s highs.
USD/JPY also benefited from higher yields and overall USD strength. That pushed it up to 144.90, just a shade below the area that seemed to trigger intervention before.
The euro and the GDP ended the day relatively stable but that hides the disappointment of a failed rally after several days of selling.
Even the loonie did not advance despite a $2 rise in oil.
In conclusion, here is an ominous warning from BMO’s Ian Lyngen:
“The next area of focus is increasingly becoming spillovers into other economies, and while the UK has recently caught the eye of investors, currency defenses and default risk in other areas less-developed geographies promise to be a space to watch over the months-the end draws near.”