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The Advertiser
2 days ago
- Business
- The Advertiser
Dollar skims low, MidEast tensions fuel risk-off mood
The dollar has neared a 2025 low while stocks eased from record highs, as a cocktail of rising Middle East tensions and concern over the fragility of a trade truce between Washington and Beijing drew investors into safe-haven assets. Separately, a report on US consumer inflation on Wednesday showed overall price pressures remained contained in May, largely due to declines in the cost of gasoline, cars and housing. But most economists expect inflation to pick up as the impact of US tariffs begins to bite. The dollar, which has lost around 10 per cent in value against a basket of currencies this year, skimmed its lowest levels since late April, which in turn, marked its lowest level in three years. Global stocks took a breather on Thursday from the almost-unbroken rally that has run since early April, leaving the MSCI All-Country World index down 0.1 per cent, just below Wednesday's all-time high. In Europe, the STOXX 600 fell 0.8 per cent, led mostly by airlines and autos, given the strength in the oil price, while futures on the S&P 500 and Nasdaq fell 0.5 per cent. The US administration on Wednesday said US personnel were being moved out of the Middle East due to heightened security risks in the region, which briefly drove oil prices up by four per cent before they receded. "(A flare-up in tensions) is a significant tail risk, but I don't think it is anybody's baseline forecasts. So it's something to watch if there is a real escalation there, then markets will take fright and that would have ramifications for the oil price," Daiwa Capital economist Chris Scicluna said. Iran, for its part, said it will not abandon its right to uranium enrichment, a senior Iranian official told Reuters on Thursday, adding that a "friendly" regional country had alerted Tehran over a potential military strike by Israel. Classic safe-haven assets got a lift. The Swiss franc and the Japanese yen strengthened, pushing the dollar down by around 0.6 per cent against both currencies, while gold held firm at $US3,350 an ounce. The sense of relief stemming from a positive conclusion to US-China trade talks earlier this week, which President Donald Trump said was a "great deal with China", evaporated by Thursday. Adding yet another dose of uncertainty in the markets, Trump said the US would send out letters in one to two weeks outlining the terms of trade deals to dozens of other countries, which they could embrace or reject. "Markets may have no choice but to respond to Trump's tariff threat - even if it's just posturing to bring others to the table. The gap between 'risk-on' positioning and real-world risks has stretched too far," said Charu Chanana, chief investment strategist at Saxobank. Trump's erratic tariff policies have roiled global markets this year, prompting hordes of investors to exit US assets, especially the dollar, as they worried about rising prices and slowing economic growth. The euro, one of the beneficiaries of the dollar's decline, touched a seven-week high and was last at $US1.1535. US Treasuries also rallied in price, pushing yields down 1.5 basis points to below 4.4 per cent, while two-year yields, which are more sensitive to inflation and interest-rate expectations, eased 1.6 basis points to 3.93 per cent. Later in the day, the focus will be on a producer inflation report as some of the components feed into the Fed's preferred inflation gauge - the Personal Consumption Expenditure Index. Wednesday's consumer index kept alive the prospect of the Federal Reserve cutting rates by a quarter point, but only in September, as policymakers assess how tariffs work their way through the real economy. "I suspect it's probably going to be a combination of the two. Therefore it makes sense for the Fed to wait and see what happens rather than rushing into a rate cut," AMP Capital's head of investment strategy and chief economist Shane Oliver said. Oil, which has fallen by 20 per cent in the last year, eased by one per cent to $US69.07 a barrel, but remained near two-month highs, adding another moving part to the outlook for interest rates. The dollar has neared a 2025 low while stocks eased from record highs, as a cocktail of rising Middle East tensions and concern over the fragility of a trade truce between Washington and Beijing drew investors into safe-haven assets. Separately, a report on US consumer inflation on Wednesday showed overall price pressures remained contained in May, largely due to declines in the cost of gasoline, cars and housing. But most economists expect inflation to pick up as the impact of US tariffs begins to bite. The dollar, which has lost around 10 per cent in value against a basket of currencies this year, skimmed its lowest levels since late April, which in turn, marked its lowest level in three years. Global stocks took a breather on Thursday from the almost-unbroken rally that has run since early April, leaving the MSCI All-Country World index down 0.1 per cent, just below Wednesday's all-time high. In Europe, the STOXX 600 fell 0.8 per cent, led mostly by airlines and autos, given the strength in the oil price, while futures on the S&P 500 and Nasdaq fell 0.5 per cent. The US administration on Wednesday said US personnel were being moved out of the Middle East due to heightened security risks in the region, which briefly drove oil prices up by four per cent before they receded. "(A flare-up in tensions) is a significant tail risk, but I don't think it is anybody's baseline forecasts. So it's something to watch if there is a real escalation there, then markets will take fright and that would have ramifications for the oil price," Daiwa Capital economist Chris Scicluna said. Iran, for its part, said it will not abandon its right to uranium enrichment, a senior Iranian official told Reuters on Thursday, adding that a "friendly" regional country had alerted Tehran over a potential military strike by Israel. Classic safe-haven assets got a lift. The Swiss franc and the Japanese yen strengthened, pushing the dollar down by around 0.6 per cent against both currencies, while gold held firm at $US3,350 an ounce. The sense of relief stemming from a positive conclusion to US-China trade talks earlier this week, which President Donald Trump said was a "great deal with China", evaporated by Thursday. Adding yet another dose of uncertainty in the markets, Trump said the US would send out letters in one to two weeks outlining the terms of trade deals to dozens of other countries, which they could embrace or reject. "Markets may have no choice but to respond to Trump's tariff threat - even if it's just posturing to bring others to the table. The gap between 'risk-on' positioning and real-world risks has stretched too far," said Charu Chanana, chief investment strategist at Saxobank. Trump's erratic tariff policies have roiled global markets this year, prompting hordes of investors to exit US assets, especially the dollar, as they worried about rising prices and slowing economic growth. The euro, one of the beneficiaries of the dollar's decline, touched a seven-week high and was last at $US1.1535. US Treasuries also rallied in price, pushing yields down 1.5 basis points to below 4.4 per cent, while two-year yields, which are more sensitive to inflation and interest-rate expectations, eased 1.6 basis points to 3.93 per cent. Later in the day, the focus will be on a producer inflation report as some of the components feed into the Fed's preferred inflation gauge - the Personal Consumption Expenditure Index. Wednesday's consumer index kept alive the prospect of the Federal Reserve cutting rates by a quarter point, but only in September, as policymakers assess how tariffs work their way through the real economy. "I suspect it's probably going to be a combination of the two. Therefore it makes sense for the Fed to wait and see what happens rather than rushing into a rate cut," AMP Capital's head of investment strategy and chief economist Shane Oliver said. Oil, which has fallen by 20 per cent in the last year, eased by one per cent to $US69.07 a barrel, but remained near two-month highs, adding another moving part to the outlook for interest rates. The dollar has neared a 2025 low while stocks eased from record highs, as a cocktail of rising Middle East tensions and concern over the fragility of a trade truce between Washington and Beijing drew investors into safe-haven assets. Separately, a report on US consumer inflation on Wednesday showed overall price pressures remained contained in May, largely due to declines in the cost of gasoline, cars and housing. But most economists expect inflation to pick up as the impact of US tariffs begins to bite. The dollar, which has lost around 10 per cent in value against a basket of currencies this year, skimmed its lowest levels since late April, which in turn, marked its lowest level in three years. Global stocks took a breather on Thursday from the almost-unbroken rally that has run since early April, leaving the MSCI All-Country World index down 0.1 per cent, just below Wednesday's all-time high. In Europe, the STOXX 600 fell 0.8 per cent, led mostly by airlines and autos, given the strength in the oil price, while futures on the S&P 500 and Nasdaq fell 0.5 per cent. The US administration on Wednesday said US personnel were being moved out of the Middle East due to heightened security risks in the region, which briefly drove oil prices up by four per cent before they receded. "(A flare-up in tensions) is a significant tail risk, but I don't think it is anybody's baseline forecasts. So it's something to watch if there is a real escalation there, then markets will take fright and that would have ramifications for the oil price," Daiwa Capital economist Chris Scicluna said. Iran, for its part, said it will not abandon its right to uranium enrichment, a senior Iranian official told Reuters on Thursday, adding that a "friendly" regional country had alerted Tehran over a potential military strike by Israel. Classic safe-haven assets got a lift. The Swiss franc and the Japanese yen strengthened, pushing the dollar down by around 0.6 per cent against both currencies, while gold held firm at $US3,350 an ounce. The sense of relief stemming from a positive conclusion to US-China trade talks earlier this week, which President Donald Trump said was a "great deal with China", evaporated by Thursday. Adding yet another dose of uncertainty in the markets, Trump said the US would send out letters in one to two weeks outlining the terms of trade deals to dozens of other countries, which they could embrace or reject. "Markets may have no choice but to respond to Trump's tariff threat - even if it's just posturing to bring others to the table. The gap between 'risk-on' positioning and real-world risks has stretched too far," said Charu Chanana, chief investment strategist at Saxobank. Trump's erratic tariff policies have roiled global markets this year, prompting hordes of investors to exit US assets, especially the dollar, as they worried about rising prices and slowing economic growth. The euro, one of the beneficiaries of the dollar's decline, touched a seven-week high and was last at $US1.1535. US Treasuries also rallied in price, pushing yields down 1.5 basis points to below 4.4 per cent, while two-year yields, which are more sensitive to inflation and interest-rate expectations, eased 1.6 basis points to 3.93 per cent. Later in the day, the focus will be on a producer inflation report as some of the components feed into the Fed's preferred inflation gauge - the Personal Consumption Expenditure Index. Wednesday's consumer index kept alive the prospect of the Federal Reserve cutting rates by a quarter point, but only in September, as policymakers assess how tariffs work their way through the real economy. "I suspect it's probably going to be a combination of the two. Therefore it makes sense for the Fed to wait and see what happens rather than rushing into a rate cut," AMP Capital's head of investment strategy and chief economist Shane Oliver said. Oil, which has fallen by 20 per cent in the last year, eased by one per cent to $US69.07 a barrel, but remained near two-month highs, adding another moving part to the outlook for interest rates. The dollar has neared a 2025 low while stocks eased from record highs, as a cocktail of rising Middle East tensions and concern over the fragility of a trade truce between Washington and Beijing drew investors into safe-haven assets. Separately, a report on US consumer inflation on Wednesday showed overall price pressures remained contained in May, largely due to declines in the cost of gasoline, cars and housing. But most economists expect inflation to pick up as the impact of US tariffs begins to bite. The dollar, which has lost around 10 per cent in value against a basket of currencies this year, skimmed its lowest levels since late April, which in turn, marked its lowest level in three years. Global stocks took a breather on Thursday from the almost-unbroken rally that has run since early April, leaving the MSCI All-Country World index down 0.1 per cent, just below Wednesday's all-time high. In Europe, the STOXX 600 fell 0.8 per cent, led mostly by airlines and autos, given the strength in the oil price, while futures on the S&P 500 and Nasdaq fell 0.5 per cent. The US administration on Wednesday said US personnel were being moved out of the Middle East due to heightened security risks in the region, which briefly drove oil prices up by four per cent before they receded. "(A flare-up in tensions) is a significant tail risk, but I don't think it is anybody's baseline forecasts. So it's something to watch if there is a real escalation there, then markets will take fright and that would have ramifications for the oil price," Daiwa Capital economist Chris Scicluna said. Iran, for its part, said it will not abandon its right to uranium enrichment, a senior Iranian official told Reuters on Thursday, adding that a "friendly" regional country had alerted Tehran over a potential military strike by Israel. Classic safe-haven assets got a lift. The Swiss franc and the Japanese yen strengthened, pushing the dollar down by around 0.6 per cent against both currencies, while gold held firm at $US3,350 an ounce. The sense of relief stemming from a positive conclusion to US-China trade talks earlier this week, which President Donald Trump said was a "great deal with China", evaporated by Thursday. Adding yet another dose of uncertainty in the markets, Trump said the US would send out letters in one to two weeks outlining the terms of trade deals to dozens of other countries, which they could embrace or reject. "Markets may have no choice but to respond to Trump's tariff threat - even if it's just posturing to bring others to the table. The gap between 'risk-on' positioning and real-world risks has stretched too far," said Charu Chanana, chief investment strategist at Saxobank. Trump's erratic tariff policies have roiled global markets this year, prompting hordes of investors to exit US assets, especially the dollar, as they worried about rising prices and slowing economic growth. The euro, one of the beneficiaries of the dollar's decline, touched a seven-week high and was last at $US1.1535. US Treasuries also rallied in price, pushing yields down 1.5 basis points to below 4.4 per cent, while two-year yields, which are more sensitive to inflation and interest-rate expectations, eased 1.6 basis points to 3.93 per cent. Later in the day, the focus will be on a producer inflation report as some of the components feed into the Fed's preferred inflation gauge - the Personal Consumption Expenditure Index. Wednesday's consumer index kept alive the prospect of the Federal Reserve cutting rates by a quarter point, but only in September, as policymakers assess how tariffs work their way through the real economy. "I suspect it's probably going to be a combination of the two. Therefore it makes sense for the Fed to wait and see what happens rather than rushing into a rate cut," AMP Capital's head of investment strategy and chief economist Shane Oliver said. Oil, which has fallen by 20 per cent in the last year, eased by one per cent to $US69.07 a barrel, but remained near two-month highs, adding another moving part to the outlook for interest rates.
Yahoo
09-04-2025
- Business
- Yahoo
The All-Important U.S. 10-Year Yield Is Moving in the Wrong Direction for Trump
Monday's trading session will go down as one of the most volatile since the COVID crash in March 2020, with global markets caught in the crossfire as the U.S. and China face off over tariffs and neither superpower shows any impulse to back down. As equity markets teetered, the volatility spilled into every asset class. Bitcoin (BTC), for example, swung as much as 10% intraday. The real focus, however, is on the U.S. 10-year Treasury yield. That's the so-called risk-free interest rate, which the Trump administration said it wants to lower as it looks to refinance trillions in national debt. The yield dropped to 3.9% from 4.8% late last week after President Donald Trump bolstered trade tensions with sweeping import tariffs, boosting demand for the Treasury notes. Bond prices typically rise, sending yields lower, when Wall Street turns risk averse. Unusually, as the risk-aversion increased on Monday, yields turned higher, jumping to 4.22%. This spike wasn't confined to the U.S. The U.K. experienced its sharpest rate jump since the Liz Truss-era pension crisis in October 2022, and yields rose globally, signaling growing instability and diminishing confidence in sovereign debt and currencies. Ole S Hansen, the head of commodity strategy at Saxobank, pointed to the scale of the move in long-dated Treasuries as a sign of something deeper potentially unfolding. 'U.S. Treasuries suffered a massive sell-off yesterday, with long yields rising the most since the turbulence during the pandemic outbreak—a possible sign of large holders of Treasuries, such as foreign holders, selling and repatriating their assets," Hansen said in a post on X. "The 30-year U.S. Treasury benchmark rose from lows near 4.30% to as high as 4.65% yesterday, while the 10-year benchmark lifted back to 4.17% from a low near 3.85% the prior day.' While Hansen pointed fingers at foreign selling, especially China, which is said to have offloaded $50 billion in Treasuries, Jim Bianco, president of Bianco Research, challenged that narrative. 'No, foreigners were not selling Treasuries to punish the U.S. (Trump),' he wrote, pointing instead to a sharp rally in the Dollar Index (DXY), which climbed 2.2% in just three days. 'If China or other foreigners were selling Treasuries ... they would have to convert those dollars to a foreign currency. Otherwise, selling Treasuries and leaving the money in dollars in a U.S. bank is pointless. If they sold enough Treasuries to swing yields ... the subsequent selling of dollars ... would have driven down the dollar. Instead, it rallied more than usual. 'This suggests that foreign money was moving into the U.S., not away from it ... the selling was more domestic and more concerned about inflation.' Despite these views, unconfirmed reports about China's sales continue to circulate. As of January 2025, China still held approximately $761 billion in U.S. government debt, the largest owner after Japan. The narrative that the 10-year and 30-year yields surged on Chinese is unconvincing because most of the official Chinese investments in dollar-denominated assets are not in longer duration instruments, but agency bonds, shorter-term bills and bank deposits. There is a perception China can gain leverage in the trade war through its holdings of U.S. Treasury notes. That's not necessarily true. As the economist and author of "The Great Rebalancing: Trade, Conflict, and the Perilous Road Ahead for the World Economy" Michael Pettis has long argued, China's holdings of U.S. Treasury bonds are directly linked to its current account surplus and it cannot weaponize these holdings against the U.S. It's no surprise that China has been lightening up its Treasury investments since 2013 with its current account surplus peaking during the 2008 crash.
