Here’s the morning market update from Greg McKenna at GlobalFX.
– The emergence of a developed world recovery (at least against expectations) and the submergence of the BRIC’s and other emerging markets is the big story to start the week as India, Brazil and Indonesia are getting hammered by selling in stocks and their currencies at the moment. It is no surprise as we showed last week with the chart of the Citi-economic surprise index for G10 versus the BRICS and EM which you can find here.
– The Aussie dollar (0.9110, -0.70% and off a high of 0.9232) looks like it might have been caught up in the maelstrom as well, given that if there is a developed market recovery there is no need for the safe harbour that the Aussie has offered for the past few years, and given the noise in emerging markets might see it providing a bit of liquidity as well. I’ll have a look below to explain.
– On other FX markets, things were a little more quiet day-on-day relative to what happened to the Aussie and EMkts. The Euro (1.3337, +0.08%), GBP (1.5651, +0.22%) and Yen (USDJPY 97.51, flat) haven’t moved much given the lack of data or catalysts overnight.
– The sell-off in interest rates was the other big story – perhaps bigger story – overnight with US 10-year rates up a further 5 points to 2.88% and developed market sovereign 10’s were all higher as well. Money is clearly being pulled out of the way of the recovery, the Fed and the Taper. Bunds closed at 1.90% while Giklts rose 5 points to 2.75%.
– Stocks didn’t cope very well with the emerging market sell-off not the rise in rates with US markets closing on their lows for the day. The Dow was 0.47% lower, the Nasdaq fell 0.38% and the S&P was down another 0.59% to 1646 for a loss of 10 points. Europe also saw a sea of red with the southern markets of Italy (-2.465) and Spain (-1.86%) leading the charge lower. The CAC fell 0.97%, the DAX 0.31% and the FTSE was 0.52% lower.
– The sky just might be falling and probably only weak data now can stop this run in bonds higher and stocks lower. And emerging markets, well… not much can help there for the moment.
– Huge day for the Aussie today because if, or if not, the RBA minutes are dovish, the Aussie is going to move and most likely move aggressively. The RBA Minutes from this from this month’s meeting are out at 11.30am and during the next 24 hours we will also see the release of Kiwi inflation expectations, Japanese all industry index, German PPI and Chicago Fed Index.
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