June 13, 2024

Political Commentary

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Markets juggle 5% yields and 150 yen

2 min read

A look at the day ahead in U.S. and global markets from Mike Dolan

Partly unwinding pre-weekend safety hedges related to the Middle East conflict, world markets are back focused on some critical macro priced levels and milestones that may once again define the week.

The beginnings of some aid convoys to Gaza and no fresh escalation of the war there at the weekend at least saw crude oil and gold prices back off their latest highs on Monday.

But in keeping with that retreat from havens, U.S. Treasuries and sovereign bonds everywhere resumed their decline and 10-year U.S. benchmark borrowing rates finally moved up through the 5% level for the first time in 16 years early on Monday.

The dollar retained its bid as a result and continued to probe the 150 yen level many suspect the Bank of Japan will be keen to protect against with open-market yen buying. But the buck did slip back on the euro as the European Central Bank meets this week to assess its 10 interest rate hikes over 15 months.

The ongoing anxiety in the bond markets, however, prevented a return to risk assets more broadly and stocks continued to fall around the world first thing on Monday, with China’s blue-chip CSI300 index dropping to its lowest in 4-1/2 years as the property bust there continues to smolder.

Geopolitical angst is never far from the surface in China. Shares of Foxconn Industrial Internet slumped 10% on reports its parent Foxconn, the Taiwan-based firm which is a major supplier of Apple’s iPhones, was the subject of tax audits and land use probes in China.

What’s more, U.S. bonds now enjoy the biggest 10-year yield advantage against China in 21 years at some 226 bps and Goldman Sachs estimated capital outflows from China spiked to $75 billion last month, the biggest monthly figure since 2016.

The U.S. tech sector more broadly is front and center of this week’s third quarter earnings diary on Wall Street – with Microsoft and Alphabet reporting on Tuesday, Meta on Wednesday and Amazon on Thursday.

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