The last few days have exposed truly historic changes to that financial picture. These amendments have severely affected the price of gold and the value of the US dollar. This is best illustrated by the 10-year US Treasury yield, which has recently fallen sharply below 4.20%, a major reversal of investor sentiment. This positive news comes hand in hand with some other key economic indicators and all the trade balances from Australia and Canada to shifts in global equity markets.
On a macro level, Australia’s most recent release of its trade balance for July has turned heads on Wall Street. We can’t wait to take you along for the ride! A C$19 billion goods deficit in Canada for the second quarter highlights the international trade struggles that have persisted. The Canadian fiscal deficit has made very little progress, up from a C$400 million deficit during the first quarter. Median expectation from a Bloomberg survey of forecasters now predicts a C$5.3 billion shortfall for July.
On yesterday’s market, gold soared to $3,578.50 an ounce – an all-time high in the commodities market. Today, they closed at $3,512. This rollercoaster ride in gold prices demonstrates how investors are responding and possibly overreacting to macro developments.
The US two-year premium over German bonds has fallen just below 165bp. Believe it or not, just a year ago this number was close to 135 basis points. This move illustrates the growing divergences in interest rate expectations and economic outlooks between the two countries.
Japan’s record low 30-year bond auction ignited a subsequent bond price rally. This unusual event proved beneficial for Japanese Government Bonds (JGBs). Furthermore, the advanced goods deficit in the United States widened by 22% to $103.6 billion, indicating increased import activity that may affect future trade negotiations.
The Stoxx 600 index in Europe was up 0.65% yesterday. This recent bounce back is a strong signal that investor confidence is returning, despite a myriad of economic headwinds. The Dollar Index is continuing to trade sideways, moving within the trading range set on August 22 of roughly 97.55 to 98.85. Recently, the US dollar has shown strength against its G10 peers, reflecting a strength on the part of the greenback against a changing tide of economic data.
The developments in these markets and economic reports come at a time when Federal Reserve Chair Jerome Powell has indicated that “there may not be many interest rate declines yet to come.” This language is intended to highlight the Fed’s data-dependent, wait-and-see approach to policy-making as the economic landscape continues to change.