Financial Analyst/Content Writer, RADEX MARKETS
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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Structural cracks in the global economy emerged from the depths yesterday as investors fled almost every major asset class in unison. Bond yields around the world are surging, with those on US treasuries and European instruments rising to multi-year highs. In the US, 30-year treasury yields topped 5.33% on Tuesday, their highest since 2007, while German and French 10-year bonds saw their sharpest rise in over 15 years. Markets are demanding greater returns for holding long-term government debt due to inflation fears and increased geopolitical risk. It now appears as though negotiations between the US and Iran are back to square one, meaning extended high crude oil prices have to be factored into future economic forecasts. Rising oil prices mean higher prices across the board, creating additional inflationary pressures that many countries around the globe are already struggling to contain.
US equities were unceremoniously abandoned, dragging the Nasdaq 100 to a 1.7% loss by the daily close, while the S&P 500 and Dow Jones dropped 0.7% and 0.2% respectively. Semiconductors incurred the biggest losses on Tuesday, which explains the divergence between the tech sector and the broader market. The major indices in Germany and France lost 0.8% apiece, while those in Japan crumbled 2.5%. Precious metals had no safe haven to offer. Gold traded $80 lower by the end of the day, while silver had forfeited the better part of 4% as yesterday’s session drew to a close. Shockingly, cryptocurrencies have actually performed well so far this week. Bitcoin has risen almost 3% since Monday and is currently challenging $65,000 per coin.
The lack of progress in Iran is understandably driving crude oil prices higher, with Brent Crude tapping $92 per barrel yesterday while WTI lingered behind at $85. Saudi Aramco appears to have had enough with the sordid affair and has begun loading a number of very large crude carriers inside the Strait of Hormuz. The company has not done so in three weeks, and the development is somewhat unexpected, although given the fact that all other routes continue to present their own difficulties, it is hard to blame them.
The lack of movement in foreign exchange markets over the last two days illustrates the global nature of the problem quite well. There is no obvious safe currency, hence no real FX flows. Most countries are in the same boat, and the boat has a leak. The dollar is completely flat going into today’s major news event, namely the FOMC minutes from the July meeting, which was one of the more interesting ones due to 9-3 vote split among board members. While there is nothing forward-looking about the release, market participants will nevertheless be eager to get a reading on the general mood at the Fed. The dollar currency index is currently idling around 99.6 at the time of writing. Meanwhile, the rout in Japanese and Korean stock markets picked up this morning exactly where it left off, with the Nikkei 225 immediately dumping 3% and the Kospi index plummeting 6% as soon as trading got underway in the Far East, demonstrating once again the heavy semiconductor weightings present in both indices. Potentially rough day ahead.
About the Author
Lawrence J. came from a strong technical and engineering background before pivoting into a more financial role later on in his career. Always interested in international finance, Lawrence is experienced in both traditional markets as well as the emerging crypto markets. He now serves as the financial writer for RADEX MARKETS.
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