Daily Management Review

US Dollar collapses along with indices and bonds yield


10/12/2018


On Thursday, the US dollar fell against the major currencies of developed countries and most developing currencies, with the exception of the Russian ruble, following the decline in stock indices and yields on US treasury bonds the day before. President Donald Trump accused the Federal Reserve of overly tough policies, saying that the regulator was "crazy", but analysts believe that the collapse was caused by market factors.



In the course of trading on Wednesday, the S&P 500 stock index fell by 3.3%, Dow Jones - by 3.15%, and the technological Nasdaq Composite - by more than 4%. In addition, Brent crude quotes fell by more than 2% and returned to the level of $ 82 per barrel. The collapse in stock markets spurred the demand for defensive assets, including government bonds: their prices began to rise, and their yield declined. On Thursday, the yield on 10-year US Treasuries fell below 3.15%, whereas earlier this week it rose to a seven-year high of 3.23%.

Later, the decline spread to Asian indices: the fall of the Shanghai Composite exceeded 5%, the South Korean Kospi was 4.4%, the Taiwan Stock Exchange index fell by 6.3%.

Analysts and traders call what is happening in the stock market a belated reaction to the growth of US government bond yields, after the Fed raised interest rates last week, writes Financial Times. Therefore, Trump quickly responded to this. “The Fed is making a mistake. Its policy is too tight. I think the Fed has gone mad,” he told reporters Wednesday night after arriving in Pennsylvania.

Shares of technology companies have suffered the most. The decrease in the Nasdaq Composite index on Wednesday was the strongest day-fall since June 2016, the FT notes. According to Olivier D'Assier of Axioma, investors sell growth stocks and acquire shares in more stable companies that reliably pay dividends. “This is much more connected with interest rates than with something happening in the technology sector,” says Aliya Capital CEO Ari Shrage. “Interest rates are rising, so the most expensive stocks usually fall.”

IMF Managing Director Christine Lagarde told at a press conference in Bali that she could not comment on what was happening on the stock market on a particular day. But she stressed that stocks, particularly on the US stock market, were very expensive. Lagarde also defended the Fed, calling tightening of US monetary policy “necessary”.

Some investors and analysts see no reason for panic, especially in the US stock market, writes The Wall Street Journal. "It is important to remember that on Friday, US companies will begin reporting financial results [for the third quarter], and their profits are expected to grow dramatically," said Andrew Milligan, strategist at Aberdeen Standard Investments.

Next week is expected to publish a semi-annual review of the US Treasury on the macroeconomic and monetary policies of leading countries. Investors fear that the United States for the first time since 1994 will officially accuse China of manipulating the Yuan. This could lead to a new collapse.

source: ft.com, wsj.com






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