From a technical perspective, the US dollar looked vulnerable to start the week, but the 8.5% drop in Chinese shares in Shanghai provided additional fuel. The linkage between the two is that global headwinds may intensify and keep the Fed from raising rates in September. This seems like a premature judgment, but market pricing was never as convinced of a Fed hike than as surveys suggested.
The overextended technical condition of the dollar we highlighted previously came with a mixed performance last week. Against the top ten currencies, that dollar fell against five. The drop in oil prices and other commodity prices encouraged rate cut expectations in Australia and Canada, sending those currencies to new multi-year lows.
After years of smooth sailing through calm market conditions, bond markets in East Asia are navigating through stormier weather.
Data from the supplement to the 2015 Asian Development Outlook released this week shows that weaker growth in the United States and the People’s Republic of China (PRC) has weighed down overall regional growth.
Gold prices have tumbled to a five-year low. As a tradeable commodity, the price of gold is largely linked to supply and demand. While supply remains fairly fixed, demand is shaped by the state of the global economy and investor perceptions of gold’s value as an asset – this is in turn shaped by the strength of the US dollar.
The European Central Bank has been particularly busy. It is engaged in an asset-buying program. Despite a European Court of Justice ruling highlighting the conflict of interest between its bank supervisory function and role as creditor, the ECB is still part of the Troika official creditors and participated in the marathon negotiating sessions over Greece.
The ECB is closely monitoring the situation at Greek banks. It has not increased the ELA ceiling for the second consecutive week, following the Greek government’s acceptance of the creditors’ demands.
Gold prices plummeted first in Asia and worsened later in trading in America on Monday as investor demand for the commodity evaporated.
The commodity’s price fell over 3% from last week’s levels on Monday, with many analysts predicting lower levels in the future. One investment bank released a note saying there are few reasons for investors to hold the metal, and that it remained overvalued relative to other commodities. Silver also fell in sympathy, although not as steep as gold.
The US dollar rose against nearly all the major and emerging market currencies in the past week. The notable exception among the majors is sterling, where hawkish BOE comments and another rise in average earnings goaded the bulls. Among the emerging market currencies, only three rose against the greenback, South Africa rand, the Turkish lira, and the Chilean peso.
The Chinese authorities moved decisively on many fronts last week to put a floor under the collapse of Chinese stock markets. ChiNext, China’s NASDAQ, was plummeting from astronomical heights. The CSI 300 index of China’s biggest listed companies, which had soared more than 150 percent over last year’s levels, plunged almost 40 percent in little more than a month before moves to prop up the market halted the fall.
In 1976, the Standard and Poor’s 500 became the first stock market index tracked by a fund when Vanguard launched its legendary Vanguard 500 Index Fund (VFINX), which started with just $11 million and grew to become the largest U.S. equity mutual fund in existence by the late 1990s.
The year 1992 saw the first successful launch of an exchange-traded fund (ETF). It, too, tracked the S&P 500. Nearly a quarter century later, and largest ETF in existence is SPY, which tracks — you guessed it — the S&P 500.
It is difficult to make much sense of the short-term price action in the foreign exchange market based on or spurred by this or that headline about Greece. On the week, the euro lost about 0.6% against the dollar but outperformed the other major currencies save the yen. The yen gained nearly 1% against the dollar, the only major currency to do so.
