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The Scramble For Yield

by Sean Coakley | August 11, 2016

In the wake of the Bank of New Zealand’s historic rate cut the Kiwi dollar jumped highlighting the desperate hunt for yield on the part of investors contending with the after effects of unprecedented levels of quantitative easing. With New Zealand being the most recent country to cut interest rates, bond yields globally continue to slip further into negative territory while the S&P 500 sits near record levels despite global growth concerns, as investors scramble towards any asset with a positive yield.

While outside of New Zealand events in Asia were muted by the closure of markets in Japan, the yen has lost ground versus the dollar while the Chinese Yuan gained the most in its daily fix since June’s Brexit vote. The Aussie dollar also saw declines with commodity prices taking it lower while the capital inflows into its neighbour failed to provide any offsetting effects.

With the European session underway, crude prices continue to slide while the overall pace of declines have slowed despite the IEA trimming estimates of future oil demand. This slide has further muddied the waters as pan-European equities are hurt by the corresponding decline in sentiment. Looking to currencies, both the euro and pound are down versus the greenback with the euro gaining on a pound that is dealing with the dual effects of lower oil prices and continued uncertainty on Brexit.

Ahead of the North American session the mixed performance of equities is set to continue with S&P futures indicating that equities will open on the positive. However, with continued concerns over global economic growth and an impending unemployment report later today there is a considerable risk to the downside. With equities treading water near all-time highs the unemployment claims data to be released later this morning has taken on renewed importance as traders parse through any data that can influence Federal Reserve decision making. Prior to the announcement the greenback has gained on the loonie as the effect of lower oil prices is keenly felt north of the border while heightened volatility in the pair can be expected throughout the day as the unemployment claims data is sure to influence market activity no matter the outcome.

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