The past 24 hours have been characterised by an abrupt fall in global risk appetite, with stocks across the world coming off hard (and the VIX US equity volatility index surging higher), US bond yields correcting lower and currency volatility picking up. The writing had arguably been on the wall for a few days with markets reacting nervously to the incessant rise in US yields – spurred by Fed Chairperson Powell’s very bullish assessment of the US economy – and its impact on riskier assets including emerging stocks and emerging market currencies. Repeated warnings from the IMF, ECB and other international institutions about the risk to global trade and growth from the ongoing US-China trade war had only added to an increasingly nervy backdrop. The hurricane currently hitting Florida and US President Trump’s vocal criticism of the Fed’s rate hikes appears to have been the straw which broke the camel’s back.
The Dollar has weakened across the board but remains well within its recent trading range. Sterling has failed to capitalise following yesterday’s release of weak UK macro data for August and ongoing Brexit-related uncertainties and the Euro has made only modest gains. The Swedish Krona and, somewhat ironically, the higher yielding Australian and Kiwi Dollars and emerging market currencies – have been the outperformers.
