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Reuters
a day ago
- Business
- Reuters
MidEast war highlights key cross-asset trends to watch: Pelosky
NEW YORK, June 27 (Reuters) - The war between Israel and Iran offered a real-time look at some new global cross-asset dynamics that can help investors understand the state of play in the first half of 2025 and what they can expect in the next six months. Amid all the noise of the 12-day conflict, three points stood out. First, the U.S. dollar failed to mount any major advance during the roughly two weeks of the conflict, even though the DXY dollar index was sitting at a three-year low when Israel attacked Iranian nuclear facilities on June 13. Second, the U.S. Treasury market also failed to catch a bid amid the fighting, with the 10-year yield rising around 10 basis points right after the initial strikes. While yields have slipped since then, that appears to be related more to Federal Reserve dynamics than geopolitical drama. And finally, there was oil, where the story was mixed. Prices jumped around 15% after fighting broke out but then rapidly tumbled to pre-conflict levels once it appeared unlikely that there would be any significant supply disruption. So what does this episode tell us? The real-time signals in the dollar and Treasury market reinforce the growing consensus that the U.S. may no longer be the world's safe haven, the world's firefighter, if you will. Instead, in certain instances, America may now be the cause of the fire. This speaks to perhaps the most important market trend of the past six months: the underperformance of U.S. stocks relative to Europe and Asia. Investors appear to be warming to the potential for a secular change in global equity leadership away from the U.S. and toward the rest of the world. The MSCI ACWX index of non-U.S. equities is up more than 13% year-to-date versus a roughly 1% gain for the S&P 500. If this secular leadership shift occurs, it would be accompanied by more dollar weakness as a sustained period of capital repatriation out of the U.S. plays out. This, too, is already showing signs of manifesting with the U.S. dollar index down roughly 10% year-to-date. The upshot of these trends is a rare outcome, notes European investment bank Societe Generale. A broadly diversified portfolio including non-U.S. equity, corporate credit and commodities has outperformed U.S. equity in the year to date. That has only happened two times, on an annual basis, since 2009, according to SocGen. Given all this, what asset classes may be well positioned to outperform in the second half of the year and beyond? One contender could be a long unloved asset class: commodities. First, commodity prices are linked to global economic activity, and there are some bullish growth signals emerging despite the uncertainty about tariffs and geopolitics. For instance, the Citi Global Economic Surprise Index has recently picked up sharply, led by Europe. On top of this, there is the Trump administration's new 'run hot' approach to the U.S. economy. As Treasury Secretary Scott Bessent indicated in an X post, opens new tab on May 18, the administration's goal is to stabilize the debt burden by ensuring nominal GDP remains above interest rates. This reduces the risk of a near-term U.S. recession and, in turn, improves the global growth outlook. And as I've previously argued, we could be in the beginnings of a long global growth cycle underpinned by increased spending in Europe, Asia and North America, the three nodes of what I refer to as the TriPolar World. And that would be highly bullish for commodities. Next, if the U.S. dollar continues to weaken, this should provide a tailwind for commodity demand given that most of these contracts are priced in dollars. Continued dollar weakness, in turn, should allow emerging market central banks with policy space to cut interest rates and stimulate their economies without having to fear the negative exchange rate fallout. This should support both global growth and demand for commodities. In terms of performance, commodities have lagged relative to stocks over the past decade, with the S&P GSCI commodity index generating an annualized return under 3% over that period, opens new tab, compared to more than 11% for the S&P 500, opens new tab. Related to this, consider that the mining industry represented only around 1% of global stocks' market cap, a record-low, as of mid-May, according to an analysis by Crescat Capital. And, importantly, commodities have recently appeared to be on the verge of breaking out on a technical basis, with the S&P GSCI index briefly eclipsing 580 last week as the Middle East conflict was heating up. Of course, commodities could continue to lag if the Trump administration's chaotic economic policies weigh on global growth. But the president's actions since mid-April suggest that he has little stomach for upsetting markets or growth. It's also possible that the 'short dollar' trade, which has become crowded, could reverse. But considering how over-exposed many foreign investors were to U.S. assets coming into 2025, this trade may still have room to run. We obviously have no crystal ball to tell us whether Middle East tensions will rise again, providing more of a tailwind for energy commodities. But investors often wait for moments when fundamentals and technicals are aligned, and the cross-asset moves in recent weeks suggest that could now be the case for commodities. (The views expressed here are those of Jay Pelosky, the Founder and Global Strategist at TPW Advisory, a NYC-based investment advisory firm. You can follow Jay on Substack at The Tri Polar World, opens new tab). Enjoying this column? Check out Reuters Open Interest (ROI), opens new tab, opens new tab, your essential new source for global financial commentary. ROI delivers thought-provoking, data-driven analysis of everything from swap rates to soybeans. Markets are moving faster than ever. ROI, opens new tab, opens new tab can help you keep up. Follow ROI on LinkedIn, opens new tab, opens new tab and X., opens new tab
Reuters
2 days ago
- Business
- Reuters
Asia FX bulls retreat after Middle East conflict dents risk appetite
June 26 (Reuters) - Investors trimmed long positions in most Asian currencies as the conflict between Israel and Iran pushed oil prices higher and drove safe-haven flows into the U.S. dollar, a Reuters poll showed on Thursday. Bullish bets on the South Korean won , the Taiwan dollar , the Indonesian rupiah and the Malaysian ringgit eased slightly from a fortnight ago, according to the poll of 11 respondents. Asian currencies logged losses last week as a raging conflict between Iran and Israel, which settled into a delicate truce earlier this week, made investors risk averse and sent them seeking refuge in the dollar. Rising oil prices added to the pressure as most emerging Asian economies, except Malaysia, import the bulk of their oil requirement and an increase in prices weighs on current account deficits. Market volatility in recent weeks has been driven by two conflicting factors - geopolitical risks and the prospect of a Federal Reserve rate cut, said Christopher Wong, currency strategist at OCBC, adding that in the Asian context, key concerns also include oil prices and the growth outlook. Investors turned bearish on the Philippine peso for the first time since early-March. The peso has weakened about 1.4% this month as the country is one of the most exposed to oil price shocks among regional peers. Moreover, the Philippine central bank delivered a widely expected second straight policy rate cut last week and left the door open for at least one more reduction this year to support growth. Bearish bets on the Indian rupee also firmed. Investors had turned short on the currency for the first time in two months a fortnight ago after the country's central bank delivered a larger than expected 50-basis-point cut. Parisha Saimbi, an FX strategist at BNP Paribas, said that the upcoming dividend payment season in India could further weigh on the rupee. Bullish bets on the Thai baht were reduced significantly as political risks clouded the prospects of Southeast Asia's second largest economy. The Thai Prime Minister Paetongtarn Shinawatra has come under intense public pressure over her handling of an escalating border row with neighbouring Cambodia, which led to a key ally walking out of the coalition last week, vowing to seek a no confidence vote. Most of the poll responses were received before the Bank of Thailand left its key interest rate unchanged on Wednesday. The Asian currency positioning poll is focused on what analysts and fund managers believe are the current market positions in nine Asian emerging market currencies: the Chinese yuan, South Korean won, Singapore dollar, Indonesian rupiah, Taiwan dollar, Indian rupee, Philippine peso, Malaysian ringgit and the Thai baht. The poll uses estimates of net long or short positions on a scale of minus 3 to plus 3. A score of plus 3 indicates the market is significantly long U.S. dollars. The figures include positions held through non-deliverable forwards (NDFs). The survey findings are provided below (positions in U.S. dollar versus each currency):
Yahoo
3 days ago
- Business
- Yahoo
Asian stocks hesitant, dollar slides on Trump's attack on Powell
By Ankur Banerjee SINGAPORE (Reuters) -Asian stocks stuttered on Thursday, while oil prices stabilized and the euro was perched at a 3-1-2/-year high as investors weighed geopolitical, economic and fiscal uncertainties as they braced for U.S. President Donald Trump's deadline on tariffs. Markets have been soothed by a ceasefire between Israel and Iran that appeared to be holding, reducing the risks of disruptions to the global oil trade and underpinning sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan was little changed in early trading, as the rally in Wall Street took a breather overnight.[.N] Tokyo's Nikkei rose 0.9% to a four-month high. The U.S. dollar selling kicked up a notch after a media report said Trump has toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October in a bid to undermine his position. That pushed the euro to its strongest level since November 2021. It last fetched $1.6805. The Swiss franc firmed to a decade-high while the Japanese yen strengthened 0.35% to 144.70 per dollar. Trump has repeatedly criticized Powell for not cutting interest rates and has floated the idea of firing him or naming a successor soon, denting investor confidence in U.S. assets and undermining the central bank's independence. "I think it's a given that Trump's pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump's agenda of lowering interest rates," said Tony Sycamore, market analyst at IG. "The issue with this is it will resurface questions from earlier in the year around the Fed's independence, which, as we saw, undermines confidence in the Fed and the USD." The dollar index, which measures the U.S. currency against six rivals, wallowed at its lowest level since March 2022. The index has slid 10% this year as investors, worried by Trump's tariffs and their on U.S. growth, look for alternatives. Financial markets remain on edge over Trump's chaotic trade policies as the clock ticks down to his July 9 deadline for trade deals. Powell, who resumed two days of congressional testimony on Wednesday, said Trump's tariff plans may well just cause a one-time jump in prices, but the risk it could fuel more persistent inflation is large enough for the central bank to be careful in considering further rate cuts. Fed officials still expect to cut interest rates this year, but the timing is uncertain as officials wait on looming trade deadlines and for more certainty about the scope of the tariffs that will be imposed and the ways that rising import levies influence prices and economic growth. "No one knows exactly how tariffs will impact inflation, which will keep central banks in conservative mode, particularly the Fed," said Bank of America strategists, noting downside risks to global growth remain relevant, not only due to trade wars but also due to geopolitical developments. "We are carefully monitoring fiscal policy across key countries that can affect global interest rates. Unsustainable fiscal dynamics can trigger an accident in bond markets," they said in a note. In commodities, oil prices inched higher to continue recovering after a volatile month so far due to the conflict between longtime rivals Israel and Iran. Brent crude futures rose 0.2% to $67.82 a barrel, while U.S. West Texas Intermediate crude (WTI) gained 0.28% to $65.1. [O/R] Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Reuters
3 days ago
- Business
- Reuters
Asian stocks hesitant, dollar slides on Trump's attack on Powell
SINGAPORE, June 26 (Reuters) - Asian stocks stuttered on Thursday, while oil prices stabilized and the euro was perched at a 3-1-2/-year high as investors weighed geopolitical, economic and fiscal uncertainties as they braced for U.S. President Donald Trump's deadline on tariffs. Markets have been soothed by a ceasefire between Israel and Iran that appeared to be holding, reducing the risks of disruptions to the global oil trade and underpinning sentiment. MSCI's broadest index of Asia-Pacific shares outside Japan (.MIAPJ0000PUS), opens new tab was little changed in early trading, as the rally in Wall Street took a breather overnight. Tokyo's Nikkei (.N225), opens new tab rose 0.9% to a four-month high. The U.S. dollar selling kicked up a notch after a media report said Trump has toyed with the idea of selecting and announcing Federal Reserve Chair Jerome Powell's replacement by September or October in a bid to undermine his position. That pushed the euro to its strongest level since November 2021. It last fetched $1.6805. The Swiss franc firmed to a decade-high while the Japanese yen strengthened 0.35% to 144.70 per dollar. Trump has repeatedly criticized Powell for not cutting interest rates and has floated the idea of firing him or naming a successor soon, denting investor confidence in U.S. assets and undermining the central bank's independence. "I think it's a given that Trump's pick to succeed Powell, when it comes, will be one that sits at the highly dovish end of the spectrum and will support Trump's agenda of lowering interest rates," said Tony Sycamore, market analyst at IG. "The issue with this is it will resurface questions from earlier in the year around the Fed's independence, which, as we saw, undermines confidence in the Fed and the USD." The dollar index , which measures the U.S. currency against six rivals, wallowed at its lowest level since March 2022. The index has slid 10% this year as investors, worried by Trump's tariffs and their on U.S. growth, look for alternatives. Financial markets remain on edge over Trump's chaotic trade policies as the clock ticks down to his July 9 deadline for trade deals. Powell, who resumed two days of congressional testimony on Wednesday, said Trump's tariff plans may well just cause a one-time jump in prices, but the risk it could fuel more persistent inflation is large enough for the central bank to be careful in considering further rate cuts. Fed officials still expect to cut interest rates this year, but the timing is uncertain as officials wait on looming trade deadlines and for more certainty about the scope of the tariffs that will be imposed and the ways that rising import levies influence prices and economic growth. "No one knows exactly how tariffs will impact inflation, which will keep central banks in conservative mode, particularly the Fed," said Bank of America strategists, noting downside risks to global growth remain relevant, not only due to trade wars but also due to geopolitical developments. "We are carefully monitoring fiscal policy across key countries that can affect global interest rates. Unsustainable fiscal dynamics can trigger an accident in bond markets," they said in a note. In commodities, oil prices inched higher to continue recovering after a volatile month so far due to the conflict between longtime rivals Israel and Iran. Brent crude futures rose 0.2% to $67.82 a barrel, while U.S. West Texas Intermediate crude (WTI) gained 0.28% to $65.1.
ABC News
3 days ago
- Business
- ABC News
Live updates: Australian share market to fall, Nvidia hits record high, oil prices gain
A mixed session on Wall Street is likely to send Australian stocks lower, while oil prices rise, snapping three straight sessions of losses. Meanwhile, shares of chip-maker Nvidia touched a record high, lifting its market value to $US3.75 trillion ($5.76 trillion) and making it the world's most valuable company. We'll bring you the latest on what's happening on the markets throughout the day in our live blog. Disclaimer: this blog is not intended as investment advice.
