ADIV - Yen's Surge Continues While PBOC Surprises With Another Rate Cut And U.S. 2-30 Year Yield Curve Ends Inversion
2024-07-25 06:57:00 ET
Summary
- The powerful short-covering rally of the yen and unwinding of carry trades continues.
- For the second time this week, the PBOC has surprised by cutting interest rates.
- The US 2-10-year yield curve is the least inverted in two years (~-13 bps), while the 2-30-year curve is positively sloped by the most in two years (+14 bps).
Overview
The capital markets are in flux. The powerful short-covering rally of the yen and unwinding of carry trades continues. For the second time this week, the PBOC has surprised by cutting interest rates. The dramatic sell-off of equities continues. The unexpected contraction of South Korea's Q2 GSP (-0.2%) is seen as confirmation of broader economic weakness. Speculation of a more aggressive Federal Reserve is gaining ground. It is not that the odds of a cut next week have improved much (~10%), but the derivative markets are pricing in about a 25% chance of a 50 bps cut in September. The US 2-10-year yield curve is the least inverted in two years (~-13 bps), while the 2-30-year curve is positively sloped by the most in two years (+14 bps). The dollar-bloc currencies and Scandis are bearing the brunt of the downside adjustment among the G10 currencies....
Yen's Surge Continues, While PBOC Surprises With Another Rate Cut, And U.S. 2-30 Year Yield Curve Ends Inversion