Stocks fall on further concerns for the global economy. The S&P500 fell 1.2% to 1,942 and the Dow Jones Fell 1.1% to 16,330. Also contributing to downward movements in Europe was Volkswagen who’s recent scandal sent the company down 18.5% today. The dollar has gained in the recent days following the Fed’s inaction. This could be due to weakness abroad and comments from various Fed members who indicated that the decision was closer than the 9-1 vote may make it appear, and that a rate rise in 2015 is still very much in play. Also contributing to upward movements for the dollar were comments made from ECB officials which suggest that the easing program may continue putting further downward pressure on the euro. The dollar gained against emerging market currencies. The Turkish lira fell 0.6% to TL3.0219, the South African rand 1.5% to R13.6657, and the Brazilian real to R$4.0521. The risk off attitude in global markets sent the yen up against the dollar to Y120.06. Yields resumed downward movements with the two year losing 4 basis points to 0.68% and the ten year losing 7 basis points to 2.14%.
Demand for secure haven assets in times of global economic turmoil and uncertainty is highlighted by today’s four week government debt auction. The sale received a bid/ cover ratio of 9.47 which indicates that the Treasury bonds received almost 10 times the amount of bids than what was accepted. The $15bn issuance sold with a yield of 0% as a result of the record demand. This underscores investor demand for highly liquid secure assets. Similarly some short term Treasury bonds have even entered negative yield territory briefly in recent weeks.
Commodities slide on Chinese growth concerns. Investors are positioning themselves ahead of downside surprises from Chinese manufacturing data due Tuesday night US time. Manufacturing data out of the region has been dismal in recent months, with last month’s PMI resulting in the lowest reading in 6 1/2 months. China’s growth rate is slowing to the lowest pace in 25 years as a result of weak demand domestically and and internationally. Growth in the Asia region is expected to fall this year with the Asian Development Bank cutting forecasts to 5.8% in 2015 and 6.0% in 2016 down from 6.3%. Many analysts don’t expect a quick recovery from China and as a result are pricing in downside risk. WTI fell 1.3% to $46.36.
The effect of China’s slowdown on Mexico and Canada will be far more impactful than the direct effects from China. Canada has suffered from low commodity prices, and many analysts say that the Fed is watching conditions there closely. The depreciation of the Canadian dollar has direct ramifications on the US, as demand for US products from Canada will decrease. The Bank of Canada is further cutting interest rates to benefit the Canadian economy by making their goods cheaper for US citizens and companies. Canada accounts for 19% of US exports and Mexico makes up another 15%. Demand for US products from these countries needs to be strong in order for GDP to remain growing at the current rate. The Mexican peso and the Canadian dollar are both down 14% versus the dollar this year, which does not bode well for US exporters.