As the Fed prepares for its June meeting, investors continued to flock to haven assets and safer equities this week. Bonds rallied, the Telecommunications sector posted gains, and volatility rose over 10% on Friday alone.
Japanese machine orders plunged 11% thanks largely to a combination of weak global demand, a strengthened Yen, and the Kumamoto earthquake. The data comes a week after President Abe announced the postponement of a sales tax increase.
Yields on benchmark bonds around the world are hitting new lows simultaneously. The U.S. 10-year bond dipped below 1.70% and approaches its all time low while benchmark Gilts, Bunds and Japanese bonds continue to fall. Weak growth, the risk of Brexit, and soft monetary policy are among the biggest factors driving yields lower.
The Bank of Korea surprised markets with an interest rate cut on Thursday. The central bank explicitly cited weak demand for the country’s exports, high levels of mortgage debt, and the need to help corporate giants recapitalize.
The ECB’s corporate bond buying program officially started this week. To be eligible, bonds have to be liquid, denominated in Euros, issued within the Eurozone, and maintain an investment grade rating. Average yields on corporate debt are around 1% in the Euro area.
Chinese foreign exchange reserves reached their lowest level since 2011. Capital flight from a weakening Chinese economy continues to be a concern among policy makers.
Crude oil set new recent highs this week, reaching $52 per barrel before slipping on Friday. Nigerian crude production of 1.8 million barrels per day represents the lowest level in over 12 months. Iranian crude exports meanwhile are accelerating faster than analysts initially expected.