Please see yesterdays Brooks Macdonald Daily Investment Bulletin received late yesterday:
What has happened
Risk appetite was hit yesterday by the upcoming visit by US House Speaker Pelosi to Taiwan as part of her tour of Asia.
Bond markets
With geopolitical tensions adding to fears over a global recession, bond yields fell yet again yesterday with the US 10-year Treasury yield now trading at 2.55%, almost 15bps lower than it was at the start of Monday. With economic growth risks still front and centre, the yield curve remains inverted with the 2-year yield around 30bps higher than the 10-year yield. European bond yields also saw declines yesterday as weaker German retail sales and Italian manufacturing PMIs worsened sentiment and caused investors to dial back their expectations of ECB tightening.
Commodities and Supply
With yesterday’s risk off tone, energy prices fell substantially, with the Brent international oil benchmark moving below $100 per barrel. These growth concerns were spurred not only by the recent weaker western data, but also Monday’s data releases from China. Few commodities were spared with industrial metals and agricultural goods both declining. There was some good news in the commodities arena as the first grain shipment from Ukraine since the war began departed a Ukrainian port amidst hopes that a partial return of Ukrainian exports will help boost global supply. Yesterday’s US ISM index contained some interesting reading, but perhaps of most importance to a market looking for signs of inflationary pressures easing, the prices paid measure fell dramatically from last month’s measure. This chimes with recent earnings results that suggested supply chain pressures were easing in certain areas. It may be too early for this to have filtered into the July CPI data released next week in the US but there are increasing signs that some of the post-pandemic distortions are being removed.
What does Brooks Macdonald think
Pelosi will be the highest-ranking US official to visit the island in 25 years and is likely to raise tensions between the US and China even with the US reassuring Beijing that the official US position remained one of strategic ambiguity. Recent rhetoric from Biden has suggested that the US would defend Taiwan in the event of an invasion though the White House has been at pains to stress that the official policy has not changed.
Please continue to check back for further updates.
Andrew Lloyd DipPFS
03/08/2022