Scalper1 News
Though the U.S. economy has been putting up a stronger show since the second quarter of 2015, global growth worries led mainly by China issues could derail the U.S. market momentum in the coming days. Whatever the case, devaluation of the Chinese currency yuan by 2% and a six-and-a-half-year low manufacturing data for August left the global market in ruins last month. Apart from China, a slowdown in the Japanese economy, the return of growth concerns in the Euro zone, technical recession in Canada mainly on a protracted oil price rout, slouching commodities and painful trading in the emerging markets recently put an end to the rally in risky assets. If this was not enough, U.S. job numbers in August grew at the most sluggish pace in five months and fell short of analysts’ expectations. Though the data was not at all unimpressive as the unemployment rate ticked down to 5.1% from 5.2%, the lowest since April 2008, the estimate miss stirred up confusion among investors. This coupled with growing concerns in the global horizon sent investors on a defensive mode and brightened the risk-off trade sentiments. Investors dumped stocks and junk bonds in favor of safe haven assets to protect their portfolio from capital erosion. However, investors should note that there are a few assets in the market which are known for their safe haven bids. These include U.S. Treasuries, the greenback, gold and Japanese yen. These products normally gain when volatility in the market flares up and vice versa. However, all safe haven assets and the related ETFs did not provide equal solace to investors this time around. While some lived up to expectations and some failed short. Greenback – Loser U.S. dollar seems to be loser on this front. PowerShares DB US Dollar Bullish Fund (NYSEARCA: UUP ) which offers exposure to the U.S. dollar against a basket of six world currencies like the euro, Japanese yen, British pound, Canadian dollar, Swedish krona and Swiss franc lost about 1.9% (as of September 4, 2015) in the last one month as the bet for the September timeline of the Fed lift-off had softened a bit since subdued inflation pushed the speculative timeline to a little later. After the latest U.S. job report which emphasized the estimate miss, UUP lost about 0.12% on September 4 and left safety seeking investors stranded. Gold – Gainer; But How Long? Though the looming Fed lift-off and the persistent slowdown in China (one of the major consumers of gold) go directly against the demand for the yellow metal, this precious metal offered unanticipated support to investors in the recent global market tumult. Gold bullion ETF SPDR Gold Shares (NYSEARCA: GLD ) added over 3.4% in the last one month. However, this support is likely to be short-lived as the underlying fundamentals are weak. Sooner or later, the U.S. economy is due for a rate hike which will tarnish the gold bullion. U.S. Treasury – Are the Best among the Pack? For the U.S. Treasury bonds, especially the long-dated ones, 2014 turned out to be a banner year. Though the looming Fed lift-off is a negative for U.S. treasury ETFs, 10-year U.S. Treasuries outdid their Group of Seven counterparts in the last month’s equities collapse, as per Bloomberg . Bloomberg also reported that the latest performance was a sweet surprise for Treasuries if we go by the prior three Fed rate-hiking rounds since 1993, when 10-year U.S. debt underperformed other developed countries. Yields on the U.S. benchmark 10-year notes, which touched the 2.50% mark – the highest point of this year – on June 10, slipped to 2.13% on September 4, 2015. The plunge in yields at the eleventh hour of the most speculated Fed meeting for a lift-off in mid-September favored its safe-haven standing. A still-low inflation level and an estimate miss in U.S. job data also spurred many investors to bet against an immense rate hike and pour their money into U.S. Treasuries, the safest harbor for smart yields and decent capital gains. Over the last one month (as of September 4, 2015), Barclays iPath US Treasury 5-Year Bull ETN (NASDAQ: DFVL ) added over 3.2%, the best performance in the government-backed bond ETFs space. The product looks to gain in response to a decrease in 5-year Treasury note yields and fall if there is a rise in 5-year Treasury note yields. Other well-performing treasury ETFs are Vanguard Extended Duration Treasury ETF (NYSEARCA: EDV ), Pimco 7-15 Year U.S. Treasury Index Fund (NYSEARCA: TENZ ), Intermediate-Term U.S. Treasury ET F (NYSEARCA: SCHR ) and iShares 20+ Year Treasury Bond ETF (NYSEARCA: TLT ). Original Post Scalper1 News
Scalper1 News