Displaying items by tag: fed

The ongoing unwinding of yen carry trades could lead to more turbulence in the markets this month, warns Kathy Lien of BK Asset Management. As U.S. yields drop and the dollar weakens, the yen is expected to gain strength, potentially triggering sell-offs similar to those seen in August. 

The practice of carry trading, where investors borrow in low-yielding currencies like the yen to invest in higher-return assets, is facing disruption due to Japan’s recent interest rate increases. Lien suggests that if stock markets experience significant downturns, the yen's value could continue to rise, reversing its longstanding undervaluation. 

This shift may impact asset prices globally in the coming years, with additional volatility likely as the U.S. economy faces growing pressures. September, often volatile for stocks, could see more dramatic market moves.

Finsum: This is one of the most important currency stories to watch in the coming weeks as rate cuts look to be very aggressive. 

Gold prices retreated slightly after hitting a record high in response to the Federal Reserve's half-point interest rate cut. Spot gold fell 0.4% to $2,560.29 per ounce after briefly reaching $2,592.39 earlier in the day, while U.S. gold futures closed up 0.2%. 

The Fed's decision to lower rates, which is expected to continue into next year, has pushed gold prices higher due to its reduced opportunity cost compared to interest-bearing assets. As bond yields rise and the dollar weakens, the demand for gold strengthens. Investors are awaiting further insights from Fed Chair Jerome Powell on the future direction of monetary policy. 

Meanwhile, with inflation still elevated, many are turning to gold as a hedge against eroding purchasing power. Silver prices rose 0.6%, while platinum remained steady, and palladium dropped 3.2%.

Finsum: Gold could be an important hedge if inflation comes back from the grave with interest rates quickly falling. 

Investors are increasingly flocking to US government bond ETFs as anticipation grows for a Federal Reserve interest rate cut in September. BlackRock's TLT, the largest ETF for long-dated Treasury bonds, saw nearly $4 billion in inflows from early August through Monday, marking one of its highest monthly inflows since inception. 

This surge indicates a resurgence in bond interest following a period of weak returns and significant outflows in 2022. As economic slowdowns push investors towards safer fixed-income options, bond yields have dropped in response to the Fed’s potential rate reductions. 

Retail and institutional investors alike are rediscovering bonds, with $12.2 billion flowing into US sovereign bond ETFs in August alone. The overall bond market's revival is evident, with taxable bond funds and ETFs attracting over $280 billion in the first seven months of the year, surpassing the total inflows for 2023.

Finsum: Holding bonds as interest rates fall and their prices rise sems to be one of the classic strategies that we haven’t been able to leverage on this scale in a long time.

Investors are increasingly turning their attention to the real estate sector as the Federal Reserve signals a potential shift toward lowering interest rates. Over the past month, five major U.S.-listed real estate ETFs have collectively seen net inflows of $2.2 billion, a figure that accounts for more than half of their total inflows over the last year. 

This surge in capital reflects growing confidence that the real estate sector stands to benefit from anticipated lower borrowing costs and a more favorable economic environment. 

Fed Chair Jerome Powell recently hinted at the Jackson Hole Symposium that rate cuts could be on the horizon, driven by signs of a cooling labor market and progress toward the 2% inflation target. As a result, ETFs like the iShares U.S. Real Estate ETF (IYR) and the Vanguard Real Estate ETF (VNQ) have seen substantial inflows, reinforcing the sector’s strong recovery and positioning it as a key beneficiary of potential monetary easing.

Finsum: Focus on REITs with single family rental performance, because corporate real estate is still dependent on hybrid/work from home policy.

Treasuries gained momentum following a weaker-than-expected U.S. producer prices report, reinforcing the potential for the Federal Reserve to lower interest rates more aggressively. The two-year yield, which closely mirrors Fed policy expectations, fell by 8 basis points, while the 10-year yield decreased by 6 basis points. 

Market participants are now eagerly anticipating the upcoming consumer price index (CPI) data, which could further influence rate-cut expectations. However, some Federal Reserve officials remain cautious, emphasizing the need for more economic data before supporting any rate reductions.

Despite recent market volatility, with shifts from expectations of a soft landing to a hard landing, uncertainty persists. 

Finsum: Markets thought there was going to be an emergency Fed meeting last week, but look to Jackson Hole for better clarification.