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Dollar Regains Ground as Investors Rush from Stocks to Bonds, Aussie Additionally Pressured by GDP Miss

The US stock markets closed sharply lower overnight while treasury yields also dived. Such patterns continue in Asia, seeing major indices pressured while JGB year yields also drop. There are clear flows out of stocks into bonds. Fed has already turned less hawkish with Chair Jerome Powell’s turn last week. US and China also announced trade truce. The current development argues there are problems lying deeper in the global economy.

In the stock markets, DOW dropped -799.36 pts or -3.10% overnight to close at 25027.07. S&P 500 lost -3.24% while NASDAQ declined -3.80%. Technically, it’s actually not a a surprise as DOW is seen as in medium term correction from 26951.81 high. Thus, it’s common to have a down leg in such corrections. But DOW’s failure to break even 26000 with the rebound is a disappointment and a sign of lack of confidence. In Asia, Nikkei dropped sharply to as low as 21708.82 but pares back some losses. It’s now down -0.67% at 21887. Singapore Strait Times is down -1.0%. Hong Kong HSI is down -1.84% while China Shanghai SSE is down -0.68%.

In the treasury markets, US 10 year yield closed below 3% level for the first time since September. More importantly, 10-year yield dropped sharply by -0.68 to 2.924. 30-year yield dropped even deeper by -0.100 to 3.178. US yield curve is inverted between 3- and 5-year and that’s another development that worried investors. It should also be noted that German 10-year bund yield closed at 0.264 yesterday, lowest since May, and less than half of October high at 0.577. Japan 10-year JGB yield dropped to as low as 0.053 earlier today, and hit the lowest since July. And, 10 year JGB yield hit as high as 0.166 just back in early October. So, the movements in the bond markets are rather drastic.

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In the currency markets, Australian Dollar is overwhelmingly the weakest one for today. The Aussie suffers double blow of risk aversion and large GDP miss. Sterling follows as the second weakest as Prime Minister Theresa May’s debate of her Brexit deal in the parliament didn’t go