In terms of interest rates, “experts” and the Fed can predict short term rate increases all they want. But if China dissolves into a sea of even further government intervention, and the world’s economic picture is negatively impacted, then rates may head right back down. This week global markets once again took their cues from Chinese markets/news: yuan devaluation, articles further yuan depreciation, equity markets shut after trading down by 7%, news of a lift of the circuit breakers. The overall theme of the global markets was a “risk-off” tone in very choppy trading which in turn leads to cash moving out of stock markets and into safer investments such as Treasury securities.
But let’s not forget Europe. The U.S. Dollar Index fell 0.81% to 98.38 today to move into negative territory for 2016. The strongest major currency against the greenback was the euro, which benefited from a surprisingly low unemployment rate for December and another month of robust German factory order growth. Eurozone unemployment declined to a four-year low, touching 10.5% in December versus economists’ expectations for an uptick from November’s 10.6%.
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