The Dollar Is Dumping As Bond Rout Spreads

The dollar index is collapsing this morning (helped by strength in cable and the loonie) as the global bond rout continues to spread...

The Bloomber Dollar Index has tumbled to its lowest since July 9th

 

Helped by a surge in Cable back at its highest since July 9th..

As UST bond yields resurge to new cycle highs...

And this time it's spreading to China, where yields no longer offer any kind of decoupling from US..

As Bloomberg's Christopher Anstey notes, even though the Chinese economy is slowing, hurt by the weakest investment growth since at least 1999, it’s clear from bond price action that policy makers aren’t prepared to endorse broad monetary stimulus.

Premier Li Keqiang said in a keynote speech Wednesday that while ample liquidity will be maintained and help extended to smaller companies to access financing, China will keep focused on stabilizing leverage.

Li also ruled out yuan devaluation as a strategy in China’s trade war with the U.S., which suggests the need for restraint when thinking about interest-rate cuts or broad liquidity injections.

The trade tensions pose another problem. With prospects for tit-for-tat tariffs stretching into 2019, inflation pressures are likely to mount. Take soybean prices, a key ingredient for meat production: more than one-third of China’s soy imports come from American farmers, with few alternatives in the short term.

That adds to structural catalysts for inflation, such as soaring rents across major cities. A clampdown on the collection of social-security premiums could see firms attempting to raise prices to compensate. While China recently moved to ease the initiative, Morgan Stanley estimated it could cost Chinese companies as much as $350 billion a year.

This all makes for a downright unfriendly environment for rates investors. China’s bond market seemed like a great diversification play earlier this year as yields climbed elsewhere, but that chapter may be over.

In fact some serious volumes are flying through the Treasury futures markets...

Which is sending signals to the algos to panic buy stocks...

And as bond yields rise, hope is high that bank stocks will regain their late 2017 correlation regime and breakout to the upside...