Global equities crashed overnight, with rising fears over the collapse in Chinese real-estate (Evergrande), and the flow on effects for the construction industry and global demand. US Investments banks are reviewing Chinese GDP growth forecasts lower, amid an expected correction. The uncertainty was not assisted by a close election in German, which was topped by the left wing SPD Party, perhaps tipping out retiring Merkel’s Conservative Party. Inflation fears are being realised in the US Bond Markets, as the 10 Year Bond Yield surges to trade 1.55%. Markets missed the memo on the ‘transitory nature’ of inflation? This rallied the US Dollar, with the Yen trading 111.50, while the GBP crashed to trade 1.3520.
The surging reserve currency has put paid to any rebound in the commodity currencies, with the AUD falling back to 0.7230, while the NZD plunged to 0.6930. The impact of a flagging China will directly impact demand for commodities and thus the associated currencies. The US Budget must be passed and the Debt Ceiling raised by Thursday night, or the US will face a Government shutdown. These negotiations always come down to the wire, with brinksmanship from both sides of Politics, but these will make markets nervous.