Global Market Data 30Jun2022
Quarter-to-date global market data, as on 30 June 2022, of stocks, bonds, currencies and commodities is as follows:
Table 1: (please click on the image to view better)
As shown above, global stocks, especially US stocks, have sold off heavily in this quarter, amidst runaway inflation, growth scare and fears of a US recession. But there is one pocket that has proved to be contrary to the general trend.
That is the Chinese stocks, which managed to end on a positive return of 4.5 per cent for the quarter. India's large-cap stocks are relatively less damaged compared to the US stocks.
Crypto assets, like Bitcoin and Ethereum, have experienced a meltdown during the quarter. Bitcoin has lost 70 per cent of its value from its all-time-high (ATH). From its ATH of USD 68,998 on 10Nov2021, Bitcoin slumped to less than USD 20,000 during the period.
The US dollar continues its bull run against other major currencies, with the US dollar index or DXY gaining 6.6 per cent during the quarter.
Year-to-date (past six-month returns) global market data as on 30Jun2022 are presented below:
Table 2: (please click on the image to view better)
Yen Collapse
As Bank of Japan (BoJ), the Japanese central bank, tries to maintain yield curve control (YCC), the Japanese Yen has plunged by 18 per cent against the US dollar year-to-date. While central banks globally have been raising their benchmark interest rates, the BoJ has continued with its ultra-loose monetary policy while holding the 10-year JGB (Japanese Government Bond) yield below the level of 0.25 per cent.
This policy divergence between the BoJ and other centarl banks has created a storm for the Yen, with the Yen losing heavily versus other major currencies. The rising import bill (Japan imports a lot of its commodities, like, crude oil and others) is also causing the Yen to depreciate versus other major currencies.
Correlation Breakdown
As shown in Table 2 above, one peculiar aspect of financial markets during 2022 (year-to-date) is all financial assets have been sold off heavily, except, crude oil and some metals.
Year-to-date, the US 10-year Treasury yield surged by 150 basis points (or 1.5 percentage points) to more than 3 per cent. Rising bond yields lead to fall in bond prices. Bond yields move inversely to bond prices.
Correlations break down during times of financial crisis. This correlation breakdown has happened once again, with bonds, stocks, precious metals and cryptocurrency assets losing their values precipitously and simultaneously.
In normal times, financial assets like bonds and stocks move in oppose direction providing some downside protection to investors in hard times. Correlation of one or perfect correlation between two asset classes means asset prices tend to move in tandem. Correlation of zero means asset prices move in opposite direction--if one asset moves up, the other tends to move down.
As happened during the Lehman Brothers collapse of 2008, correlations among financial assets have broken down once again this year--meaning investors lost heavily in most of the asset classes.
Correlation breakdown seems to be a feature, rather than a bug, of the financial markets.
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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