By Samuel Potter and Eddie van der WaltThe remarkable thing about recent yen performance may not be its almost 4 percent surge against dollar on Thursday, but fact currency just clocked its best month in about two years.That exact statistic also applies to gold, which in December notched largest jump since January 2017.
Both assets have continued to climb this year.
Meanwhile, bonds of G-7 governments had their best December in a decade, according to a Bank of America Merrill Lynch index.Put simply, traditional havens are back.The same myriad of drivers bedeviling equity investors in 2019 is also sending them to safety.
While trade war is showing up in real-world data, its cropping up in company earnings too, as evidenced by Apple Inc.s guidance cut on Wednesday.
At same time, Federal Reserve tightening is sapping liquidity and in process reigniting volatility in markets.
Idiosyncratic risks from likes of Brexit and Italys budget squabble with European Union are merely compounding risk-off mood -- and adding fuel to haven trade.There are so many worries to investors at moment -- global economic slowdown, China, United States shutdown, Brexit, political risk, Charles St-Arnaud, an investment strategist at Lombard Odier Asset Management in London, said by email.
On top of that, performance has been weak and volatility has increased for most asset classes.
So it is understandable that some investors are going to safer havens to wait for some clarity.Sudden SurgeApples gloomy update, which it blamed on weaker China demand, was cited by some as a factor in yens wild jump during Asian morning.
While thin liquidity amplified move and currency went on to trim a large chunk of gains, it remained well up on day and was poised to advance for 14th time in 17 sessions.Weakness in Asian stocks has resulted in sharp yen buying in thin trade, Georgette Boele, a currency and precious metals strategist at ABN Amro Bank NV said by email from Amsterdam.
Havens are back in vogue at moment with uncertainty about equities and United States government shutdown, she said.The currency appears to have more upside potential -- its among most undervalued in G-10 against dollar, based on OECDs purchasing power parity measure.
Thats a contrast with 2011, when yen was overvalued by about 30 percent according to same gauge.Going for GoldSentiment toward gold also brightened in mid-October, when money managers abandoned their record net-short position against metal as outlook for dollar deteriorated.Since then, investors have piled into exchange-traded funds backed by bullion, which have amassed 126 tons of metal worth $5.2 billion in 60 sessions -- biggest increase over a comparable period in more than 18 months.A paring of expectations for rate hikes has also contributed to demand, as gold typically falls during periods of monetary tightening because its a non-interest bearing asset.Gold is bid due to multiple headwinds for world economy, said Ole Hansen, head of commodity strategy at Saxo Bank A/S by email.
Stocks, dollar and bond yields are all down while risk of further United States rate hikes has almost been removed.Bonds BidBenchmark US Treasury yields have dropped 60 basis points since early November as fears of slowing American growth are compounded by trade concerns and partial government shutdown over President Donald Trumps border wall plans.The spread between yields on nations two- and 10-year debt narrowed to less than 15 basis points Thursday.
The level is closely watched -- a drop below zero is a signal to many of an impending recession.Safe havens should continue to outperform this year as a slowdown in United States prompts Fed to end its tightening cycle in middle of year and Chinas economy continues to lose momentum, Simona Gambarini, an economist at Capital Economics in London, said by email.The risk-off bid is also on display in Europe, where German 10-year yields are around their lowest in 26 months -- confounding last years bearish forecasts.
Investors are increasingly pessimistic about regions economy and have pushed expectations for European Central Banks first interest rate hike since 2011 into middle of next year.The rally in core-EU markets is overdone, but given both economic and political uncertainty dominating markets at moment, risk is that yields will continue to decline, said Danske Bank A/S chief analyst Jens Peter Sorensen.The regions primary bond market is also sounding a cautious note this year, with issuance dominated by least-risky types of borrowing, such as covered bonds and securities from AAA rated organizations such as European Investment Bank.