A slate of better than expected US data releases including May durable goods orders, new home sales and June consumer confidence data (the latter two releases reaching their highest levels since 2008) helped to boost risk appetite, spurring equity markets higher and the VIX ‘fear gauge’ lower.
Firmer US data came alongside soothing comments from China’s central bank PBoC, about liquidity conditions in the banking sector, with an official noting that it will keep money market rates at “reasonable levels”. The European Central Bank’s Draghi added to the fray by noting that Outright Monetary Transactions (OMT) was even more essential now, highlighting the ongoing backstop provided by potential ECB peripheral bond purchases.
Meanwhile the positive US data releases helped to push Treasury yields higher, with the 10 year yield breaching 2.6%. Commodities remained under pressure, with higher yields in particular weighing on gold prices.
The calendar is rather light today and will provide little market direction, with an Ecofin meeting in Europe, UK spending review and US Q1 GDP revision in tap. Expect some positive follow through from the firmer tone to European and US equities overnight which will support risk assets including EM currencies although concerns about tapering are from over.
The rout in equity markets over recent weeks has had a devastating impact on equity flows to Asia. The outflow of equity portfolio capital from Asia accelerated sharply over June. Month to data Asia has recorded $10.2 billion in outflows, a massive move out of the region given that total inflows year to data have now dropped to $8.7 billion. One more month at this pace of outflows would see Asia registering net outflows for the year.
Indonesia, South Korea and Taiwan have been hit the most over June but no country has recorded net equity inflows. Year to date India has registered the strongest equity inflows of $14.7bn while South Korea has registered the biggest outflows of $7.3bn.