LONDON - Mounting unease over the U.S. economic outlook and a seasonally weak month for stocks have created another perfect storm of global market volatility, leaving investors scrambling for protection and fearing another round of currency chaos.
Meanwhile, the VIX index of expected U.S. equity volatility has hit a one-month high, as choppy currency trading threatened the dollar and other haven currencies. "You need to decide now whether you like credit and bonds or equities," said Lombard Odier's Ielpo, who added he had bought government bonds over the last four weeks.
Ninety One credit fund manager Darpan Haran said he was cautious about U.S. high yield bonds, sold by borrowers whose weaker financial profiles make them sensitive to economic shocks.Traditional currency havens might not shine in this global selloff, analysts said, because of uncertainty about whether the dollar would retain its usual appeal when risky assets fall or suffer instead because traders believe a U.S. recession is on the horizon.
"The risk for the dollar is that people actually don't just go off the dollar, but they also come out of U.S. stocks as well," he said.The U.S. trade deficit widened sharply in July as businesses front-loaded imports in anticipation of higher tariffs on goods, suggesting that trade could remain a drag on economic growth in the third quarter. The trade gap increased 7.9% to $78.8 billion, the Commerce Department's Bureau of Economic Analysis said on Wednesday.
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