Foreign Demand For Dollar-Denominated Investments Has Collapsed
It's always interesting to see what's going on in fund flows. Among the big fund flow stories of the year have been the flow of funds from bonds to stocks and the outflow of funds from the Emerging Markets.
Morgan Stanley's Hans Redekar points to another fund flow phenomenon in his FX Morning notes;
Flows, flows, flows. It is the combination of the Fed printing money and slowing domestic US growth which is likely to lead US funds to be sent abroad while foreign interest in USD-denominated assets falls. Foreign demand for US stocks and sovereign bonds collapsed earlier this year, and Wednesday's release of the TIC August report will be important. Should long-term TIC flows drop below the July level, the USD would come under additional selling pressure.
Check out the chart:
