Mixed news hit the markets half an hour before all three indexes opened down by more than 2% on Monday. The TIC flows report, which tracks the volume of investments flowing in and out of the country, showed a large inflow of capital in June, as appetite for Treasuries remained healthy, but total net flows showed a worse than expected outflow.
The Good News: the Treasury International Capital report showed showed a huge net inflow of financial assets as the second quarter concluded, with $90.7 billion of financial assets entering the US in June, after sales of $19.4 billion in May.
Chinese holdings of Treasuries moved lower by $25 billion, which may be worrying if that becomes a trend, but other foreign demand advanced in the month, including in Japan, who expanded their holdings by $34 billion. In equities, the net gain was $19.1 billion, displaying that optimism for a US rebound isn’t just local.
The Bad News: monthly net TIC flows, a more comprehensive measure that includes non-market flows, short-term securities, and changes in banks' dollar holdings, reported a net foreign capital outflow of $31.2 billion in the month ― its third consecutive outflow ― subtracting from an outflow of $65.7 billion in May.
TD strategist Charmaine Buskas called the report “worrisome,” voicing some concern that economic improvement could hurt appetite for Treasuries, which the US desperately needs to sell to finance a $1.8 trillion budget deficit this year.
“Overall, there is some concern that foreign appetite for U.S. Treasuries might sour, especially if the global recovery gets traction and risk appetite improves such that investors no longer need the safety of Treasuries,” she said. “This concern is tempered by the fact that foreign appetite for U.S. Treasuries was exceptionally healthy in June.”