US Equities Lose Their Lift while the Dollar Keeps Going Post Trump
• The US Equity Indexes were some of this past week's best performing benchmarks, but the risk climb was uneven
• For the Greenback, a rise in Fed forecasts has provided further lift beyond basic fundamental appetite
• As USD/CNY rises further into territory last 'set' by the Government during the GFC, a threat grows
The advance in US equities this past week was remarkable, but it never truly matched the sentiment run that we had seen in other corners of the market. Global stocks were struggling to keep pace, US Treasuries were retreating from their front-run-the-central-bank position and emerging markets were taking a battering. Yet, the uncertainty that faced the rest of the investment world after the upset in the US Presidential election could provide the American economy a short-term benefit via financial stimulus and passing benefits of near-term trade barriers. Long term, however, these were not pillars of strength to hold a bullish market foundation.
This week has started out with a sense of rebalance. The US stock charge has stalled as the risk retreat and subsequent dip buying reached their limits. A climb from here would need to stand on more than just the low-hanging fruit in a bid from fear-depressed assets. While the extreme scenarios no long seem a serious chance, there is still clearly a significant degree of uncertainty over what the future holds. That is a difficult environment in which to expand and leverage a risk exposure. Should there be a remarkable buoyancy in sentiment, the recently battered markets are likely to advance more significantly than the already-rich stock indexes. Meanwhile, growing trade risks poses greater problems for emerging markets and especially China which has seen the USD/CNY exchange rate continue to run higher into a range that the Chinese government set back around the Great Financial Crisis (GFC). If this keeps up, a simple view of strong Dollar and trade advantage for exporter China will be replaced with fear of capital flight.
Meanwhile, the Dollar has kept its charge where others markets have floundered. The flood of Fed speakers has already started Monday, and the consensus from these officials was that they were ready to hike rates at the coming meeting. We are loaded for further speeches by central bankers throughout this week and the round of October inflation statistics will start today with the Import Price Index. The question for USD bulls though is how much further can confidence a December rate hike can we go. The forecast already stands at 92 percent and the DXY Dollar Index is just arm's length from the upper bound of a range that has been in place since the beginning of 2015 and was itself a more-than decade high. We discuss this and more in today's Trading Video.
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