Monday, September 15, 2014

Dollar hotter than ever

By Rob Verdonck

The dollar strengthened to a 14-month high and commodities declined to the lowest level in five years after data added to evidence China’s economy is slowing. Russia’s ruble weakened to a record after the European Union and U.S. imposed new economic sanctions.

The Bloomberg Dollar Spot Index rose 0.1% at 8:33 a.m. in New York. The Bloomberg Commodity Index fell 0.4% as oil declined 0.9% and copper slipped 0.4%. Emerging market stocks dropped for an eighth day, the ruble (CME:R6V14) weakened for a third day and U.K. natural gas (NYMEX:NGV14) advanced the most in two weeks. Standard & Poor’s 500 Index (CME:SPZ14) futures and the Stoxx Europe 600 Index were little changed.

Royal Bank of Scotland Group Plc cut its 2014 estimate for Chinese economic expansion to 7.2% from 7.6% after August industrial output growth was the weakest since the global financial crisis. Investors assessed regional manufacturing data in the U.S., where the fastest rise in retail sales in four months bolstered speculation the Federal Reserve will signal moves toward interest-rate increases and reduce its quantative easing program of bond purchases at a meeting this week. U.S. Secretary of State John Kerry is scheduled to meet Russian Foreign Minister Sergei Lavrov today.

“The strength of the dollar is something we’ve been anticipating, knowing that we have QE finally ending,” Dan Morris, a global investment strategist at TIAA-CREF Asset Management, said in an interview on Bloomberg Television’s “On The Move” with Jonathan Ferro in London. “You do see a negative reaction on the part of emerging markets when those currencies do start to weaken against the dollar, with cash flowing back to the U.S.”

U.S. Treasuries

Speculation that a strengthening U.S. economy will prompt the Fed to bring forward its timeline for raising borrowing costs is pushing down Treasuries and boosting the allure of the dollar (NYBOT:DXZ14). The U.S. 10-year note (CBOT:ZNZ14) yield was at 2.60% after touching 2.62% today, the highest since July 7, and the Bloomberg Dollar Spot Index advanced to its strongest level since July 2013.

Spain’s bonds rose, pushing 10-year yields three basis points lower to 2.32%.

Australia’s dollar (CME:A6Z14) fell below 90 cents for the first time since March and South Africa’s rand slid for a sixth straight day today. Malaysia’s ringgit led losses in Asia as it fell by the most since March and a gauge of emerging-market currencies slid to the lowest since 2009.

The krona (CME:SKZ14) was little changed at 9.2365 against the euro today. The three-party Social Democratic opposition bloc won 43.6% of the vote in an election, versus 39.5% for the government’s coalition, with 97% of ballots counted. The Social Democrats must now garner support from other parties to form a majority.

Unprecedented Stimulus

Unprecedented stimulus by central banks helped swell investments in emerging markets to $1.4 trillion as of May, raising the risk that those markets may destabilize when interest rates rise or their exchange rates fall, the Bank for International Settlements said in a report yesterday. The Fed has created a committee led by Vice Chairman Stanley Fischer to monitor financial stability, reinforcing its efforts to avoid the emergence of asset-price bubbles.

The Bloomberg Commodity Index declined as much as 0.4% to the lowest since July 29, 2009. West Texas Intermediate oil (NYMEX:CLV14) dropped to $91.40 a barrel and Brent crude (NYMEX:SCV14) fell to $96.80 a barrel. Copper retreated to $6,812.25 a metric ton. China is the biggest buyer of energy and industrial metals. U.K. natural gas for October gained as much as 4.6% on concern an escalation of fighting in Ukraine may disrupt flows from Russia to Europe.

The MSCI Emerging Markets Index slid 0.8%, extending its longest run of losses since a 10-day rout ended Nov. 13.

The ruble weakened as much as 1.3% to 38.23 per dollar. Ukraine’s July 2017 Eurobond fell for a second day, sending the yield 27 basis points higher to 13.09%.

Paris Meeting

Kerry will meet with Lavrov at a conference on Iraq that will take place in Paris. Russia still has more than 3,000 soldiers inside Ukraine and about 25,000 troops along the border, according to the nation’s government. The U.S. and other NATO countries are commencing military exercises in the country today.

The U.S. on Sept. 12 expanded sanctions against Russia to include OAO Sberbank, the country’s largest bank, because of the fighting in eastern Ukraine. The EU added 15 companies, including Gazprom Neft, OAO Rosneft and OAO Transneft, and 24 people to its own list of those affected by its restrictions.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong slid 1.6% to a five-week low. The Shanghai Composite Index added 0.3%.

Industrial Output

Industrial output rose 6.9% from a year earlier in August, the statistics bureau said on Sept. 13, down from 9% in July and the slowest pace outside the Lunar New Year holiday period of January and February since December 2008, based on previously reported figures compiled by Bloomberg. Retail sales gained 11.9% and fixed-asset investment in the January-August period climbed 16.5%, both missing analyst estimates.

The Fed Bank of New York’s Empire Manufacturing gauge manufacturing index jumped to 27.54 this month from 14.69 last month. Economists estimated the reading would be 15.95, according to a Bloomberg survey.

A separate report may show U.S. industrial production, which includes mines and utilities, rose 0.3% in August compared with 0.4% the previous month. Figures may also show factory output increased 0.2% last month, according to the median estimate of economists surveyed by Bloomberg News.

The MSCI All-Country World Index fell after sliding 1.4% last week, its first drop since the period ended Aug. 8.

Oil and gas companies led declines on the Stoxx 600, following a 1% drop last week. The U.K.’s FTSE 100 Index was little changed before this week’s Scottish referendum. Lloyds Banking Group Plc dropped 1.1%.

Air France

TDC A/S lost 7.2% after Denmark’s largest telephone company agreed to buy cable-TV provider Get AS and said it will cut its dividend. Nobel Biocare Holding AG dropped 5.5% after Danaher Corp. agreed to acquire it, paying less than its share price at the last close.

Air France-KLM Group slid 3.8% after saying it expects its most disruptive strike since 1998.

SABMiller Plc and Heineken NV both advanced more than 2% after the U.K. brewer was rebuffed in an attempt to buy the Dutch company. Micro Focus International Plc jumped 15% after agreeing to buy business-software provider The Attachmate Group Inc.

Hennes & Mauritz AB climbed 2.6% after Europe’s second-biggest clothing retailer reported a 16% gain in third-quarter sales.

Futures on the S&P 500 expiring in December fell as much as 0.4% today after the index posted its first weekly decline since the period ended Aug. 1.

Alibaba IPO

Yahoo! Inc. rose 2.4% in early New York trading after people with knowledge of the matter said Alibaba Group Holding Ltd. will increase the size of its initial public offering amid strong investor demand.

The MSCI AC Asia Pacific Index fell 0.6% today for an eighth consecutive day of declines, the longest streak since January 2010.

Phones 4u Ltd. filed for administration and will close its mobile-phone stores across the U.K. after failing to secure contract renewals with mobile carriers EE Ltd. and Vodafone Group Plc.

Its 430 million pounds of bonds maturing April 2018 plunged 26 pence on the pound to a low of 10.4 pence, according to data compiled by Bloomberg. The 9.5% bonds were quoted at 102 pence on Aug. 29.

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