|Delayed - 01/15 05:18:49 pm|
Street Color: COVID Realities Continue to Weigh on Stocks; Dollar Index Slides to Fresh 32-Mo Low
|12/03/2020 | 08:05am|
08:04 AM EST, 12/03/2020 (MT Newswires) -- Global bonds are modestly firmer in cautious trade while stocks are mixed as they take a breather from the November rally that's seen record highs on Wall Street.
While vaccine developments and now stimulus hopes have supported equities -- not to mention monetary policy -- the reality of rising virus cases, hospitalizations, and deaths is weighing on sentiment. Final PMI services numbers out of Europe remain in contraction and reflect the big hit to the non-manufacturing sector. However, China's Caixin soared to 57.8 in November as the country leads the recovery out of the pandemic. Eurozone retail sales came in stronger than expected.
Attention will turn to the U.S. services ISM and jobless claims. Challenger announced layoff figures showed job cuts falling -15.9k to 64.8k, and are up 45.4% y/y versus 60.4% in October.
The DXY dollar index posted a fresh 32-month low at 90.70. The index is amid its third consecutive down week, and the dollar has declined in four of the last five weeks. December has a reputation for being a down month (albeit not so much in recent years), while the most recent BoA global fund managers' survey found that cash holdings at fund managers are now down to pre-pandemic levels.
Investor sentiment hasn't turned negative, however (which in the event would support the dollar), and the big-picture view remains a potently bullish one. The mix of global fiscal and monetary stimulus, low interest rates, potential for a significant consumer spending boom in a vaccine-assisted return to normalcy in 2021 (households saving has increased over the pandemic) should maintain a positive sentiment, overall.
This, in turn, is a negative backdrop for the dollar, especially with the shift in FAANG stocks from massive outperformers to underperformers likely to sustain. The ingredients for an asset bubble are there, which may end in an eventual bust.
One particular downward driver of the dollar came into sharp focus in EUR/USD's upside break on Monday, when the initial estimate for November eurozone inflation showed CPI at -0.3% y/y, which contrasts the relatively high inflation rate in the US (at 1.3% y/y in October). The implication is that inflation is imparting a loosening impact on real interest rates in the US, and a tightening impact on real interest rates in the eurozone, which translates to higher nominal EUR/USD levels.
Amid the main currency pairings today, EUR/USD lifted to a new 32-month peak at 1.2161. Cable logged a three-month high at 1.345. AUD-USD posted a 24-month peak at 0.7436, and USD-CAD printed a 26-month low at 1.2903.
(Street Color news is derived from real time discussions with market professionals globally subscribed to the Street Color Premium Chat service on Bloomberg IB Chat and the ICE IM. This information is believed to be from reliable sources but may include rumor and speculation. Accuracy is not guaranteed.)