Continuing Divergent Trends in Dollar and Share Prices

December 31, 2020

On this final day of 2020 with many markets already shut, the dollar is trading at the year’s lows, and many stock markets are at record or multi-year highs.

Closures include much of Continental Europe, Japan, Australia, New Zealand, South Korea, and Hong Kong.

The trade-weighted dollar set a fresh 2020 low of 89.51, 13% below its late March 2020 high and 7% weaker than its end-2019 level. The dollar dropped overnight by 0.8% against the Australian dollar, 0.5% versus the kiwi, 0.3% relative to the Mexican peso, 0.2% vis-a-vis the yen and sterling and 0.1% against the Swiss franc and loonie. The dollar revisited Wednesday’s low against the euro but is currently 0.1% above yesterday’s close.

In market chatter, the climbing U.S. current account and fiscal deficits have been cited increasingly to explain the dollar’s slide. Continuing political friction in this transitional period between the Trump and Biden administrations isn’t helping, either. Their economic policy agenda’s are wide apart in many respects, but one common threat is a lack of concern, if not an outright embrace, of the dollar’s orderly depreciation. January 6 looms very high on the U.S. political agenda: runoff senatorial elections in Georgia will determine who controls the whole senate, and the official tally of electoral college votes for president is apt to see some renegade Republicans not honor the will of the people.

Share prices climbed 1.7% in China, fell 1.0% in the U.K. and are showing scant change in U.S. futures from the record closing highs of yesterday. The 10-year Treasury yield edged a basis pint higher. Among commodity prices, oil is down 0.7%, and gold is 0.3% firmer. The $28,600 price of a bitcoin is nearly four times above its year-earlier level.

This is a light day from a data release perspective.

NBS-compiled Chinese purchasing manager indices saw manufacturing slip 0.2 points to 51.9 in December from November’s 38-month high. China has emerged from the pandemic with the world’s most resilient major economy. The NBS non-manufacturing PMI reading was strong at 55.7 yet nonetheless at a 4-month low.

Russia’s service-sector purchasing managers index printed below the 50 level for a third straight month. At 48.0 in December, such constituted a 2-month low but was closer to November’s 48.2 reading than October’s 5-month low of 46.9. Moreover, the services dip in December didn’t prevent the composite services plus manufacturing PMI from rising to a 3-month high.

South Korean CPI inflation decelerated 0.1 percentage point to a 2-month low of 0.5% this month.

South African private credit on-year growth picked up to a 3-month high of 3.38% in November, while M3 money growth slowed further to 8.18%.

Dutch retail sales were 9.6% greater last month than a year earlier. After recording a 3.5% on-year drop in September, Greek retail sales swung to a 4.7% on-year advance in October.

Turkey’s $5.033 billion trade deficit in November was its widest August and 2-1/2 times greater than a year earlier. In contrast to a 0.9% on-year dip in exports, imports soared 15.9%.

Weekly U.S. jobless insurance claims get reported 30 minutes from now. New claims exceeded 800k in each of the three prior weeks versus 716k in the final week of November.

In the past 24 hours, new U.S. Covid cases reached nearly 240k, and there were about 4.2k related deaths. Wednesday saw record U.S. hospitalizations of about 125k for Covid.

Happy New Year, everyone. May the coming year exceed expectations on the positive side by as much as 2020 fell short of what people anticipated this time last year.

Copyright 2020, Larry Greenberg. All rights reserved. No secondary distribution without express permission.





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