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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: DebtBomb who wrote (30936)	10/14/2010 3:03:05 PM
From: Giordano Bruno	Read Replies (1) \| Respond to of 71479

Careful what you wish for. Investors shun ailing US dollar Thursday 18:00 BST. The impact of mooted Fed intervention continues to batter the dollar, distorting markets and scattering assets to extremes. Gold has hit a new nominal peak, the Aussie dollar is near parity with its US namesake, which is also at 15-year lows versus the yen. Commodities from copper to corn are at cyclical highs, while short-term core bond yields remain near record lows. The FTSE All-World index is up 0.5 per cent to 210.3, its best level since September 2008. The benchmark has climbed by 14 per cent in six weeks – a period in which traders’ risk appetite has risen with every hint that the US Federal Reserve stands ready to inject further liquidity into the economy via the purchase of financial assets. However, risky assets are struggling to make headway. Commodities are now down for the session after rising earlier to fresh highs. Wall Street’s S&P 500 index is off 0.6 per cent, though mostly battered by financial groups on fears that the ongoing mortgage mess could spark big new losses. A worse-than-forecast reading of weekly initial jobless claims seems to have reminded traders that the Fed’s proposed largesse comes only as a result of fundamental economic weakness. Factors to Watch. Google provides the main US earnings interest on Thursday, but it will report after the closing bell. The Market Eye The Fed’s strategy, which will be the second batch of quantitative easing, and is therefore known as QE2, is the primary cause of the dollar’s 7 per cent fall over the past month, writes Jamie Chisholm. And from the dollar’s decline traders have been following a well-thumbed bullish strategy map: the weak greenback boosts dollar-denominated commodities and helps US corporates, 50 per cent of whose earnings are made abroad. The trick for investors is to work out how much of QE2 is now factored into the market, or whether recent gains in riskier assets can be justified by the fundamentals. The early positive noises from the US third-quarter earnings season may go some way to justifying recent optimism, but can such profits be maintained when the underlying economic data remains so tepid? Also, global investors seem to be so in thrall to Wall Street’s moves that they are blinded to the fact that a rising S&P 500 based on dollar weakness is an advance built on US companies eating their international competitors’ lunch. In addition, the dollar’s tumble is wrenching the globalisation consensus. The “currency war” is again rumbling. A dispute between South Korea and Japan over exchange rates intensified on Thursday as Seoul complained to Tokyo after the neighbouring country questioned its leadership of the G20 meeting, citing Seoul’s repeated intervention to curb the won’s strength. Now UN peackeepers are attempting to intervene. James Zhan, a senior official at the United Nations Conference on Trade and Development has warned that the race to devalue currencies is deterring companies from investing abroad, Reuters reported. .. Europe. Bourses opened higher as the falling dollar saw traders flick the “risk on” switch. However, a pull back in US equity futures following the jobless data has seen benchmarks pull back. The FTSE Eurofirst 300 is down 0.2 per cent as defensives see selling. London’s FTSE 100 was down 0.4 per cent, dragged back by a relapse for the banking sector as investors worry that some may have to follow Standard Chartered and come to the market for cash to bolster their balance sheets. Forex. Asian currencies are making waves with record highs, led by Singapore’s surprise decision to widen its currency band. The Singapore dollar was up 0.5 per cent to S$1.2958, after hitting S$1.2893, the highest level since 1981. The move is widely seen as having kick-started the day’s renewed broader dollar selling. The Australian dollar is also nearing parity, up 0.2 per cent to a fresh 28-year of $0.9926 as traders contrast the differing economic fortunes of the US and down under. The yen hit a fresh 15-year high of Y80.90 against the dollar despite investor wariness over possible intervention. It is now up 0.4 per cent at Y81.43. The Chinese renminbi is up 0.2 per cent to Rmb6.6505 per dollar, the highest level since Beijing abandoned a decade-old peg to the greenback in July 2005, amid growing global tensions over currencies. The Korean won rose towards a five-month high against the dollar on expectations of higher interest rates but the Bank of Korea left interest rates unchanged at 2.25 per cent. The US dollar index, which tracks the buck against a basket of its peers, is down 0.6 per cent to 76.63, having earlier dredged a 10-month trough of 76.26. The euro is up 0.7 per cent to $1.4057. Rates. US Treasuries are softer ahead of the final auction for this week later on Thursday – the sale of $13bn worth of 30-year notes. However, yields remain near recent troughs as investors continue to price in the purchase of debt as part of the Fed’s mooted QE2 programme. The US 10-year note yield is up 3 basis points at 2.45 per cent, while two-year yields are up 1 basis point at 0.37 per cent, a few basis points off record lows. News that factory gate inflation in the US is running at a faster pace than expected appears to have had little significant early impact, as investors assume that companies would have great difficulty forcing such price pressures on to consumers. Commodities. Industrial metals are trundling lower, not helped by the weaker dollar or possible increased demand from investment funds, instead seeming to take their cues from the poor economic data. Copper is down 0.2 per cent to $3.78 a pound in Nymex trading, off a 27-month high touched earlier. Oil is down 0.2 per cent to $82.82 a barrel, while gold has hit a new high of $1,387.1 an ounce for the first time and is currently up 0.2 per cent at $1,374. Silver touched a fresh 30-year high of $24.90 an ounce, and is now trading at $24.45. Asia-Pacific. Shares hit their highest level since July 2008 amid improving investor confidence on the back of strong corporate earnings data and on hopes QE2 will lift all boats. The FTSE Asia-Pacific Index is up 1.9 per cent. Japan’s Nikkei 225 Stock Average has dismissed a sharp move higher for the dollar/yen and has gained 1.9 per cent. South Korea’s Kospi Composite has advanced 1.3 per cent. Australia’s S&P/ASX 200 index is up 1.7 per cent and New Zealand’s NZX 50 index has gained 0.9 per cent. Shanghai added 0.6 per cent and Hong Kong rose 1.7 per cent to a 28-month peak as banking stocks rebounded following recent underperformance. The Sensex in India briefly came within a stone’s throw of the lifetime high of 21,206.8 before slipping 1 per cent to 20,477. Follow the market comments of Jamie Chisholm in London and Telis Demos in New York on Twitter: @JamieAChisholm and @telisdemos .Copyright The Financial Times Limited 2010.