The weak dollar trade regains momentum
In five minutes we get GDP revisions. Here is what Brown Brothers Harriman’s currency team says is happening in markets ahead of that data. Basically, it is a resumption of the weak dollar trade with gold, oil and foreign currencies all benefitting. Let’s see how the GDP revisions change that calculus.
The US dollar is weaker against the major and emerging market currencies. Better than expected data out of Japan (output rose 5.2% m/m in April vs. 3.3% exp) and India (Q1 GDP rose 5.8% y/y vs 5.0% exp) as well as Germany (retail sales rose for the first month in four as expected) may have acted as a catalyst for momentum traders to take the US dollar lower. The euro has overcome the $1.4050 area to set a new high for the year. The pound has also plowed through Wednesday’s high around $1.6085 to set another new high for the year. The New Zealand and Australian dollars are posting the strongest gains today, maintaining their position as the top performers on the month (up 11.9% and 9.5% respectively in May.) Both currencies, together with their member dollar bloc currency, the Canadian dollar, have set new highs for the year overnight. Against the yen, the dollar is lower but remains within yesterday’s range. Amongst the emerging market currencies, the Eastern European currencies are leading the move higher against the dollar.
Global equity markets are up across the board adding to monthly gains with early indications suggest US markets will open higher. In Asia, the MSCI Asia Pacific index closed up 1.2% on the day taking the monthly gain to 12%, the third consecutive monthly gain while the Nikkei gained 0.8% to close up 7.9% on the month. India’s Sensex was one of the top performers after the better than expected GDP report, rising 2.3% to close the month up 28.3%. China and Taiwan remain closed for a holiday but reopen Monday. In Europe, the DAX and CAC are up 1.1% in morning trading and up 3.7% and 2.7% respectively in May. Commodities are up with gold jumping over $15 to around $975 and copper up over $4.30 in London trading while oil traded above $66 per barrel.
This morning, Krugman was talking about the inflation fear-mongering. I agree with him in that if there is going to be ANY inflation, it will only come about as a result of deficit spending at the federal level. But the banks are hoarding more than what Obama is doing in additional spending. So the hoarding negates any inflationary effect that the spending may have had. Where I disagree with Krugman is in his assertion that more government spending is going to “rescue” the American economy. The hoarding door can swing both ways and bank hoarding can also keep any positive effects from occurring. But eventually, unless we plan on making such expenditures a permanent feature of the economy, we simply MUST address the underlying issue…stagnant wages.
Either wages must come up or prices must come down. Conservatives want to give us lending and credit to make up for the difference between wages and prices and “liberals,” or what I like to call neo-liberals, want to avoid the wage issue too and give us government spending. Where do they think the tax money comes from to pay for all of this spending? Doesn’t it come from…. wages?
But I don’t see wages going up any time soon…except maybe for the rich. No, the only thing I see are falling prices. There’s no other way out but to deflate this overly-inflated economy. Home prices, car prices, college costs, luxury items at the mall…everything that was being purchased on time before this mess began must come down.