Dollar’s descent gives emerging markets a lift
Lacklustre US data dampens Fed rate hike
THE DOLLAR’S slide is gathering pace and that is proving as much a boon for emerging markets and commodities as it is a drag for European equities.
The Bloomberg dollar spot index sank to its weakest since June before reports on housing started, inflation and industrial output that might add to signs growth in the US was losing momentum.
Emerging market currencies reached the strongest in more than a year and stocks gained for a ninth day. The pound jumped as UK inflation accelerated last month more than economists predicted, and the yen strengthened to ¥100 (R13) per dollar. Precious metals advanced with Treasuries.
The dollar was losing ground as lacklustre data in the world’s biggest economies fuelled speculation the Fed would be slow to raise interest rates.
The Citigroup US Economic Surprise Index, which measures whether data beat or miss analyst forecasts, is at the lowest in more than a month.
And now policymakers were casting doubts on the path of monetary policy, with San Francisco Fed president John Williams saying the policy of targeting low inflation would no longer make sense.
“The unevenness seen over the last couple of weeks in US data has diminished the relative appeal of pursuing dollar strength,” said Ned Rumpeltin, the European head of foreignexchange strategy at Toronto Dominion Bank in London.
Minutes of the last Fed meeting due this week “will be an important platform to signal whether they hope to keep the potential for a 2016 rate hike on their agenda, although markets think that chance is fairly remote right now.”
Currencies Bloomberg’s dollar index sank 1percent as of 7.56am in New York while the yen appreciated 1.4percent to 99.90 versus the greenback, the first time it has strengthened to less than 100 since June 24.
The MSCI Emerging Markets Currency Index added 0.4percent and has risen 2percent this month.
The rand firmed 0.6 percent and Malaysia’s ringgit advanced 0.5 percent. South Korea’s won advanced 1 percent, its first rise in three trading sessions.
The pound rose 0.7percent to $1.2973 (R17), after a Monday close of $1.288 that was the weakest since June 1985. Tuesday’s gain cut its loss this month to less than 2percent.
Consumer price growth picked up to 0.6 percent from 0.5percent in June, the Office of National Statistics said in London yesterday. Economists had forecast that the rate would stay at 0.5 percent, according to the median estimate in a Bloomberg survey.
The unevenness… in US data has diminished the… appeal of pursuing dollar strength.
Mongolia’s tugrik, the world’s worst-performing currency this month, weakened a 22nd day to 2243.50 per dollar, the lowest level in Bloomberg data going back to 1993. The currency was suffering as the the nation’s government sought ways to stabilise an economy it said was in the grip of a crisis.
Gold advanced 1.1 percent to $1 353.63 an ounce amid a decline in the dollar. Silver and platinum added more than 1.2 percent. Oil gained, after erasing an earlier loss as the weakness in the dollar overtook speculation that Opec would struggle to agree to limit production next month.
Nickel dropped 1.5 percent after posting the biggest advance in more than two weeks on Monday. Copper advanced 1 percent.
Stocks The MSCI Emerging Markets Index rose 0.3 percent, heading for the highest close since July last year. Developing-nation shares have soared about 33percent from a January low, driving valuations to the highest level in 15 months.
Qatar stocks climbed after FTSE Russell said it would relax the criteria to decide which of the nation’s shares would join its emerging-markets index next month. The QE Index advanced 2.2percent, its biggest gain since June 7.
The long-planned stock-trading link between Hong Kong and the mainland city of Shenzhen has been approved, further opening China’s $6.5 trillion equity market to international investors.
Chinese Premier Li Keqiang announced the Council’s approval, according to a statement on the body’s website. No further details were revealed.
The Stoxx Europe 600 Index fell 0.6 percent. A stronger euro hurts European stocks by making exports less competitive.
Schindler Holding led industrial-goods companies lower, sliding 5.6percent after forecasting a decline in the global elevator and escalator market. Electrolux, which gets more than a third of its revenue from North America, lost 2.4 percent after a report showed US shipments of major home appliances fell in July.
Antofagasta helped push a measure of commodity producers to the best performance of the 19 industry groups on the Stoxx 600, climbing 6.4 percent. It said first-half earnings rose and announcing an interim dividend of 3.1c a share.
Linde jumped 7.7 percent, propelling a gauge of chemical stocks higher, after sources familiar with the matter said Praxair had held merger talks with the company.
Standard and Poor’s 500 Index futures fell 0.1 percent, with the index having risen to fresh highs on Monday.
Bonds The UK’s 10-year gilt yield was little changed at 0.53 percent before the Bank of England sought to buy £1.17 billion (R20bn) of debt due in more than 15 years as part of its expanded quantitative-easing programme. The central bank fell short of achieving a similar target at last week’s bond-buying auction, spurring gains in longer-dated gilts.
The yield on Treasuries due in a decade fell 3basis points to 1.53percent. Yields on similar-maturity debt in Germany fell by 1basis point to minus 0.08percent. – Bloomberg