Dollar Extends Its Winning Streak

Weekly Report - 20/11/2016

Dow Futures Hit New Record Highs as Rate Hike Speculation Reaches a Fever Pitch


Another week has passed in which politics have outshined the data as the gradual formation of Donald Trump’s cabinet sends shockwaves through financial markets.  The Dow Jones Industrial Average has had its best two weeks since 2011 as US dollars notches its best performance since 2008 as precious metals prices remain on the retreat.

Last Week

Risk assets continue to climb on the back of Trump’s triumph as US assets benefit from the likelihood of rising interest rates and planned fiscal stimulus measures.  Alongside the rally in the dollar and equities is a strengthening view of the outlook for additional interest rate normalization.  Federal Reserve Chairwoman Janet Yellen expressed her less dovish stance during testimony in front of Congress, commenting that the economy had improved and was supported by rising inflation.  With an interest rate hike in the cards according to Yellen, the probability of action according to futures markets has edged higher to 95.40%.  The result was the US dollar index hitting levels not seen in over 13-years as gold prices edged lower to just over $1200.00 per troy ounce.  While optimism prevailed in the US, Europe was fraught with concerns about the pace of recovery.  German GDP growth came in weaker than expected as trade faltered while inflation region-wide steadied after rebounding for months.  On a monthly basis, consumer prices grew slower than forecast, hurting the outlook and raising the specter of the European Central Bank extending its asset purchase program.  The results sent EURUSD to its lowest level since November of 2015.


The Week Ahead

In the coming sessions, revised growth figures will be released from across Europe while US markets will be quieter later in the week in observance of the Thanksgiving holiday.  Germany is set to report its revised third quarter gross domestic product, with expectations for annualized growth to be upgraded to 1.70% while quarterly growth matches the 0.20% announced during the preliminary reading.  Comparable UK figures are also going to be announced, with both quarterly and year over year figures forecast to remain at 0.50% and 2.30% respectively.  Moving to Asia, besides the ongoing Yuan devaluation, Japanese inflation data will be front and center.  National core consumer prices are expected to improve modestly on an annualized basis to a -0.40% contraction while the headline inflation figure remains on hold.  In the run up to the market closures, data relating to US housing and core durable goods orders will also be reported.  While existing home sales and new home sales are anticipated to remain steady or show minimal growth, durable goods may be set for a turnaround.  Should the core and regular durable goods orders figures show positive improvement, it could add to support for the Federal Reserve’s rate hike case.


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