Dollar's Demise Drives Equities Up

[Excerpted from Bill Cara's Daily Report]

Another late day rally pushed equity prices to their highest levels this year. Traders are now chasing index performance while understanding that they are also speculating in the continued collapse in the US Dollar. Who would have ever thought that shorting the greenback would be a lottery ticket to riches?

At the close in New York Wednesday, the S&P 500 (1,068.76 +16.13 +1.53%), DJIA (9,791.71 +108.30 +1.12%) and NASDAQ Composite (2,133.15 +30.51 +1.45%) were all higher by +1.1 and +1.5 percent. Like Monday and Tuesday, following a brief sell-off, traders lifted their bids through to the closing bell. This is a typical fast and furious Bull move – except this one is being led by international markets that are getting their power from the price being sucked out of the US Dollar.

The Toronto Exchange Composite (11,555.60 +59.77 +0.52%) and Venture market (1,284.54 +15.19 +1.20%) have continued to rack up an impressive set of gains over the past month as Crude Oil ($WTIC 72.87 +1.57 +2.20%) and $GOLD (1,017.00 +9.80 +0.97%) are breaking out or close to it. Precious metals, however, are extremely volatile this morning.

The US Dollar ($USD 76.18 -0.28 -0.37%) dropped lower again for its 8th straight daily loss. The Yen (109.99 +0.18 +0.16%), Euro (147.12 +0.51 +0.35%), and Canadian Dollar (93.75 +0.53 +0.57%) closed higher against the USD, while the Pound (164.84 -0.05 -0.03%) was down a tad again.

The US long treasury bond dropped in price (120.31 -0.25 -0.21%) as yields lifted on the 30-year (4.266 +0.04 +0.09%), on the 10 year (3.471 +0.19 +0.55%), and on the 5 year paper (2.437 +0.45 +1.88%). The T-bill yield also dropped (0.095 -0.30 -24.00%), which indicates that traders are prepared to park cash without return, a sign of perceived market risk.

In international equity markets earlier Thursday, prices were hot everywhere: Shanghai (3,060.3 +2.02%), Hong Kong (21,768.5 +1.71%), Australia (4,714.0 +1.32%), India (16,711.1 +0.20%) and the Nikkei 225 of Japan (10,443.8 +1.68%) made solid gains.

As to the equity sectors in NY Wednesday, the leaders were Financials and Energy (XLF +3.5% XLE +2.5%), while the laggards, but still winners were the Techs and Consumer Staples (XLK +0.8% XLP +0.8%)

With all the industry groups in a rally mode, the leaders were REITs and Banks ($DJR +4.1%, $BKX +4.0% ). The Semi-conductors ($SOX +0.4%) were laggards.

For the Cara 100 company stocks that were bursting out to the upside on Wednesday, the biggest winners were Amazon.com, Buenaventura Gold, Whirlpool and Black & Decker (AMZN +8.6% BVN +7.1% WHR +5.6% BDK +5.2%). Only eight of the 100 closed down on the session, and these were led by software companies Adobe and Oracle (ADBE -6.4%, ORCL -2.3%).

Earlier Thursday the precious metals market was showing no signs of further break-out, but the volatility was high. Spot (cash) traders were as follows: for gold (1016.52 -2.14 -0.21% 07:12am ET), silver (17.3700 -0.1437 -0.82% 07:12am ET), platinum (1336 -8 -0.60% 07:09am ET) and palladium (296.0 +1.0 +0.34% 07:09am ET).

At 7:00am ET, the Euro had lifted a tad Thursday morning (1.4726 +0.0004 +0.03%), as had the DJIA December futures (9755 +30 +0.31%), while the Crude Oil futures (72.80 -0.07 -0.10%) were a tad soft.

Comments

[Mad Hedge F...:]

mmv It’s all about the dollar, which I have hated all year (click here for my call ). The assured onslaught of federal debt issuance headed our way will be the overriding investment consideration for traders and portfolio managers for the next decade. That will knock the stuffing out of the greenback against every currency except the Zimbabwean dollar, and even that will rally when you get a regime change. There was once an argument that foreigners piled into these currencies to capture a huge yield pickup, but even that advantage is now gone. The soggy buck also explains a lot of what is going on in our stock market, with companies earning most of their from increasingly wealthy foreigners, like those in technology, energy, and commodities. As I write this, I am looking at new one year highs for my favorite picks of the former British crown colony currencies of the Canadian (up 14% YTD), Australian (up 26% YTD), and New Zealand (up 23% YTD) dollars (for my C$report click here ). There bounteous resources, Anglo-Saxon contract law, an almost common language, and vibrant ports make them the safe bet of choice. It’s just a matter of time before the loony hits parity, to be followed by the Aussie dollar, and then the kiwi.

Sep 17 11:39 PM

[Hmm?!:]

Hmmmmm?

I thought it was the overalued stock market driving the dollar down? Everyone anticipating inflation, since it is all about massive cash infusions but virtually no improvements in efficiency.

Every possible piece of good news has been priced into the market. What happens when the inevitable bad news finally pops up?

Sep 18 10:45 PM