WisdomTree Bloomberg USD Bullish (USDU)
CurrencyShares Euro Trust (FXE)
CurrencyShares Swedish Krona (FXS)
CurrencyShares Canadian Dollar (FXC)
CurrencyShares Japanese Yen (FXY)
PowerShares DB U.S. Dollar Bullish Index (UUP)
The Japanese yen and U.S. dollar are this week's currencies to watch. On Friday, the Bank of Japan slashed interest rates to below zero and immediately touched off a drop in the yen and a rally in global asset prices. Markets once again followed oil declines on Monday, however, and by Wednesday the move had almost completely reversed. The yen traded stronger versus the U.S. dollar following Japan's announcement, while the Nikkei's gains were reduced to about 1 percent.
The U.S. dollar is also broadly weaker against most other major currencies. Resource currencies, such as the Canadian dollar, have bounced with oil and play a small role in weakening the greenback, but the euro's weight in the index dictates most of the U.S. dollar's relative strength.
It has been another volatile week for commodities. Following the previous week's rebound, oil saw its largest two-day decline since the financial crisis, only to climb again on Wednesday. Industrial metals are on a steadier path higher. None of these commodities have made a breakout; the recent bounce is still well within the bearish downtrend.
Gasoline inventories have been rising, and prices are not rebounding with oil. This is good news for consumers, but it hasn't translated into a rise in spending. Consumer are spending more on health insurance premiums and higher deductibles under the Affordable Care Act. They're also saving more than last year, with the personal savings rate at its highest level in 5 years as of December.
Falling bond yields contributed to strength in Utilities last week. The sector has done very well in 2016 relative to the broader market. Often the "defensive" sectors of the market lose less than the broader market during sell-offs, but utilities have rallied. The futures market offers a rapidly changing snapshot of expectations and at the moment, speculators believe further rate hikes are not likely for the foreseeable future.
Investors stopped selling investment-grade bonds last week. Shares of LQD rallied, while HYG traded sideways, bounding up and down with oil prices. Investors continue to buy U.S. treasuries, however, in reaction to the yen. Germany's 5-year bond sold at an interest rate of negative 0.30 percent.
The U.S. 5-year treasury yield of 1.25 percent is 500 percent higher, but falling global yields are weighing on it. The yield is approaching the 1.20 percent level that has served as the lower bound of a 30-month trading range. This dip is very similar to the one seen in early 2015.
Small-caps held their own versus large caps last week. Small-caps often trend with mid-cap stocks, which have turned relatively bullish in the past few weeks. The Dow continues to track with the S&P 500, while the correction in some large Internet stocks is leaving the Nasdaq behind. The relative outperformance of dividend shares cannot be clearer. Long-term, buy-and-hold investors stick with their dividend payers through thick and thin. SDY also has 15 percent in the utility sector versus 3 percent in SPY, which is providing an extra boost to shares. Although it's doing relatively well, SDY is down 2 percent on the year and SPY is down more than 7 percent.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.