Dollar’s revival damps demand for stocks

Discussion in 'Wall St. News' started by ASusilovic, Dec 17, 2009.

  1. The dollar shot to its highest level in three months on Thursday after traders perceived the Federal Reserve had adopted a more upbeat tone regarding the US economy following its decision to leave interest rates at historic lows.

    However, in a sign that the the carry trade mantra of “strong dollar equals weak stocks” is still afforded some heft, global stock markets turned lower on the greenback’s advance.

    The FTSE World Index fell 0.8 per cent as banks gave back a big chunk of Wednesday’s gains. London’s FTSE 100 shed 0.8 per cent to 5,277, and the FTSE Eurofirst 300 dropped 0.6 per cent to 1,024. Resources stocks were particularly weak as the strong dollar hit commodity prices. US equity futures point to the S&P 500 opening down 0.3 per cent.

    News that Standard & Poor’s had also cut Greece’s credit rating further damped spirits and reminded investors that sovereign debt risks remained. The yield on 10-year Greek government bonds jumped 20 basis points to 5.77, taking the spread with German Bunds to 258bp.

    The dollar’s gains accelerated in Asian trading once it had breached the $1.45 level to the euro, leaping 0.9 per cent to $1.4407 and gaining 0.6 per cent on a trade-weighted basis to 77.41.
  2. The unwinding of the Dollar/Dow Jones carry-trade, by definition, WILL be bullish for the dollar and bearish for US stocks. That's how the headline should read. :cool: