Last week was Thanksgiving in the US. With markets pushing close to all time highs, it gave many investors reason to cheer and be thankful for. That said, it’s the true treasures of life, family, good health and peace of mind which we should all strive toward and be thankful for when attained.
The current state of world affairs gives us reason to pause when applying this lens. For too many, health is a precarious state and the current COVID pandemic highlights so clearly how thin a line exists between peril and safety.
One of these global macro factors appears to be generalized dollar weakness. The US dollar index (as measured against a basket of currencies) signals that the greenback has slipped to its lowest since April 2018. On a technical analysis basis, the next support level is around 2-3% lower still.
All this begs the question, is the breakout we are seeing in equities, commodities and even cryptocurrencies, not just a manifestation of generalized dollar weakness? Is it all about the dollar and if so, isn’t the single most important call we have to make over the long term, about where the long term value of the dollar will be going?
What do we know and what will we know this week?
Last week (What do we Know):
- My birthday was on the 26th. My gift to all of you was that I was recording Episode 3 of Magic Markets with my friend, The Finance Ghost. Check him out, he is quite smart and I think we make a good team on the podcast! We spoke about why credit ratings are relevant (or not) and why investors may want to ‘Touch SA’s Junk (Bonds)’. Check it out here. Subscribe on Spotify, Audible, Castro, Pocket Casts, Stitcher, or Apple.
- Last week’s newsletter indicated that we would be watching President Elect Biden’s cabinet appointments closely. The announcement on Tuesday of Janet Yellen (former Fed Chair) as the choice for Treasury Secretary, was definitely the highlight. See my piece here where I discuss the record breaking on markets and outlook around the incoming Treasury Secretary.
- South Africa’s consumer inflation came in at 3.3%, slightly ahead of market expectations. The key headlines here were a jump in Food (incl nonalcoholic beverages) and alcoholic beverages for the year on year number, up 5.4% and 4.5% respectively. Perhaps some binge eating, and drinking was in order due to the pandemic? Its just one number so we would need to watch for a trend before sounding the alarm on upward price pressures but suffice to say, rates may stay on hold for a while longer.
- In a surprise move, China slapped taxes of over 200% on Australian wine in an escalating trade war with one of its largest regional trade partners. This comes on the heels of reduced imports in several products including beef, coal, barley, seafood, sugar and timber. Trade seems to be the casualty of escalated tensions between China and Australia amid the coronavirus and its purported origins. Now would be a good time to revisit my initial piece on China here and listen to Episode 2 (China’s Electrical storm) of Magic Markets here, where we discuss the lens one should use when looking at China.
- Bitcoin approached its own record highs from 2017 as the aforementioned dollar weakness coupled with strong buying in the cryptocurrency. I have not had a good handle on crypto and it’s an area I am investigating a lot more recently. I get the underlying premise and I understand the concepts, but I just don’t have a proper ‘feel’ for it yet and as I formulate my investment theses around this, I will be sure to keep you posted.
This week (What will we Know):
- I will be watching PMI data from a whole host of global economies this week. PMI stands for Purchasing Managers Index and gives us insight into how manufacturing and services sectors sentiment and activity are faring worldwide.
- Jerome Powell will be testifying before Congress this week again. I will watch this as part of the developments around the Fed’s stance toward additional and/or continuing stimulus as well as the general sentiment of Congress toward such matters. Forms part of the larger Yellen challenge discussed above.
- To cap the week off, we will watch labour market data out of the US (nonfarm payrolls and earnings).
For now, its ‘All about the Dollar’ … until it isn’t. See all my podcasts listed here or Click on the podcast platform of your choice below to subscribe: