Wednesday, November 12, 2014

Strong Dollar Is Depressing Commodity Prices (excerpt)

There are strong correlations between the inverse of the trade-weighted dollar and the following: industrial commodity prices, the Brent crude oil price, and the Emerging Markets MSCI stock price index. The strength of the dollar has been especially bearish for the price of oil, though causality also runs the other way.

While the CRB raw industrials spot price index dropped during September and October, it seems to be finding support at the bottom of its trading range, which starts in mid-2012. A sharp drop below the bottom of this range would be a worrisome indication of a rapid global economic slowdown. Also mildly encouraging is that the EM MSCI seems to have stopped falling in recent days despite the latest surge in the dollar, which was mostly attributable to the drop in the yen when the BOJ expanded and extended QQE at the end of last month.

Today's Morning Briefing: Competitive Devaluation. (1) US MSCI continues to outperform. (2) Dollar soaring as ECB and BOJ boost their balance sheets after Fed terminated QE. (3) Devaluation is often a zero-sum game. (4) Desperate measure for desperate countries. (5) Currency wishes come true for Draghi and Kuroda, but not for economy and inflation. (6) Interesting correlations between US dollar, commodity prices, and EM MSCI. (7) China is first to report trade stats, and they were good last month. (More for subscribers.)

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