Dollar Rises on Inflation Expectations, Euro Hits Yearly Low (18 - 22 November)

Global financial markets last week saw a strong rally in the U.S. dollar, weak performance in metals, and gains in Treasury yields. The dollar's surge, driven by inflationary expectations and geopolitical developments, weighed heavily on other currencies and commodities.

Key Points

Currencies:

• DXY gained nearly 2%, marking seven straight weeks of growth, approaching the 107 level.
• The Euro hit its lowest level against the dollar in a year amid U.S. inflationary policy expectations.
• The pound declined to a 13-week low, pressured by weak growth data and dollar strength.
• The Japanese yen fell to a four-month low, with GDP growth for two consecutive quarters having a minimal market impact.

Commodities:

• Gold and silver experienced notable pullbacks, with silver showing relative resilience.
• The gold-to-silver ratio reached 83.80.
• Crude oil prices dropped approximately $2 for the week.

Fixed Income:

• U.S. 10-year and 2-year Treasury yields rose by 3% and 2%, respectively, driven by the "Trump trade" effect.

Macro Analysis

Global economic data for October highlights a mix of improving inflation metrics and slower economic growth across key regions, with energy costs playing a significant role in driving headline inflation trends.

German CPI

Inflation rose to 2.0% in October from 1.6% in September, its highest in three months, driven by higher services inflation (4.0% vs. 3.8%) and food prices (2.3% vs. 1.6%). Core inflation increased to 2.9%. Energy costs fell 5.5%, slowing from a 7.6% drop in September. EU-harmonized CPI accelerated to 2.4% YoY and rose 0.4% MoM.

U.S. PPI

Producer prices rose 0.2% MoM in October and 2.4% YoY. Core PPI (excluding food, energy, and trade) rose 0.3% in October, up from 0.1% in September, and 3.5% YoY.

U.S. CPI

Inflation climbed to 2.6% in October from 2.4% in September, its first increase in seven months. Energy costs fell 4.9%, slowing from a 6.8% drop, while shelter inflation remained at 4.9%. Core inflation held steady at 3.3%. Monthly CPI rose 0.2%.

UK GDP

The economy grew 0.1% QoQ in Q3, down from 0.5% in Q2. Yearly growth improved to 1% from 0.7%. Services rose 0.1%, construction grew 0.8%, but production contracted by 0.2%. Net trade contributed positively, with exports down 0.2% and imports falling 1.5%

Eurozone GDP: 

GDP grew 0.4% QoQ in Q3, its best in two years, with Germany’s 0.2% growth avoiding recession. Spain rose 0.8%, France 0.4%, and Ireland rebounded by 2%. Yearly growth reached 0.9%.

U.S. Retail Sales

Retail sales rose 0.4% MoM in October, following a 0.8% increase in September. Gains were led by electronics (+2.3%), autos (+1.9%), and food services (+0.7%). Declines were noted in miscellaneous stores (-1.6%) and furniture (-1.3%).

Currencies

• Dollar Index (DXY): Climbed nearly 2%, testing 107, its seventh consecutive weekly gain, supported by Trump-related inflation expectations.
• Euro: Fell to a one-year low against the dollar amid broad USD strength.
• Pound: Declined to a 13-week low on weak GDP data and USD gains.
• Japanese Yen: Dropped to a four-month low despite consecutive GDP growth quarters.
• Chinese Yuan: Hit a three-month low, despite improving retail sales and unemployment.
• Canadian Dollar: Reached its lowest since 2020, pressured by falling oil prices and trade concerns, though strong PMI data provided slight relief.
• Australian Dollar: Declined on lower commodity prices and Chinese demand concerns, with RBA's steady rate comments offering little support.

Commodities

• Gold and Silver: Gold posted its worst week since 2021, pressured by a stronger dollar and Trump-driven rate concerns. Silver outperformed gold, narrowing the gold-to-silver ratio.
• Crude Oil: Fell to $68.50 as the IEA forecasted an oil surplus for 2024, citing weaker demand and higher production. U.S. crude inventories rose by 2.1 million barrels.

Equities:

• U.S. Stocks: Dow fell 0.8%, S&P 500 and Nasdaq dropped 1.5%. Broadcom (-6%) and Amgen (-8%) led declines, while Netflix (+7%) and Tesla (+7%) posted gains.