Dollar Surges as Currencies, Commodities, and Equities Diverge (25-29 November, 2024)

Global markets last week experienced a continued dollar rally, a rebound in gold and crude oil, and mixed performances in equities and currencies, as geopolitical tensions and shifting central bank policies shaped investor sentiment.

Key Points:

Currencies:

• Dollar Index: Ended the week higher as safe-haven demand grew amid geopolitical risks and reduced Fed rate cut expectations. It tested two-year highs.
• EUR/USD: Closed at a 58-week low due to a strong dollar and ECB warnings on geopolitical risks in its Financial Stability Review.
• JPY: Dropped further against the USD, pressured by uncertainty over BOJ rate hikes despite verbal warnings from officials.
• GBP: Fell to a 26-week low as geopolitical tensions and rising UK inflation (2.3% YoY in October) weighed on the pound.
• Offshore Yuan: Declined after the PBoC held key lending rates steady, reflecting continued economic challenges.
• CAD: Recovered from a 3-year low, supported by strong inflation data (+2.6% trimmed-mean in October) and resilient economic indicators.
• AUD: Strengthened, driven by a hawkish RBA stance but limited by geopolitical tensions and USD strength.

Commodities:

• Gold: Rebounded by $130/oz, supported by geopolitical risks and safe-haven demand. Fed rate cut speculation added support.
• Silver: Gained alongside gold but underperformed due to weak demand and reduced production in China, raising the gold-to-silver ratio by 2%.
• WTI Crude: Rose on Russia-Ukraine tensions but capped by rising U.S. inventories (+0.5M barrels vs. +0.4M expected).

Fixed Income:

• U.S. Treasury Yields: 10-year yields were flat, while 2-year yields rose, reflecting mixed sentiment on rate cuts.

Macro Analysis

• Eurozone CPI (Oct): Inflation rose to 2.0% (from 1.7%), with services contributing the most (+1.77 pts), while energy dragged (-0.45 pts).
• UK CPI (Oct): Inflation increased to 2.3% YoY, up from 1.7% in September, driven by rising owner occupiers’ housing costs (+7.4%).
• U.S. Jobless Claims (Nov 16): Fell to 213K (-6K), marking a new low since April.
• Philadelphia Fed Index (Nov): Dropped to -5.5, indicating regional manufacturing slowdown.
• Existing Home Sales (Oct): Increased 3.5% MoM to 3.96M units, rebounding from a 14-year low.
• PBoC Loan Prime Rate: Left unchanged (1-year at 3.1%, 5-year at 3.6%).

Equities

• U.S. Indices: S&P 500 (+1.3%), Dow (+1.3%), Nasdaq (+1.6%) rebounded after a selloff.
• Top Performers: Tesla (+14%), Netflix (+8%), Apple (+2%).
• Lagging Stocks: Microsoft (-3%), Google (-5%), Meta (-2.7%), Amazon (-5%).