US Economy: S&P 500, Dow close at record highs, dollar gains at end of tumultuous year

All three major indexes gained ground, with the Dow and S&P 500 picking up steam in the session’s final minutes to exit 2020 at record highs. Over the course of a historic year, the indexes both roared and plummeted as economic shutdowns to contain the coronavirus brought markets to their knees.

Read more at:S&P 500, Dow close at record highs, dollar gains at end of tumultuous year | Reuters

USA: The dollar is too strong for the recession that just began, Mr. President - by Mr. Robert Romano

The cornerstone of President Donald Trump’s plan to defeat the Chinese coronavirus and save potentially millions of lives, and to salvage what can be of the U.S. economy, is a massive expansion of the Treasury’s Exchange Rate Stabilization Fund from about $93 billion to $500 billion.

These funds will be used to underwrite the economic relief plan, which includes $300 billion for covering payroll for small businesses, $200 billion for critical industries and a gigantic expansion of unemployment benefits that amount to paid sick leave for every American who had a job when the virus struck.

These lending and grant programs are essential to incentivize millions of Americans to stay home to combat the virus, and to help the U.S. economy to survive the effects of being shut down during the outbreak response effort. If done correctly, tens of millions of businesses and hundreds of millions of jobs can be saved.

But the Exchange Stabilization Fund has other important, economy-sustaining uses.

Normally, the U.S. Treasury operates the Exchange Stabilization Fund to “purchase or sell foreign currencies, to hold U.S. foreign exchange and Special Drawing Rights (SDR) assets, and to provide financing to foreign governments. All operations of the ESF require the explicit authorization of the Secretary of the Treasury (‘the Secretary’),” according to Treasury’s website.

Read more at: The dollar is too strong for the recession that just began, Mr. President

US Economy: The dollar is on a downward spiral as US policies turn countries against the greenback - by Garry White

The dollar is the most important currency in the world because of Saudi Arabia. In the Seventies, the world’s largest oil producer agreed to sell its crude in the US currency and the “petrodollar” was born.

The move boosted global demand for the dollar, cementing its status as the globe’s reserve currency. However, the US’s current aggressive treatment of rivals and allies alike means many countries are questioning whether the use of the dollar is now in their own interests.

The Trump regime’s belligerence is resulting in countries turning their backs on the buck – and Russia is leading the de-dollarisation trend.

Read more: The dollar is on a downward spiral as US policies turn countries against the greenback

U.S. Economic Forecast: Growth of the economy to continue through 2018

For the first time since the middle of 2014, the US economy has sustained 3 percent growth for two consecutive quarters, providing strong momentum into next year. The current Conference Board forecast calls for 2.8 percent growth during the final quarter of 2017 and 2.5 percent growth in 2018.

This would represent the economy’s best 2-year run since 2005.

Business investment has awakened from the doldrums this year, rising by more than 4 percent after falling into negative territory in 2016. Confidence in the manufacturing sector has been especially strong.

The composition of growth supports a long-term improvement in productivity. Capital equipment has risen at an 8.7 percent annual rate during the past two quarters, while investment in warehouse structures is up more than 20 percent since the end of last year. These investments demonstrate a renewed firm commitment to increased efficiency.

Consumer spending eased a bit in the third quarter, but with The Conference Board’s Consumer Confidence Index still strong and housing prices rising, expect a robust holiday season.

One encouraging sign was the pickup in motor vehicle spending thanks to renewed demand following the two hurricanes. Should employment growth rebound quickly from last month’s storm related decline, tighter labor markets should translate into a renewed wage acceleration which could boost spending late this year or into 2018. The possibility of federal income tax cuts could do the same.

The economy enters 2018 in good position to maintain strong growth from 2017.

Current Fed chair Janet Yellen and new Fed chair nominee Jerome Powell may raise rates slightly faster as a result. These expectations have led long-term rates to rise modestly.

The dollar has also started strengthening since early September after weakening through much of 2017, creating less favorable terms of trade. Higher capital costs and the possibility of a less supportive external environment for growth have not rattled the market yet.

With growth prospects strong for 2018, profits should grow robustly as well, rewarding those businesses that increase investment levels.

Read more: U.S. Forecast | The Conference Board

Currencies: Dollar Collapse: Will It and When - by Kimberly Amadeo

US Dollar Collapse?

A dollar collapse is when the value of the U.S. dollar plummets. Anyone who holds dollar-denominated assets will sell them at any cost. That includes foreign governments who own U.S. Treasurys. It also affects foreign exchange futures traders. Last but not least are individual investors.

When the crash occurs, these parties will demand assets denominated in anything other than dollars. The collapse of the dollar means that everyone is trying to sell their dollar-denominated assets, and no one wants to buy them.

This will drive the value of the dollar down to near zero. It makes hyperinflation look like a day in the park.

Three conditions must be in place before the dollar could collapse. First, there must be an underlying weakness. That situation exists in 2017. The U.S. currency is fundamentally weak despite its 25 percent increase since 2014. The dollar declined 54.7 percent against the euro between 2002 and 2012. Why? The U.S. debt almost tripled during that period, from $6 trillion to $15 trillion. The debt is even worse now, at $20 trillion. The debt-to-GDP ratio is now more than 100 percent. That increases the chance the United States will let the dollar's value slide. That's because it would be easier to repay its debt with cheaper money.

Second, there must be a viable currency alternative for everyone to buy. The dollar's strength is based on its use as the world's reserve currency.

The dollar became the reserve currency in 1973 when President Nixon abandoned the gold standard.  As a global currency, the dollar is used for 43 percent of all cross-border transactions. That means central banks must hold the dollar in their reserves to pay for these transactions. As a result, 61 percent of these foreign currency reserves are in dollars.

The next most popular currency after the dollar is the euro. But it comprises less than 30 percent of central bank reserves. The eurozone debt crisis weakened the euro as a viable global currency.

China and others argue that a new currency should be created and used as the global currency. China's central banker Zhou Xiaochuan goes one step further. He claims that the yuan should replace the dollar to maintain China's economic growth. China is right to be alarmed at the dollar's drop in value. That's because it is the largest foreign holder of U.S. Treasurys, so it just saw its investment deteriorate. For more, see Dollar to Yuan Conversion and History.

Could bitcoin replace the dollar as the new world currency? It has many benefits. It's not controlled by any one country's central bank. It is created, managed, and spent online. It can also be used at brick-and-mortar stores that accept it. Its supply is finite. That appeals to those who would rather have a currency that's backed by something concrete, such as gold.

But there are big obstacles. First, its value is highly volatile. That's because there is no central bank to manage it. Second, it has become the coin of choice for illegal activities that lurk in the deep web.

That makes it vulnerable to tampering by unknown forces.

These two situations make a collapse possible. But, it won’t occur without a third condition. That's a huge economic triggering event that destroys confidence in the dollar.

Altogether, foreign countries own more than $5 trillion in U.S. debt. If China, Japan or other major holders started dumping these holdings of Treasury notes on the secondary market, this could cause a panic leading to collapse. China owns $1 trillion in U.S. Treasurys. That's because China pegs the yuan to the dollar. This keeps the prices of its exports to the United States relatively cheap. Japan also owns more than $1 trillion in Treasurys. It also wants to keep the yen low to stimulate exports to the United States. Japan is trying to move out of a 15-year deflationary cycle.

The 2011 earthquake and nuclear disaster didn't help.

Would China and Japan ever dump their dollars? Only if they saw their holdings declining in value too fast and they had another export market to replace the United States. The economies of Japan and China are dependent on U.S. consumers. They know that if they sell their dollars, that would further depress the value of the dollar. That means their products, still priced in yuan and yen, will cost relatively more in the United States. Their economies would suffer. Right now, it's still in their best interest to hold onto their dollar reserves.

China and Japan are aware of their vulnerability. They are selling more to other Asian countries that are gradually becoming wealthier. But the United States is still the best market in the world.

A dollar collapse will not occur in 2017. In fact, it's unlikely that it will collapse at all. That's because any of the countries who have the power to make that happen (China, Japan, and other foreign dollar holders) don't want it to occur. It's not in their best interest. Why bankrupt your best customer? Instead, the dollar will resume its gradual decline as these countries find other markets.

A sudden dollar collapse would create global economic turmoil. Investors would rush to other currencies, such as the euro, or other assets, such as gold and commodities. Demand for Treasurys would plummet, and interest rates would rise. U.S. import prices would skyrocket, causing inflation.

U.S. exports would be dirt cheap, given the economy a brief boost. In the long run, inflation, high interest rates and volatility would strangle possible business growth. Unemployment would worsen, sending the United States back into recession or even a depression.

Protect yourself from a dollar collapse by first defending yourself from a gradual dollar decline. Keep your assets well-diversified by holding foreign mutual funds, gold, and other commodities.

A dollar collapse would create global economic turmoil. To respond to this kind of uncertainty, you must be mobile. Keep your assets liquid, so you can shift them as needed. Make sure your job skills are transferable. Update your passport, in case things get so bad for so long that you need to move quickly to another country. These are just a few ways to Protect Yourself and Survive a Dollar Collapse.

Read more: Dollar Collapse: Will It and When

Global Monetary System: The currency war intensifies after China devalues the yuan by Daleen Hassan

One week after the People’s Bank of China devalued the yuan Business Middle East focuses on reactions to the central bank’s latest action which was taken to support the country’s economy.

Reducing the value of the Chinese currency raised many questions and fears in a country considered one of the main engines of the global economy. The devaluation impacted on global stocks, commodities and currencies.

It is a known financial tactic that when the economy stumbles in a country, central banks intervene. For example, what happened with quantitative easing in the US, Japan and the eurozone. It is no different to what China did, so why did the devaluation of the yuan reverberate around the globe in the way it did?

China’s decision to reduce the value of its currency last Tuesday by two percent, led to the yuan falling to its lowest level in 20 years. That surprise was followed by the second on Wednesday to reduce it by 1.06% and on Thursday, there was a third reduction of 1.11%.

A combination of factors pushed Beijing to make this decision mainly, the latest losses in stock markets, especially the Shanghai composite index and recent data which showed exports fell by 8.3 percent in the month of July. The forecast for growth also showed a fall, dropping to less than 7 percent.

China’s currency over the past years was considered one of the most stable but the strong yuan put a lot of pressure on Chinese exports.

In one week following devaluation, the yuan depreciated against the global currencies basket. It fell against the dollar by 2.92% and 3.89% against the euro.

Read more: The currency war intensifies after China devalues the yuan | euronews, Business Middle East

EURO - France’s Hollande upbeat as euro nears parity with dollar

French President Francois Hollande says the euro has reached a good level against the US dollar as the two currencies edge closer to parity.

"There will be a favourable effect on activity with a euro that is now at a good equilibrium," Hollande told reporters on Thursday, noting that when the euro was created it was also near parity with the dollar.

Earlier in the day, the single European currency briefly fell below $1.05 in Asian trading, its first such drop in 12 years, and analysts believe it could soon ease further.

The euro, which neared $1.40 last May, has been sliding as the European Central Bank (ECB) embarked on a 1.14 trillion euro stimulus programme designed to boost flagging growth across the 18-member bloc.

Read more: Business - France’s Hollande upbeat as euro nears parity with dollar - France 24

Global Economy: Why EM currencies matter to every investor - by Alex Rosenberg

Currencies like the Turkish lira and the Brazilian real may not always be foremost on investors' minds.
But according to Scotiabank's chief FX strategist, Camilla Sutton, emerging market currencies are sending powerful signals about what the U.S. dollar will do next—and could convey a loud message to the Federal Reserve.

As the dollar has surged this year and oil has continued to crumble, emerging market currencies have felt the pain. The real has fallen 16 percent against the dollar year to date, dropping nearly a full percent on Tuesday alone—a huge move for a currency.

The lira has been another big decliner, retreating 1.2 percent against the dollar on Tuesday, for a 13 percent drop on the year. And the Mexican peso is at all-time lows against the greenback.

Obscure as these moves might sound, Sutton says that if they intensify, they could actually cause the Fed to delay rate rises.

Read more: Why EM currencies matter to every investor: FX pro

US economy chilled by more than weather - by Patti Domm

Weak U.S. manufacturing data, on top of more news of slowing activity in China, sent stocks into a tailspin and signaled to some traders that the correction could be deeper than they expected.

The big slide—taking the S&P 500 2.3 percent lower—came amid fireworks in other markets. The Nikkei fell nearly 2 percent, sending the index into a correction of over 10 percent since the beginning of the year.

The dollar weakened, the yen rose and emerging markets continued to flounder. The VIX, the CBOE's volatility index, shot up nearly 15 percent to over 21.

The Institute for Supply Management manufacturing index showed Monday that activity had fallen to an eight-month low of 51.3 in January, well below the 56.5 in December. New orders plunged to 51.2, a drop of 13.2 percentage points from December. The index still shows expansion because it is above 50, but it is far weaker than expected and raised red flags that U.S. growth may be slower than thought. 

Read more: Markets now fear US economy chilled by more than weather

Currency Markets: Dollar drops versus euro, yet rebounds against yen after NFP

Today’s non-farm payrolls report missed analysts’ forecasts as it showed a job gain of 88,000 last month,  the smallest gain in nine months, compared with estimates of 190,000.

The report was interpreted negatively by investors although it included positive signs such the upside revision to February’s reading to 268,000 from 236,000 and the drop in unemployment to 7.6%, the lowest in four years, from 7.7%. 

The non-farm report moved in line with the private payrolls for March released this week which also came below analysts’ forecasts to show a job gain of 158,000 last month, compared with both revised and estimated readings of 237,000 and 200,000.

In the wake of stimulus announcement by key central banks yesterday, the dollar came under pressure as the Fed is likely to stick to its pledge to continue with stimulus till the labor market shows signs of recovery. 

Read more: Dollar drops versus euro, yet rebounds against yen after NFP

Euro Strengthens as Six Central Banks Ease Funding; Yen and dollar Weaken - by Catarina Saraiva

The euro gained the most in a month against the dollar after the Federal Reserve and five other central banks acted to make more funds available to lenders as Europe’s debt crisis threatens global economic growth.

The dollar fell against all of its 16 most-traded peers and the yen declined as investors sought higher-yielding assets. China lowered reserve requirements for banks earlier for the first time since 2008. Australia’s dollar and South Africa’s rand climbed.

For more: Euro Strengthens as Six Central Banks Ease Funding; Yen Weakens - Businessweek

World reserve currency: Dollar collapse possible within a few months on new technical analysis - by Kenneth Schortgen Jr

A dollar collapse could be in the cards within a few months as new technical analysis shows the the reserve currency support eroding and within the parameters of uncharted territory.

Foreigners are seeing that buying US debt is a losing proposition, and this is requiring the Federal Reserve to monetize our debt, and print money which devalues the currency. Already, the G20, IMF, European Union, China, India, Russia, and the oil states are growing the talks to replace the dollar as the world's reserve currency, and instead replace it with IMF controlled Special Drawing Rights (SDR's). Should the dollar collapse as projected, then the implementation of a new world currency would accelerate in scope, and be accepted fairly quickly by the global economy.

Logically, a dollar collapse within the next few months is not very likely, but logic has been throw out the window as the US and the Federal Reserve continue to print dollars and devalue the currency almost daily. Much the Middle Eastern protests over food this last month has occurred because the dollar has devalued, and caused massive havok on world food prices, and other commodities.

For more: Dollar collapse possible within a few months on new technical analysis - National Finance Examiner | Examiner.com

Dollar In Doldrums As ECB Seen Hiking Rates

The dollar remained on the defensive versus the euro on Monday, as a quiet day on the economic front left traders to ponder an expected rate hike from the European Central Bank.

The interest rate gap between the U.S. and euro zone, already at one percent, is all but certain to widen on Thursday. An ECB hike to 1.25 percent is already priced in, but a bigger increase is likely to drive the euro sharply higher.

For more: Dollar In Doldrums As ECB Seen Hiking Rates

Euro Surges as Spanish Bond Sales Draw Higher Investor Demand

The euro strengthened above $1.24 for the first time in almost three weeks as increased demand at Spain’s bond auction eased concern about Europe’s debt crisis.

The common currency pared gains as stocks retreated after a report showed the Federal Reserve Bank of Philadelphia’s factory index slumped in June. The dollar reached the lowest level versus the yen in three weeks as the number of Americans seeking jobless benefits last week unexpectedly rose. The Swiss franc strengthened against the euro after the nation’s central bank said deflationary risks have “largely disappeared.”

Note EU-Digest: basically the dollar is overvalued and has just a shadow of its past strength.

For more: Euro Surges as Spanish Bond Sales Draw Higher Investor Demand - BusinessWeek

Asia Times Online : Inflation fears threaten US creditworthiness - by Korkut Erturk

For the complete report from the Asia Times Online click on this link

Inflation fears threaten US creditworthiness - by Korkut Erturk

The exceptional advantage the United States has in being able to issue its liabilities in its own currency has shielded it from the worst ravages of the financial crisis any other country would have experienced in its position. But fears that the United States might be forsaking this advantage are mounting. The issue isn't the imminent collapse of the dollar, but that the United States will be increasingly constrained in its fight against the economic downturn by concern over the sagging value of the dollar. In his visit to Beijing this past summer, US Treasury Secretary Timothy Geithner looked like a wastrel trying to appease his creditors, giving assurances to skeptical Chinese audiences. Increasingly, the Federal Reserve finds it has to assure investors of its "exit strategy" from extreme monetary easing. Yet, the only thing that can sustain aggregate demand, and thus income and employment, in the period to come is to keep up the fiscal stimulus.

Anything that poses a threat to the large budget deficits the Barack Obama administration is running, and will continue to in the coming years, is liable to worsen the economic slump. Whether warranted, inflation fears pose a threat.

Bloomberg: Dollar Touches 14-Month Low as Recovery Signs Spur Risk Demand

For the complete report from Bloomberg.com click on this link

Dollar Touches 14-Month Low as Recovery Signs Spur Risk Demand

The dollar reached a 14-month low versus the euro as stocks advanced around the world on confidence that the global economy is recovering, increasing demand for higher-yielding assets. Brazil’s real and Mexico’s peso were the biggest gainers versus the dollar among the 16 most-traded currencies tracked by Bloomberg. The South Korean won was the best performer among 10 emerging Asian currencies as the nation’s economy grew at the fastest pace in seven years. “Risk is a little bit positive, and that’s helping the dollar weaken,” said Sebastien Galy, a currency strategist at BNP Paribas SA in New York. “The overall theme of the dollar weakening versus Asia is continuing.” The dollar traded at $1.5016 per euro at 9:31 a.m. in New York, compared with $1.5008 on Oct. 23. It earlier declined to $1.5063, the weakest level since August 2008.

Business Insider: Now Europe's Freaking Out About The Weakening Dollar - by Vince Veneziani

For the complete report from the Business Insider click on this link

Now Europe's Freaking Out About The Weakening Dollar - by Vince Veneziani

With the U.S. dollar at a 14-month low against the Euro, the pressure is on for the European Union to join Brazil and certain Asian economies in helping prop up the dollar. What you're seeing now is a sharp reversal from the tone from just a few weeks ago, when central bankers were stoking rumors about a new reserve currency to replace the dollar. The European Central Bank is considering taking steps to ensure that the dollar doesn't drop any further against the Pound and the Euro. Investors are concerned that the Euro-Zone finance ministers convening at a regular meeting later in the day in Luxembourg could fire warning shots over EUR strength. This could ramp up pressure on the European Central Bank (ECB) to consider steps to curb any further rises in the currency, analysts said.

Minyanville: Europe's Loveless Lust for a Strong Dollar- by Mike Mish Shedlock

For the complete report from the Minyanville click on this link

Europe's Loveless Lust for a Strong Dollar- by Mike Mish Shedlock

Seriously, European Central Bank President Jean-Claude Trichet can’t possibly be serious when he says Europe takes the strong US dollar policy seriously. “We all note with considerable attention the statements made by American authorities as regards their support in favor of a strong dollar,” Trichet told reporters in Luxembourg late yesterday after a meeting of European finance ministers. He also echoed the Group of Seven statement that “excessive volatility and disorganized developments in the exchange market was bad for economic development.”

LA Times: Dollar's future as reserve currency in focus as world leaders meet - by Pan Pylas

For the complete report from the Los Angeles Times click on this link

Dollar's future as reserve currency in focus as world leaders meet - by Pan Pylas

Investors will be keeping a close eye on how far world leaders will go in expressing support for a strong dollar at the Group of Eight summit in Italy, amid talk that the dollar's status as the world's reserve currency will be on the agenda. China, Russia and India have indicated that they want to see long-term changes in the international monetary system in the wake of the financial crisis that has pushed the world economy into its first synchronized downturn since the Second World War.

NYT: As Stimulus Piles Up Dollars, Their Value Falls - by Jack Healy

For the complete report from the NYTimes.com click on this link

As Stimulus Piles Up Dollars, Their Value Falls - by Jack Healy

The dollar was on a roll just a few months ago, bounding higher against foreign currencies as investors sought a safe hiding place for their money amid a global downturn. But now, many are rethinking their decision to buy American.The Federal Reserve is printing money from thin air, and the government is issuing trillions of dollars in new debt as it tries to spend its way out of the recession with a huge stimulus package, new lending programs, health care overhauls and automotive rescues. Experts warned there might not be enough demand to sop up all those new dollars and dollar-denominated Treasury securities. That led investors to fret about the sustainability of the United States government’s AAA sovereign credit rating after the Standard & Poor’s ratings agency warned this week that the sovereign rating of Britain — which is spending hundreds of billions of pounds to engineer a recovery — is under threat.