What about the impact of a rising U

What about the impact of a rising U.S. dollar on the stock market? Theoretically, the stock market should reflect the real economy. However the U.S. stock indices include more companies with revenues coming from foreign markets as a percentage than the aggregate economy. Foreign sales account for 30-40 percent of total S&P 500 sales, with more than half of the companies in the index receiving more than 15 percent of their revenues abroad. On the other hand, a similarly big percentage of listed companies’ expenses (raw materials, intermediate goods, labor costs) come from abroad. This is probably why since the late 1970s the stock market has performed twice as well during dollar bull markets than during dollar bear markets. The reason is simple: the strong economy supports both: the currency and equities.

However, it does not mean that the stock market is going to rise in tandem with the greenback. Why? First, sharp exchange-rate movements can be negative in the short run. Second, according to many indicators, the U.S. stock market is now in the bubble territory, so it may burst in the medium term. Third, the rising U.S. dollar may not reflect the strong economy, but only the divergence in monetary policies. Therefore, over the tightening cycle and interest rate hikes, the U.S. stock market may be falling with a gaining greenback.

With regards to the impact of the rising U.S. dollar on other countries, it may be positive for the Europe and Japan in the short run, since weaker euro and yen may boost their exports (it seems that the depreciation of euro and yen is responsible for the current ‘economic growth momentum’ in the Eurozone and Japan). However, the impact on the emerging markets, as we have already pointed out, may be much worse, due to large indebtedness in the U.S. dollar, in which over half of all the global cross-border deposits and lending are transacted. We hope that you remember how the “taper tantrum” hit the emerging markets.

As we have already explained, the possible next U.S. dollar bull market may be negative for gold prices. However, the unwinding of the emerging market carry trade may trigger some global havoc, which could spur demand for the yellow metal. Moreover, the real interest rates are still relatively low, which may be a shield against the headwind from the rising greenback. And the Eurozone, despite its structural problems, is now showing some small signs of recovery, which may put some upward pressure on the EUR/USD exchange rate, which would be supportive for gold prices.

To sum up, the Fed removed the promise to be patient in March and probably will finally hike its interest rates this year (markets believe that in September or October, if the data will be supportive enough, of course). According to the FOMC's Summary of Economic Projections, the pace of hikes will be slower than Fed’s officials have anticipated so far. Although it may weaken the greenback in the short run, the divergences in the global monetary policies and economic performances can lay the foundation of the next U.S. dollar bull market (with caveat that the possible U.S. economic slowdown or recession could change the currency outlook). The strengthening greenback would be a headwind for the gold prices; however in terms of other currencies (except maybe the British pound) the yellow metal should gain. The historically real low interest rates and global risks (unwinding of the emerging markets carry trade, global economic slowdown and bursting of another bubble, Ukraine conflict, further negotiations between Greece and its creditors) may support gold prices.

Would you like to understand the impact of major changes in the currency market and other fundamental factors on global economy and gold prices? We focus on the macroeconomic implications for the gold market in our monthly Market Overview reports; however we provide also Gold & Silver Trading Alerts for traders interested more in the short-term prospects.

Thank you.

Kết quả (Việt) 1:

Điều gì về tác động của một đô-la Mỹ tăng trên thị trường chứng khoán? Về lý thuyết, thị trường chứng khoán nên phản ánh nền kinh tế thực sự. Tuy nhiên chỉ số chứng khoán Hoa Kỳ bao gồm các công ty với doanh thu đến từ thị trường nước ngoài như là một tỷ lệ phần trăm so với nền kinh tế tổng hợp. Nước ngoài tài khoản bán hàng cho 30-40 phần trăm của tổng doanh số S & P 500, với hơn một nửa các công ty trong chỉ mục nhận được hơn 15 phần trăm doanh thu của họ ở nước ngoài. Mặt khác, một tỷ lệ tương tự như vậy lớn chi phí công ty niêm yết (nguyên liệu, bán sản phẩm, chi phí lao động) đến từ nước ngoài. Điều này có lẽ là lý do tại sao kể từ cuối thập niên 1970, thị trường chứng khoán đã thực hiện hai lần là tốt trong dollar bull thị trường hơn trong dollar chịu thị trường. Lý do là đơn giản: nền kinh tế mạnh mẽ hỗ trợ cả hai: tiền tệ và chứng khoán.Tuy nhiên, nó không có nghĩa rằng thị trường chứng khoán sẽ tăng song song với tiền ở Hoa Kỳ. Tại sao? Đầu tiên, sắc nét tỉ giá chuyển động có thể được tiêu cực trong ngắn hạn. Thứ hai, theo nhiều chỉ số, thị trường chứng khoán Mỹ là bây giờ trong lãnh thổ bong bóng, do đó, nó có thể nổ tung trong trung hạn. Thứ ba, đồng đô la Mỹ tăng có thể không phản ánh nền kinh tế mạnh mẽ, nhưng chỉ là sự phân kỳ trong chính sách tiền tệ. Vì vậy, trên các tightening chu kỳ và lãi suất tăng vọt, thị trường chứng khoán Hoa Kỳ có thể giảm với một tiền ở Hoa Kỳ được.With regards to the impact of the rising U.S. dollar on other countries, it may be positive for the Europe and Japan in the short run, since weaker euro and yen may boost their exports (it seems that the depreciation of euro and yen is responsible for the current ‘economic growth momentum’ in the Eurozone and Japan). However, the impact on the emerging markets, as we have already pointed out, may be much worse, due to large indebtedness in the U.S. dollar, in which over half of all the global cross-border deposits and lending are transacted. We hope that you remember how the “taper tantrum” hit the emerging markets.As we have already explained, the possible next U.S. dollar bull market may be negative for gold prices. However, the unwinding of the emerging market carry trade may trigger some global havoc, which could spur demand for the yellow metal. Moreover, the real interest rates are still relatively low, which may be a shield against the headwind from the rising greenback. And the Eurozone, despite its structural problems, is now showing some small signs of recovery, which may put some upward pressure on the EUR/USD exchange rate, which would be supportive for gold prices.To sum up, the Fed removed the promise to be patient in March and probably will finally hike its interest rates this year (markets believe that in September or October, if the data will be supportive enough, of course). According to the FOMC's Summary of Economic Projections, the pace of hikes will be slower than Fed’s officials have anticipated so far. Although it may weaken the greenback in the short run, the divergences in the global monetary policies and economic performances can lay the foundation of the next U.S. dollar bull market (with caveat that the possible U.S. economic slowdown or recession could change the currency outlook). The strengthening greenback would be a headwind for the gold prices; however in terms of other currencies (except maybe the British pound) the yellow metal should gain. The historically real low interest rates and global risks (unwinding of the emerging markets carry trade, global economic slowdown and bursting of another bubble, Ukraine conflict, further negotiations between Greece and its creditors) may support gold prices.
Would you like to understand the impact of major changes in the currency market and other fundamental factors on global economy and gold prices? We focus on the macroeconomic implications for the gold market in our monthly Market Overview reports; however we provide also Gold & Silver Trading Alerts for traders interested more in the short-term prospects.

Thank you.