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Dollar recovers in face of Omicron; commodity currencies slide
The U.S. dollar recovered from a loss on Wednesday after reports the Omicron coronavirus variant is spreading and oil prices turned down, hurting commodity currencies.
The dollar index against major currencies was up 01% in the afternoon in New York after having fallen 0.3% in the morning. The greenback gained against the dollars of Canada, Australia and New Zealand and against the euro and British pound.
“What you are seeing is a classic risk-off move in FX markets and that means the dollar outperforms against the commodity currencies,” said Erik Bregar, an independent foreign exchange analyst.
The dollar lost to the Japanese yen currency, which is often seen as a safer haven, giving up 0.3% to 112.805.
The shifts underscored the hour-to-hour fragility of foreign exchange rates as traders weigh what the Omicron variant might do to plans that Federal Reserve Chair Jerome Powell signaled on Tuesday to move more quickly to raise U.S. interest rates.
The variant is becoming dominant in South Africa and has appeared in the United States.
“We’ve gotten these conflicting claims about the new variant, and Powell’s comments really threw the markets for a loop,” said Marc Chandler, chief market strategist at Bannockburn Global Forex.
“People are still pretty nervous,” Chandler said.
The dollar’s rebound started as a report from the Institute for Supply Management came out showing that U.S. manufacturing activity picked up in November amid strong demand for goods, keeping inflation high as factories continued to struggle with pandemic-related shortages of raw materials.
An earlier report on U.S. private payrolls suggested that Friday will bring a “solid jobs report” when the government posts more comprehensive payroll numbers, Chandler said.
“Friday’s U.S. jobs data is the next big thing,” he said.
The greenback is up nearly 7% this year. November was its strongest month since June.
The euro lost 0.2% on the day to $1.1314 at 3:21 pm ET (1507 GMT).
The British pound, often considered a risk-on currency, fell back 0.2% against the dollar after having been up 0.4%. The pound is struggling to recover after reaching its lowest level in nearly a year earlier this week on fears over vaccine effectiveness against the Omicron variant.
The Australian dollar lost 0.4% to $0.7103 and the New Zealand dollar lost 0.3% to $0.6805. [AUD/]
Prior to the tailspin caused by Omicron’s advent, the main driver of exchange rates had been expectations of the different speeds at which central banks will raise interest rates.
In cryptocurrencies, bitcoin was up less than 1% at $57,220 at 3:17 pm ET (2017 GMT).
(Reporting by David Henry in New York; Additional reporting by Joice Alves and Elizabeth Howcroft in London; Editing by Jonathan Oatis and Andrea Ricci)
Biden says economy 'in strong shape' ahead of holidays – BBC News
The US economy is in a strong position, President Joe Biden has said, thanks to action taken by the government to free up supply chain blockages and tackle the rising cost of living.
He predicted that prices, which have been rising sharply, would ease.
The president said policies to tackle bottlenecks at ports and lower the price of fuel were working.
“We’re heading into a holiday season on very strong shape,” he said. “It’s not because of luck,”
Asked how supply chains would weather disruption from the new variant of coronavirus, President Biden said he was an “optimist”, but that it was too soon to know what the impact might be.
As a result of the economic recovery a typical American family was now better off than before the pandemic struck, the president said, describing a 40% reduction in child poverty as “a moral victory”.
“Americans on average have about $100 (£75.33) more in their pockets every month than they did last year [and] about $350 more each month than they did before the pandemic, even after accounting for inflation,” the president said.
Since taking office, the Biden administration has pumped billions of dollars of stimulus into the US economy, including direct cheques to households and tax breaks.
Economic growth has rebounded as the impact of the pandemic began to ease, and after shrinking 30% in the first six months of 2020, the economy is now back at the size it was pre-pandemic.
However, higher demand for goods, and on-going disruptions to the supply and delivery of those goods, has helped push inflation up to 6.2% – the highest it has been for 31 years.
“I’ve used every tool available to address the price increases,” President Biden said.
Releasing part of the US’s oil reserves last month, in an action coordinated with several other nations, to try to bring down the price of fuel had been “making a difference”, he added.
Independent economic analysis indicated his Build Back Better bill would reduce inflationary pressures, he stressed.
The bill was fully paid for, and would contribute to deficit reduction, by “making the largest corporations and the richest Americans pay a little more in taxes”.
A change in mindset
The $1.9tn (£1.4tn) Build Back Better bill, which includes social and climate spending, still needs to be voted on in the US Senate.
Asked why he believed he would be able to bring down inflation when previous administrations in the 1970s and 1980s failed, the president said: “This is the first time I’ve seen labour and business so ready to cooperate.
“People are in a different state of mind than in the Carter and Nixon years.”
Earlier this week, President Biden hosted the chief executives of several of the countries’ largest manufacturers and retailers, including Walmart and CVS Health, Mattel and Best Buy.
The executives reported that their inventories were up and shelves well-stocked, ready to meet the consumer demand for the holidays, he said.
Biden said the administration had “broken up log jams” in the supply chain through various methods, such as by encouraging port operators to work longer hours.
He also pointed to the easing of rules over truck drivers’ hours. The measures were working, he said, with the number of containers left sitting on docks for over eight days down by 40%.
Michael Pearce, US economist at Capital Economics, thinks the president was right to suggest that some of the stresses on the economy were starting to ease, but that all the problems wouldn’t go away overnight.
“It’s still the case that there are very severe supply problems. Even if they’re starting to fade, it’ll take some time for that to work its way through, especially now that inventory for a lot of goods is so lean,” he told the BBC.
Inflation which remained would therefore persist well into next year, he said, in part thanks to the trillions of dollars pumped into the economy through the pandemic.
The Omicron variant, and expectations that it will hurt economic growth, were probably having a greater impact on the price of fuel, than the move to release oil reserves, Mr Pearce added.
Diane Swonk, chief economist at Grant Thornton, thinks Mr Biden’s Build Back Better bill could have a pro-inflationary impact in the short term unless it was tweaked further by lawmakers.
She felt Omicron, the easing of supply chain problems, and a reduction in government stimulus over the coming months would “take the steam out of inflation but it won’t cool it down enough”.
“The risk is until we can really wrestle the virus to its knees we’ll continue to see disruption, even as demand starts to slow again,” said Ms Swonk.
“We’re starting to see more broader based inflation that likely will linger longer.”
Canada’s TSX to extend record-setting rally; pace of gains to slow: Reuters poll
Canada‘s main stock index will add to its recent record high over the coming year as the domestic economic recovery helps underpin corporate earnings, but gains are expected to slow from 2020’s breakneck pace, a Reuters poll found.
The median prediction of 26 portfolio managers and strategists was for the S&P/TSX Composite index to rise 9.1% to 22,540 by the end of 2022.
That’s a move that would eclipse last month’s record high of 21,796.16 and compares with an August forecast of 22,000. It was then expected to edge up to 23,150 by the middle of 2023.
The index had advanced 18.5% since the start of the year, putting it on track for its second biggest gain since 2009.
“We think the economy and markets will continue to progress further into the mid-cycle phase next year,” said Angelo Kourkafas, investment strategist at Edward Jones. “We are past the strongest point of the cycle, but there is plenty of runway ahead, especially from an economic standpoint.”
Canada‘s economy https://www.reuters.com/world/americas/canadian-economy-posts-annualized-gain-54-q3-october-gdp-seen-up-08-2021-11-30 grew at an annualized rate of 5.4% in the third quarter, beating analyst expectations, and growth most likely accelerated in October on a manufacturing rebound.
“Banks can continue to benefit from an improving economy and reducing loan loss provisions and resource companies can benefit from higher commodity prices,” said Colin Cieszynski, chief market strategist at SIA Wealth Management.
Combined, the financial services and resource sectors account for 55% of the Toronto market’s valuation.
Nearly all participants that answered a separate question on the outlook for corporate earnings expected earnings to improve. But the pace of growth could slow.
“We expect a decelerating pace of (earnings) growth,” said Chhad Aul, chief investment officer & head of multi-asset solutions at SLGI Asset Management Inc. “In particular, we expect the recent strong earnings growth in the energy sector to begin to moderate.”
The price of oil, a key driver of energy sector earnings, has tumbled 24% since October, pressured by rising coronavirus cases in Europe and the detection of the possibly vaccine-resistant Omicron variant.
Another risk to the outlook could be a reduction in policy support, say investors.
With inflation climbing, the Bank of Canada https://www.reuters.com/world/americas/bank-canada-signals-it-could-hike-rates-sooner-than-expected-2021-10-27 has signaled it could begin hiking interest rates as soon as April and the Federal Reserve https://www.reuters.com/markets/us/powell-yellen-head-congress-inflation-variant-risks-rise-2021-11-30 is mulling whether to wrap up tapering of bond purchases a few months sooner.
“The key is the pace of both fiscal and monetary policy normalization,” said Ben Jang, a portfolio manager at Nicola Wealth. “This process will likely lead to more volatility in markets, potentially returning to an environment where we will see drawdowns of more than 10%.”
Asked if a correction was likely over the coming six months, nearly all respondents said yes.
(Reporting by Fergal Smith; polling by Mumal Rathore and Milounee Purohit; editing by David Evans)
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