Why the U.S. dollar doesn’t always act like a haven when geopolitical tensions rise – MarketWatch
One of these things is not like the other: Treasurys, gold and the U.S. dollar.
Good for you if you picked the dollar. Unlike those other two assets, the U.S. currency didn’t seem to attract much buying interest as investors shunned global stocks at the end of last week and went looking for safety following a U.S. military strike that killed a top Iranian military commander and heightened Middle East tensions.
“Increased tensions between the U.S. and Iran could lift the dollar — at least against non-major currencies — although we tend to see these sorts of geopolitical rows favoring the yen and Swiss franc first and foremost,” wrote Steven Barrow, head of G-10 strategy at Standard Bank, in a Monday note.
On Friday, gold jumped and Treasury prices soared, yanking down yields, as global equities sold off in the wake of the strike. Gold
continued to gain ground on Monday, though Treasury yields edged higher as U.S. stocks put in a mixed performance, signaling that Middle East jitters were fading. The S&P 500
edged up 0.1%, while the Dow Jones Industrial Average
was little-changed after both indexes booked losses on Friday.
Read: What stock-market investors need to know about intensifying U.S.-Iran tensions
The ICE U.S. Dollar Index
a gauge of the currency against a basket of six major rivals, was off 0.2% Monday at 96.665 after ending 2019 on a soft note. The index saw little movement overall on Friday as stocks stumbled, with a modest gain by the U.S. currency against the euro
which has a nearly 58% weight in the index, offset partly by a sharp gain for the Japanese yen
which is weighted at around 14%.
The dollar rose 0.1% versus the euro on Friday but tumbled 0.4% versus the yen. The dollar was virtually unchanged versus the franc
on Friday after setting a 15-month low versus the Swiss currency on New Year’s Eve, according to FactSet data.
The dollar was up 0.3% on Monday after earlier slipping to a 2 ½-month low below ¥108. The dollar was off 0.5% versus the Swissie, however, fetching 0.968 franc.
The yen and the Swiss franc have long enjoyed reputations as havens during periods of geopolitical stress. Analysts have attributed the strength in part to the large current-account surpluses, measures of excess savings in the economy, carried by both countries. That translates into large holdings of foreign assets by investors in Japan and Switzerland and, the expectation goes, that those investors are quick to repatriate some funds when the going gets rough, lifting their respective currencies.
That doesn’t mean the U.S. dollar, the world’s reserve currency, doesn’t have appeal of its own.
Its haven-like properties, however, seem to “really come to the fore when there’s a global liquidity crunch, as we saw back in 2008, and traders/investors scramble to secure dollars,” Barrow wrote.
“When, instead, geopolitical tensions arise that do not tighten liquidity conditions, the dollar is more likely to fall against other major havens, such as the yen and Swiss franc, and will probably trade sideways against the euro,” said Barrow, who expects the dollar to lose around 5% to 10% in broad trade-weighted terms in 2020.
A weaker buck appears to be the consensus call heading into 2020, though skeptics contend that factors that have previously frustrated dollar bears continue to underpin the currency. These include a domestic economy that still outshines its international peers as well as higher U.S. yields, despite the Federal Reserve’s series of three rate cuts last year.
Related: Why U.S. dollar bears could be thwarted in 2020
The “initial setting” coming into 2020 “is that U.S. yields and interest rates are high enough to support the dollar,” said Carl Weinberg, chief economist at High Frequency Economics, in a Sunday note. But he worried that the advantage could be offset by a “decaying” U.S. trade position that goes beyond concerns over the U.S.-China relationship.
A decline in world exports and falling U.S. sales abroad means less demand for dollars to finance transactions, he said, arguing that in the big picture, “dollar atmospherics” are unclear. More questions than answers surround President Donald Trump’s pending impeachment trial, deepening conflict with Iraq and other factors on the U.S. dollar.
“Our best guess is for a directionless dollar early on as the various storylines sort themselves out,” Weinberg said. “The drop in world trade seemingly is not over. That points to downside risks for the greenback.”
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WestJet shutting down discount airline Swoop – CBC News
WestJet is shutting down its budget airline, Swoop.
The company made the announcement in a news release Friday, noting that the ratification of its recent deal with its pilots allows it to integrate all of its staff at various airlines into a single banner.
“As negotiated in the collective agreement, the WestJet Group will now begin integration efforts of its ultra-low-cost airline, Swoop,” the airline said.
“Through an expedited process, the airline anticipates a full integration into its mainline operations by the end of October. To avoid traveller impact, Swoop will operate its existing network through to the end of its published schedule on October 28. Swoop employees will move to WestJet.”
The move comes as the Air Line Pilots Association (ALPA) announced its members had ratified their recent pact with the airline, one that brings in 24 per cent raises over four years, and puts Swoop pilots on a similar footing as WestJet’s in terms of seniority and compensation issues.
The union said 87 per cent voted in favour of the deal, “which goes a long way to recognizing the value and expertise the pilots bring to their airline and will help solve many of WestJet’s pilot attraction and retention issues.”
Swoop was launched nearly five years ago, in June 2018. It offered heavily discounted rates with few frills to cost-conscious travellers. A handful of other so-called ultra low-cost carriers have taken to Canada’s skies in recent years, including Flair, Lynx and Canada Jetlines.
While Swoop’s demise will remove a major player in Canada’s discount travel space, WestJet CEO Alexis von Hoensbroech says the airline will continue to offer affordable options.
“This integration will enhance our ability to serve a broader spectrum of guests,” he said. “Instead of only 16 aircraft serving the ultra-low-cost market, each aircraft, in our 180-strong fleet, will offer ultra-affordable travel options through to a premium inflight experience.”
But ultimately the news is a bad development for consumers, according to John Gradek, a lecturer at McGill University who studies the airline industry.
“It has implications in terms of the choices that Canadians will have in terms of an alternative ultra-low-cost carrier,” he told CBC News.
Although it started in 1996 as a regionally focused airline with generally cheaper prices, WestJet is no longer a discount airline, Gradek says. “The loss of Swoop basically eliminates a carrier that was specializing in low cost and it’s going to be a loss to Canadian travellers.”
More moves to come?
Gradek says it is not surprising to see WestJet make the move, as one of the main advantages of Swoop in the first place was its lower cost base.
“One of the conditions for creating Swoop was to have a different salary scale,” he said. “With the ALPA agreement that differential that allows you to have some competitive advantage price wise disappears.”
Gradek says he would not be surprised to see WestJet do something similar with another discount airline it recently bought, Sunwing.
“WestJet has choices — they’re now looking at Sunwing and that’s the next shoe that’s going to fall,” he said. “how far do you take this integration that started with Swoop — do you do the same thing with Sunwing?”
GM and Ford to use Tesla’s plug, all but killing CCS in North America
Rival auto manufacturers GM and Ford have signed on to use Tesla’s NACS charging connector for their future electric cars in North America, a decision that has effectively signed the death certificate for the competing CCS1 charging connector standard.
We’re still in the early days of electric vehicles, but the rate of adoption is rapidly increasing as more manufacturers produce EVs in different shapes and sizes and prices, and as customers buy them up with vigor. And so there is a lot of jockeying happening not just for buyers, but for infrastructure to support them. The most interesting bifurcation has happened in charging standards with the division led primarily by Tesla.
Back in 2012 when Tesla unveiled its all-electric Model S sedan it did so with a new charging connector. At the time it was a proprietary connector, but it was already much more impressive and elegant than the highly engineered J1772 standard connector or almost comically bulky CCS1 and CHAdeMO standards that also offered DC charging. Tesla’s connector did all of that in a fraction of the footprint, with far less complexity in design or use. Yet, for the past decade, Tesla’s been trucking along with their own connector in North American markets while all other manufacturers remained committed to CCS1.
(Tesla was mandated by law to use the Type 2 IEC 60309 and CCS2 connectors for cars sold in Europe, and the GB/T connector in China)
Tesla accounts for more than half of DC fast chargers in the USA — surely a selling point for Ford and GM
This led to the bifurcation of the US EV market, with Tesla leading in electric car sales ever since their first cars went on sale, and leading in the deployment of chargers with their expansive but exclusive Supercharger network. Tesla’s head start in charger installation gets us to where we are today, with Tesla’s Superchargers accounting for more than half of the DC fast chargers installed in the USA.
That’s all started to change. It began with the relatively quiet November 2022 announcement from Tesla that they were opening up the Tesla charging connector to other manufacturers as the NACS — the North American Charging Standard. But the big news arrived late last month with Ford switching to the Tesla NCAS connector in 2025. And now today, chief American rival GM revealed they are also adopting NACS. Both plan to make adapters for the existing CCS-equipped chargers, and Tesla already sells their own CSS adapter, and also has equipped a handful of its own Tesla-plugged charging stations with adapters to support CCS vehicles.
Tesla, Ford, and GM today account for roughly 3/4 of all EV sales in the USA and the top three sales spots. This is a tipping point for EVs in the USA and thus North America — in the span of a few months Tesla’s NACS connector went from proprietary to the winning option. There are still other EV manufacturers that remain publicly committed to the CCS connector, including VW, Mercedes, Kia, and Rivian. Ford and GM are huge swings for NACS and will almost certainly lead to other companies adapting the standard.
Certainly, charging companies like Electrify America and ChargePoint are also going to race to install NACS connectors in the next two years so that the fleets of differently receptacled EVs can utilize their currently CCS-only chargers. Tesla will also have to invest in upgrading their existing charger stations with longer cables, though, since they’re basically the only manufacturer placing their charging port at the corner of the car. Charging a Ford F-150 at one of those adapter-equipped stations didn’t go so well because of the short Supercharger cables.
GM’s adoption of NACS signals the end of the line for CCS1. The standards body made some angry noises when Ford jumped ship, but the loss of GM means they no longer have America’s largest auto manufacturer and popular and well-known brands like Chevrolet, GMC, Ram, Buick, and Cadillac. Alas, CCS1, few people even knew your clunkiness. NACS will reign supreme from here on out.
Bank of Canada rate hike a pleasant surprise for savers: Dale Jackson
This week’s surprise interest rate hike by the Bank of Canada was another blow to the country’s over leveraged borrowers, but it was a double-blessing for the smaller sliver of the population that actually saves money.
The first benefit is obvious. After a 15-month period that took the benchmark rate from near zero to 4.75 per cent, yields on fixed income have skyrocketed. A basic one-year guaranteed investment certificate (GIC) – the most secure short-term savings vehicle available to the average investor – has topped five per cent. Savers were lucky to get one per cent before the rate hikes began.
The yield on the benchmark Government of Canada five-year bond is currently 3.75 per cent (from under 0.5 per cent), but is expected to rise further along with investment grade corporate bonds.
MACKLEM ON A MISSION
The second blessing is the Bank of Canada’s aggressive and unwavering commitment to prevent their savings from being gobbled up by inflation. This week’s interest rate increase came with the stipulation that it will raise rates further in the coming months if cost of living increases don’t fall closer to its two per cent target rate.
Despite being late to react, policymakers led by Governor Tiff Macklem have taken a global leadership role in doing whatever it takes to ensure all Canadians don’t get crushed by runaway inflation; even if it requires some bloodletting.
We’re not out of the woods yet but the latest reading puts inflation at 4.3 per cent compared with last year when it topped eight per cent.
STRANGE NEW WORLD OF INVESTING
The Bank of Canada rate has not been this high since 2001. It’s a strange new world for a generation of investors who have never had the advantage of significant risk-free returns.
Strategically, having a significant portion of retirement savings in fixed income is essential to balance overall portfolio risk against the volatility of equities. Any rate of return is welcome if stock markets tank when retirees need a reliable cash supply for living expenses.
In addition to hedging risk, fixed-income investments can also generate tax savings in registered accounts such as a registered retirement savings plan (RRSP), tax-free savings account (TFSA), registered education savings plan (RESP) and the just-introduced first home savings account (FHSA). In comparison, fixed-income investments are fully taxed outside a registered account.
There are strategies for retirement investors to maximize fixed income returns by staggering maturities within a portfolio to take advantage of the best going yields as often as possible. The most common strategy, known as laddering, ladders maturities over a fixed period of time.
Most fixed income experts are currently recommending short durations on expectations persistent inflation will force rates even higher.
Prices on bonds fluctuate before maturity based on future interest rate speculation but that’s a problem only bond traders have. Retirement investors will generally hold fixed income to maturity, so they know exactly what to expect when that day comes.
There is no single set of rules when it comes to managing a fixed income portfolio for individuals. The portion of fixed income in the overall portfolio, the total duration of a ladder, and the types of fixed-income investments depend on when and how the investor wants to retire.
A qualified advisor should be able to help.
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