October 1, 2019 / 8:00 AM / 6 months ago

Daily Briefing: Dollar builds a head of steam

(Reuters) - Mounting dollar strength is fast becoming a world markets theme again as we enter the final quarter of 2019, with the slide in the euro/dollar exchange rate on Monday below $1.09, for the first time in more than two years, the latest tripwire to go off, and dollar’s index against the main developed world currencies rose to its highest since May 2017.

FILE PHOTO: U.S. dollar bills

Lots of technical factors were cited for the latest surge, with quarter-end tightness in U.S. money markets resurfacing after the recent U.S. repo market scare. But the news trigger appeared to be this side of the Atlantic after reports that the German government’s independent economic advisers had slashed growth forecasts yet again and indications of flash September inflation came in below forecast yet again.

The overall euro zone inflation readout is due later today. With September manufacturing business surveys due out across the world on Tuesday, the broader economic picture has been building for the dollar.

Citi’s economic surprise index for the United States is around its most positive levels in more than 18 months. And with the euro zone equivalent weakening to its most negative since February, the gap between the two is at its widest since June of last year.

What’s more, rumbling U.S. trade wars are seen as dollar positive on balance as it pressurises China and other countries to offset U.S. tariff threats with weaker currencies. MSCI’s emerging markets currency index fell to its lowest in almost a month on Monday too.

Australia’s dollar drop more than half a percent to a 1-month low overnight after the Reserve Bank of Australia cut interest rates by a quarter-point to a record low and signalled it was ready to cut again if needed. A stronger U.S. dollar overall is seen as tightening of global financial conditions and, all things equal, will drag on risk appetite – especially in emerging markets.

In Europe, the flagging growth and inflation picture is compounded by anxiety about U.S. trade protectionism and expectations that Washington will soon turn its tariff war toward the European Union just as ongoing Brexit brinkmanship jangles manufacturers’ nerves in Britain, Germany and around the continent.

With the latest Brexit deadline now just one month away, the pressure for a deal intensifies as UK Prime Minister Boris Johnson’s minority government continues to insist it will leave on Oct. 31 with or without one despite legislation instructing it to seek an extension if no agreement is forthcoming.

Sterling was a touch weaker overnight after reports Britain had indicated a possible compromise over the controversial Irish border backstop involving post-Brexit customs infrastructure in special zones near the border rather than on it.

Early indications from EU and Irish governments was that the idea was a non-starter even though the British media talked up the chance that these would form the basis for formal proposals and talks by the end of the week.

Global stock markets more broadly were firmer, meantime, although Chinese and HK markets were closed today and for the rest of the week for 70th anniversary celebrations of the Chinese republic.

Performers take part in a parade marking the 70th founding anniversary of People's Republic of China, on its National Day in Beijing, October 1, 2019. REUTERS/Thomas Peter

Wall St stocks ended higher overnight as U.S. trade adviser Peter Navarro dismissed reports Washington was considering de-listing Chinese stocks from U.S. exchanges and as Apple boss Cook indicated the tech giant’s newest iPhone model was selling well. Tokyo and Seoul equity benchmarks were up about 0.5% earlier, with U.S. and European futures also in the black first thing.

In the European corporate world, shares of European iPhone component suppliers STMicro, Dialog Semi, Infineon, AMS could get a boost from Apple’s overnight rally after reports that sales of the company’s newest iPhones had a strong start.

In other company news, British baker and takeaway food group Greggs is seen rising 1%-3% after it reported another strong quarter with company-managed shop like-for-like sales rising 7.4% in the 13 weeks to Sept. 28.

Credit Suisse shares are rising 0.4% in premarket trade after CEO Tidjane Thiam gets a clean chit in an internal investigation into the botched surveillance of the bank's former wealth management head Iqbal Khan in a probe that cost Chief Operating Officer Pierre-Olivier Bouee his job.

DHL owner Deutsche Post set new profit targets and said it would invest heavily in areas like warehouse automation and analytics as it seeks to keep up with fast-growing ecommerce. One dealer says the targets are in-line, “but would have hoped for more ambition”.

Plumbing parts distributor Ferguson seen up 1%-2% after reporting profits slightly ahead and boosting dividend, while shares of upholstery and flooring provider SCS Group are seen down 5% after it said it had a challenging start to the year. Swiss chemical company Clariant is likely to move on its updated financial outlook.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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