The Daily Prophet: Busted Trades, Ruble Gyrations and Gas Glut

Connecting the dots in global markets.

Perhaps the biggest surprise in markets this year has been the dollar. Its big gains in the fourth quarter on the heels of Donald Trump's election and a hawkish-sounding Federal Reserve had strategists rushing at a breakneck pace to raise their forecasts. Betting on further appreciation became one of the most popular trades among hedge funds and other large speculators.

Instead, it's been nothing but disappointment. Today, the Bloomberg Dollar Spot Index fell to its lowest since Nov. 11. Goldman Sachs Group Inc. strategists peg the weakness to rhetoric from the Trump administration suggesting it desires a weaker currency to help exporters. There's also a growing sense the Fed may hold off raising rates until they can gauge the impact of Trump's initial policy actions. Goldman Sachs recommends dollar bulls hold on, as the data should continue to show a strong economy, making this slump the pause that refreshes.

If the greenback is falling, that means other currencies are rising, and some of the biggest gains are in emerging markets. That's also benefiting the MSCI Emerging Markets Index of stocks, which rose again today, led by Indian equities, after surging 5.45 percent in January to mark its best start to a year since 2012. The Institute for International Finance estimates a net $12.3 billion flowed into emerging-market equities and debt last month, the most since August. Citigroup Inc. says Taiwan is the most attractive country now in terms of tactical market allocation.

Despite the sanctions against Russia, the ruble has been on a tear. Its 34 percent gain since this time last year has made it the strongest currency out of the 31 major exchange-rates tracked by Bloomberg. It's been so strong that the Bank of Russia has talked about intervening. That may come sooner rather than later after the ruble soared today on a decision by the U.S. to amend cyber-security sanctions and allow American companies that export information-technology products to be licensed by Russia’s Federal Security Service. Traders tried to decipher whether the move was the first step in a policy shift toward easing sanctions, speculation Trump sought to dispel.

It's shaping up to be a huge year for the U.S. corporate bond market. Last-minute blockbuster deals from AT&T Inc. and Microsoft Corp. propelled what was already a record January for U.S. investment-grade sales to the busiest month for issuance ever at $184 billion, according to Bloomberg News's Claire Boston. February is starting off strong, too, as Apple Inc. is in the market with a $10 billion offering. Analysts have said that optimism around a potential repatriation tax holiday after Trump’s election could cause some of the biggest cash hoarders to hold off on issuing new debt. But with Congress yet to introduce legislation, companies are turning to the bond market, where rates remain near historic lows.

Relief at the pump may be coming soon. Gasoline prices have fallen to their lowest levels since November as inventories swell in the U.S. and exports taper off. Stockpiles have risen by an average of about 6 million barrels every week since mid-December, and now stand just 1.6 million below the record set last year, according to Bloomberg News's Laura Blewitt. The last time inventories got to these levels, a year ago, gasoline prices tumbled.


Tomorrow is the first Friday of the month, which means all eyes in the markets will be on Washington as the Labor Department releases the employment report. The consensus is that the economy created 175,000 jobs in January, up from 156,000 in December. But if you want to impress your friends, tell them to look beyond the headline number and instead focus on wages. It's not uncommon for this part of the report to move markets, as higher earnings have the potential to fuel inflation and a faster pace of Fed rate increases. In the report for December, average hourly earnings jumped 0.4 percent, double the average over the past 10 years. That sparked a slump in bonds and caused the dollar to surge even though the amount of jobs created fell below estimates.

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