September 6, 2023

Dollar Soars to Five-Month High as US Economy Powers Ahead

📰 News Organizations

  • Dollar Soars to Five-Month High as US Economy Powers Ahead. Investors have become increasingly bullish on the dollar against a backdrop of weak growth in China and Europe. Rising US yields and tumbling equity prices have also bolstered the case.

  • Global Shares Drop as China Optimism Fades; Aussie Tumbles. Global equities fell on Tuesday as weak service sector data in China rekindled concerns about its economic recovery. Australia's central bank also kept interest rates unchanged, pushing the Australian dollar lower.

  • Arm Targets More Than $52 Billion Valuation in Largest IPO of the Year. The offering is an important test case for the sustainability of the revival in the IPO market because of its size. Apple, Intel, and Nvidia are among the companies that plan to buy shares in the IPO.

  • Ozempic Maker Overtakes LVMH as Biggest European Company. Novo Nordisk surpassed French luxury powerhouse LVMH to become Europe's most valuable company, driven by demand for its obesity medicines. Novo shares rose 2.1% boosting its market cap to almost $425 billion.

  • Oil Slips as Investors Sour on China. A private-sector survey on Tuesday showed that China's services activity expanded at the slowest pace in eight months in August as weak demand continued to dog the world's biggest oil importer.

  • Saudis, Russia Extend Their Oil-Supply Curbs to Year-End. The Kingdom of Saudi Arabia will continue its production cutback of 1 million barrels a day until December. The move will hold output at about 9 million barrels a day — the lowest level in several years — for six months in total.

🐦 Twitter

  • Real Estate Industry in Panic Mode. Without transactions, many jobs that are commission-oriented are seeing huge declines in incomes. Real estate agents, mortgage brokers, title insurance, home inspectors. All of the various categories are entering a depression due to a lack of transactions. Source.

  • The Cleveland Fed updated their inflation nowcast this morning. August CPI is now projected at 0.79%, pushing the YoY to 3.82%. September CPI is now projected at 0.45%, pushing the YoY to 3.91%. Driving this has been the rise in gasoline prices. Source.

  • What the housing market needs is more inventory. We now have enough evidence to suggest that higher rates from here will not lead to meaningfully more inventory. At this point, we should root for somewhat more transactions and not sweat home prices. Source.

  • Meanwhile, over in the US, Goldman Sachs sees recession as an increasingly remote possibility next year. "We still strongly disagree with the notion that a growing drag from the long and variable lags’ of monetary policy will push the economy toward recession.” Source.

  • $SPY at 4.5% while $EMXC at 8.6% and the dollar is pretty strong across most EM crosses. Incredibly soft outcomes here on a secular basis. Notable given many of these countries have low exchange rates, are easing, and benefit from decoupling from China. Source.

  • As of August, full-time employment has contracted for two consecutive months, which hasn’t happened since March-April 2020 (different magnitude of decline back then). Source.

When a currency has a sharp devaluation vs. the dollar, the resulting domestic price inflation happens in stages. First, most import prices quickly go up in local FX, remaining in line with their dollar-denominated prices. Second and more slowly, domestic prices start rising.

Lyn Alden

📓 Online Publications

  • South and Midwest Lead Housing Price Cuts. Only about 15.5% of all homes listed on underwent a price cut that month. The ones that are currently seeing a spike in price cuts tend to be in the South and Midwest, where the number of homes for sale has been growing along with prices.

  • Country Garden Avoids Default, Still Stuck With Mountain of Debt. It won approval from local creditors last week for a three-year extension on one type of debt, delaying repayments on $540 million in maturing bonds. On Monday, the company's stock jumped 15%.

  • UAE Looks Set to Legalize Gambling. The Persian Gulf nation, which has historically banned gambling, established a new governmental body for regulating the industry late Sunday. The move suggests the country is laying the groundwork for a change in its laws.

  • Single Family Rent Trends at AMH and Invitation Homes. While rent growth has slowed at both companies over the last year, the slowdown in growth in actual rents paid is much less than that observed in most rent indexes.

  • Private Companies Are Increasing Dollar Adoption Faster Than US Government. Companies, such as Tesla and Amazon, have been holding large amounts of cash in US dollars. The increasing adoption of the dollar by private companies is a positive development for the US economy.

🎧 Podcasts

  • Cost of Shelter Leads to More Inflation. The cost of shelter has increased by 5.5% over the past year, the fastest pace of growth since 2008 due to rising rents, home prices, and mortgage rates. It is putting a strain on household budgets, contributing to the overall increase in inflation. Source(8:20)

  • High Rates Causing Demand Destruction. Jason emphasizes that despite the recent rate hikes, the real estate market remains resilient, with low inventory and high demand. Homeowners with low-interest mortgages are unlikely to sell their properties as their mortgages are valuable assets. Source(7:47)

  • Shortage Of Young Accountants in the US. There is an accounting crisis brewing in the United States, and it’s starting to have some unexpected impacts on how the country’s economy works daily. There just aren’t enough auditors to go around. Source(1:27)

  • UK Banks Tighten Up On Work From Home. Lloyds Banking Group is requiring staff to come into the office at least two days a week and throwing in free food to lure them back. HSBC and the US bank Citi have already told their workers in the UK to be in the office three days a week. Source(0:53)

  • Diamond Demand Across the Board Has Weakened. Consumers are splashing out again on travel and experiences, while economic headwinds eat into luxury spending. An increasing number of Americans choose engagement rings made from lab-grown stones instead. Source(19:00)