Dollar Hits Two-Year High as Investors Assess End of a Tumultuous Quarter
September 30 2019 - 7:34AM
Dow Jones News
By Paul J. Davies
-- S&P 500 and Dow Jones Industrial Average futures up
0.3%
-- Hong Kong stocks set for worst quarter since 2015
-- Brent crude drops 1.2%
The U.S. dollar edged to its strongest level in over two years
Monday at the end of a volatile third quarter in which markets
faced attacks on Saudi Arabia's oil industry, unrest in Hong Kong
and a spike in a critical U.S. overnight lending rate.
The dollar has rallied for much of the past three months and was
trading at its strongest level in more than two years against both
the euro and a basket of currencies in the ICE dollar index. It was
up 0.3% against the euro Monday, meaning it has gained 4.3% against
the European currency this quarter. One euro bought $1.091.
Among major stock markets, Shanghai was the biggest mover
Monday, slipping 0.9% despite manufacturing numbers that were
better than expected. Official data showed manufacturing activity
rebounded in September mainly on improving domestic demand. Chinese
stock markets will be closed for the rest of the week to mark the
70th anniversary of the founding of the People's Republic of
China.
U.S. futures were up 0.3% and the S&P 500 is set to end the
quarter almost flat having touched a record high at the end of
July. The Japanese Nikkei 225 was down 0.6%, but closes out the
quarter as one of the better performers, up 2.3%. The Stoxx Europe
600 was up 0.1% Monday and the FTSE 100 in London was 0.3%
lower.
While the Chinese data was a positive surprise, the trend still
points toward a slowdown in the world's second-largest economy.
Weaker manufacturing and export data globally has been the story of
the quarter, although employment and consumer spending has remained
resilient. Still, the Federal Reserve and European Central Bank
have begun new rounds of looser monetary policy, supporting stock
markets.
Government bond yields in the U.S. and Europe tumbled in August
before rising sharply again in early September, while some
currencies have also seen big moves. The yuan, meanwhile, has
dropped nearly 4% against the dollar this quarter, its weakest run
since the second quarter of 2018.
The Chinese manufacturing data was "encouraging, given the
tighter industrial production restrictions ahead of the 70th
Anniversary Celebration for environmental concerns," Citigroup
economist Xiangrong Yu wrote in a note.
Stocks in Hong Kong rose 0.5% after another weekend of
pro-democracy protests. The Hang Seng has been one of the worst
performing of the world's major indices in the past three months,
down nearly 9%, since the protests took a more violent turn in late
July.
A big positive was a strong debut in Hong Kong for the newly
listed shares of Budweiser Brewing Co. APAC, the Asia business of
European beer giant Anheuser Busch InBev. The stock climbed 4.4%
above its initial public offering price. Budweiser had raised $5
billion in Asia's largest IPO this year and the funds will go
towards reducing AB InBev's debt.
Brent crude oil was down 1.2% Monday at $60.34 even though there
are several factors threatening to restrict supplies. Saudi
Arabia's Crown Prince Mohammed bin Salman said in an interview with
"60 Minutes" broadcast Sunday that energy prices could hit
unimaginable highs if a conflict with Iran escalated.
The Wall Street Journal also reported that the U.S. shale boom
was slowing, with production growth of just 1% in the first six
months of 2019.
The Federal Reserve Bank of New York is due to conduct another
overnight lending operation for banks Monday to help keep market
interest rates in check over the tricky quarter end when funding
markets tend to be restricted.
The Fed began to support repo markets, where banks and investors
swap U.S. Treasurys and other safe bonds for cash, nearly two weeks
ago after lending rates rose sharply. It currently has nearly $162
billion out on loan to banks in a mix of overnight and 14-day repo
operations. About $23 billion will be repaid this morning and the
New York Fed is offering up to another $100 billion in overnight
money.
Elsewhere German 10-year bond yields were 0.08 percentage points
higher at minus 0.566%, while French 10-year yields were 0.1 points
higher at minus 0.271%. In the U.S. 10-year Treasury yields were
0.02 percentage points higher at 1.697%.
Gold was also lower, down 0.85% at $1493.60.
Write to Paul J. Davies at paul.davies@wsj.com
(END) Dow Jones Newswires
September 30, 2019 08:19 ET (12:19 GMT)
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