It’s a popular time to be a dollar, with the Federal Reserve executing the proverbial money pressures as fast as possible, and the dollar index DXY,
closer to 10% down from its March highs.
Robin Brooks, chief economist at the Institute of International Finance and former chief global currency strategist at Goldman Sachs and senior economist at the International Monetary Fund, are not sure they are right.
First, he points out, there are almost two different dollars – one versus the G-10 industrialized countries, and another against emerging markets.
Many emerging market countries are commodity exporters, and they have seen their currencies depreciate since 2013, even when they were adjusted for inflation, due to the trade shock of the decline in oil prices.
“Most of our clients have eyes, a kind of rebound that we saw in [2009] when emerging markets returned significantly – the Brazilian real USDBRL,
the Chilean peso USDCLP,
and so on – but that was because China did a massive boost to infrastructure, and we just do not have that right now, “Brooks said.
As for the euro EURUSD,
Position data from the Commodity Futures Trading Commission suggest that bets on the valuation of the shared currency are close to zero. But Brooks notes that this comes at a time when the trade-weighted euro is also close to records because the emerging markets of currency are so weak. Brooks says that a euro at $ 1.20 is now equal to what a euro at $ 1.40 once was.
Furthermore, the euro is not as underestimated as its current account surplus would suggest, due to structural problems in countries such as Italy and Spain, Brooks says.
Brooks also discusses the Turkish lira USDTRY,
which traded at a record low vs the dollar on Friday. “The devaluation in 2018 was basically a story of current accounts, and we believe this is what happens,” he says. The pressure for growth through credit is what is behind the intensifying current account deficit – also exacerbated by a decline in tourism – and that will need to be corrected, he says.
The real value of the IIF is a dollar to be worth 7.50 lira – suggesting that more pain is coming.
The buzz
U.S. retail sales for July are up at 8:30 am Eastern, followed by data on industrial production and consumer sentiment. Chinese retail sales rebounded, falling 1.1% in July, although industrial production went up.
U.S.-China tensions were in the spotlight as Secretary of State Mike Pompeo said the U.S. would designate the Confucius Institutes, funded by the Chinese government, as a foreign mission, and President Donald Trump said the TikTok social -media app must be proven to be completely safe for the White House to approve a purchase through Microsoft MSFT,
as another company. “We do not want any information in China about what we have passed on,” Trump said.
US Trade Representative Robert Lighthizer and Chinese Vice Premier Liu He will attend talks on their Phase 1 trade agreement, according to press reports.
The United Kingdom is adding France and the Netherlands to its countries where travelers will have to quarantine when they return home. In the US, coronavirus deaths rose on Thursday, but confirmed cases were rejected.
The European Commission has agreed to buy 300 million doses of AstraZeneca vaccine, while the UK has agreed to buy coronavirus vaccines developed by Johnson & Johnson JNJ.
subsidiary and by Novavax NVAX,
China streaming service iQiyi IQ,
and his parent Baidu BIDU,
may face pressure to disclose a probe from the U.S. Securities and Exchange Commission. Search engine Baidu reported separate results with better than forecast revenue, but at slightly worse revenue than forecast.
Apple AAPL,
and Google GOOG,
launches the popular game Fortnite from its app stores after Epic Games introduced a direct payment plan that does not give the technology giants their 30% cut.
Supplier of microchip maker Applied Materials AMAT,
reported results and a outlook that beat Wall Street’s estimate. Sports betting company DraftKings DKNG,
reported a larger loss than expected, as a report said the Internal Revenue Service requires fantasy sports companies to pay federal action taxes on their entry fees.
The brand
FS-futures futures ES00,
YM00,
NQ00,
were mixed, a day after a mixed finish on Wall Street that saw the S&P 500 SPX,
down, but the Nasdaq Composite COMP,
register its second-highest finish ever.
Oil CL.1,
and gold GC00,
futures fell.
The map
While lawmakers continue to debate if federal unemployment benefits extend $ 600 a week, the San Francisco Federal Reserve published a blog arguing that it would be illogical for most workers to refuse work because of the extra pay because a job offer should be compared to a weekly income while unemployed who may retire before another job can be found. “Comparing the reservation allowance of work and total unemployment benefits with eight weeks of remaining extended benefits, only food service workers would be indifferent between the two,” said Nicolas Petrosky-Nadeau, a San Francisco Fed researcher.
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