Fundamental Analysis

US Dollar Gains for the Third Consecutive Week, Stocks Soar

May 7, 2018

US Equities
Major US indices climbed more than one percent on Friday after US jobs data showed a weaker-than-expected wage growth. The average hourly earnings month on month rose 0.1% in April versus an expectation of 0.2%, and the prior month reading was revised from 0.3% to 0.2%. The soft wages data eased investor’s fears on interest rates and inflation expectations. Moreover, Apple rose to a record high continuing a five-day winning streak, after the positive earnings report on Tuesday. On the other hand, China-US talks that took place on Thursday and Friday in Beijing confirmed that both parties agreed on meeting again and discuss better deals.

The Dollar Index rose for the third consecutive week, breaking to the highest levels in 2018. The mixed US jobs data didn’t affect the dollar strength, as this report remains with the consensus and projection of the Federal Reserve and it still favors the perception of raising interest rates two more times this year. However, a trade conflict between US and China can weigh on this outlook.

The British Pound fell for the third straight week as investors await the Bank of England meeting this Thursday. The soft economic data of the first quarter weighed heavily on the currency. The sterling dropped almost 6% in the past weeks as the chances of a rate hike in the coming meeting faded.

Gold Prices gained some ground in the past three trading days after finding good support near the $1300 level. Gold was pressured lately by the rising Treasury yields, as investors preferred a yielding investment to the non-yielding bullion. Since the beginning of 2018, gold is trading in a consolidation pattern between $1300- $1370. A break in any direction will increase the appetite of the gold traders. The World Gold Council confirmed that the stagnation in price led to a lower demand in the first quarter.

Oil prices rose to the highest levels since November 2014 as the political turmoil in Venezuela continues, and the deadline to re-impose sanctions on Iran is close. The West Texas Intermediate traded above $70. The deepening economic crisis in Venezuela, a major oil exporter, will lead to a further slump in production and exports. The countries output dropped by almost 50% in the past years to reach only 1.5 million barrels per day. On the other hand, we are approaching the deadline that was set by the US president Donald Trump to re-impose sanctions on Iran. Will the European leaders be able to meet the deadline with a good deal? The energy services company, Baker Hughes, reported on Friday that the US oil companies added nine oil rigs for new production last week.

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