A soaring dollar is pressuring precious metals, oil, and base commodities today, helped along by a swooning euro. The markets perceive differing central bank policies between the Fed in the U.S., and the European Central Bank. Some traders are reading between the lines and are now fearful of the Fed reducing its $85 billion a month in bonds purchases, “taking away the punchbowl” of the wild party in the stock market. Conversely, they see dropping inflation and record unemployment in the EU as cause for the ECB to cut rates. This has dropped the euro to two-week lows, and boosted the dollar from recent lows.
The euro,whihc has dropped for the last five sessions, is supplying a large part of the dollar’s gain today, as the yen has actually strengthened. The euro was hit with weak earnings reports today, which pulled EU stocks down from recent highs.
Better than expected PMI from China, combined with far better than expected industrial numbers in the U.S. combined to lift the stocks of both nations. The Chinese purchasing managers index also helped Hong Kong stocks. Not all is sunny in the Middle Kingdom, however, as concerns grow over the real estate bubble. New home prices in China rose 0.8% in October, after a gain of 0.4% in September. Prices rose 10.5% year over year. Home prices in many major cities are are all-time highs, pricing many families out of the market. These high prices are sparking inflation fears. The government has pledged to set aside more land for housing and increase programs for affordable housing. In Tokyo, the Nikkei was hurt on sharply lower earnings forecasts by several tech companies, and a stronger yen that is hurting exporters.
Wall St. opened higher on the Chinese manufacturing data, and got a further boost from the ISM factory activity index gaining to 56.4 from last month’s 56.2. Analysts had expected a pullback to 55.0, citing the economic damage from the partial government shutdown. This data suggests that it was mainly smaller businesses that took the hit of the estimated $24 billion in lost revenue from the shutdown.