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Dollar rallies while the euro stumbles: Which is good for some stocks
11/29/2010 3:22 pm EST
With financial markets unconvinced that the Irish bailout will put an end to a euro debt crisis that’s ready to engulf Portugal and Spain, the U.S. Dollar Index (DXY) pushed above 81 this morning for the first time since September 21. (The U.S. Dollar Index tracks the dollar against a basket of currencies that includes the euro, yen pound, Canadian dollar, Swiss Franc, and Swedish krona.) The dollar index had moved above 86 in June after beginning the year near 74.
The euro, on the other hand, has moved below support and has in fact dropped below its 200-day moving average as investors drove the yields for bonds in Spain, Portugal, Belgium, Italy, and Hungry—as well a Ireland—up this morning. The British pound has also dropped below its technical support at its 200-day moving average on news that the country will contribute to the Irish bailout, even though the United Kingdom does not belong to the euro block. That served just to remind the financial markets of the big exposure of U.K. banks to the Irish crisis. I’m sure it didn’t help either that the U.K. government lowered its forecast for GDP growth for 2011.
There’s plenty of U.S. news this week to confirm—or reverse--these currency trends. This week brings the November report on U.S. unemployment, same-store sales from retailers and the ISM survey of purchasing managers in the manufacturing and service segments of the U.S. economy. Right now, expectations are that all these reports will be positive with job growth continuing to move higher from October’s positive levels and the retail and purchasing managers reports confirming news of strengthening consumer spending.
News that confirmed those expectations would drive the U.S. dollar higher. Remember the U.S. dollar index was as high as 86 in June when the euro was struggling with the Greek debt crisis.
All things else being equal, a higher dollar is bad for commodity stocks (oil, copper gold) but the fundamentals behind the dollar rally (better U.S. economic growth) are good for retail and other consumer stocks. (For five retail picks see my post http://jubakpicks.com/2010/11/02/im-dreaming-of-a-green-christmas-for-these-five-retail-stocks/ )
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. For a full list of the stocks in the fund as of the end of the most recent quarter see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/ )
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