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Strong Dollar weighs on Emerging Markets

By:
David Frank
Updated: Nov 11, 2016, 07:51 UTC

Asian markets stuttered this morning as the rally is on pause. The US Dollar has rallied higher in the wake of Donald Trump being elected the next

Strong Dollar weighs on Emerging Markets

Asian markets stuttered this morning as the rally is on pause. The US Dollar has rallied higher in the wake of Donald Trump being elected the next President of the United States. A stronger Dollar has dampened demand for emerging market assets.

The Dollar index moved a bit lower, 0.12 percent, to 98.66 but hit its highest level in two overnight at 99.08. The stronger dollar is coming from the sell-off in US Treasuries which is steepening the yield curve. This is due to Trump’s plan to increase fiscal spending in an effort to build and fix infrastructure.

The yield on the benchmark US Treasure 10 year Note has now climbed to 2.13 percent as of 11:30 am HK time. The thirty year note is now at its highest level since January 12 at 2.94 percent.

This morning the rally on the Nikkei hit a bit of a wall. After gaining more than one percent at the open, the Japanese benchmark closed only 0.28 percent up. On Thursday, the Nikkei was up over seven percent at 17,344.42. The yen has snapped its five day losing streak against the US Dollar to trade near 106.42 as of 11:00 am HK time. It was near the ¥102 level last week,

Thanks to Trump’s promise to spur infrastructure spending in the United States, we are seeing a rise in the price of metals. On the London Metal Exchange, copper has surged to a 16 month high at 5,714, as of yesterday. Today, it has softened a tad to 5,579 per ton.

This has supported Asian and Pacific Rim mining plays. Rio Tinto is up over 2.8 percent. Fortescue Metals Group has climbed over three percent and BHP Billiton is up over two percent this morning.

The potential increase in US demand for metals is a game changer for commodities like copper and aluminum. This is fueling Australian mining stocks as there is a potential big demand from construction companies in the Unites States. The US is Australia’s second largest importer of raw materials behind China.

Overnight, Wall Street had another stellar day. The Dow Jones Industrial Average hit a new all-time high at 18,807.88. The Blue Chip index rose more than 200 points on the day. The bellwether S&P 500 was a bit more volatile as it rose 0.2 percent to close at 2,167.48. Tech plays continued to be under pressure which sent the Nasdaq Composite down 0.8 percent to close at 5,208.80.

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