Depressed Volatility Sends Stocks Higher And Dollar Lower For The Week

The US dollar declined this week, fueled by higher inflation and depressed volatility, and this trend is likely to continue.

The trading week is ending today, and the themes of the week were a lower US dollar and higher US equities. Extremely low volatility levels helped equities because the stock market remains bid whenever volatility drops.

US Treasury yields fell significantly despite better than expected economic data, which was odd. During an economic recovery, yields climb back from the lows as investors dump the safety of bonds for riskier assets. Yet, this week, both bonds and stocks rose. If this is more than a temporary divergence, it will have a much bigger impact on the market’s volatility in the short-to-medium term.

The Coinbase IPO was the main event of the trading week. The crypto exchange started trading at a valuation of about $100 billion, which signals that cryptocurrencies are here to stay.

One story with a mention from the FinTwit community this week relates to a particular company listed on the US stock market that reached a $100 million valuation. What is wrong with this picture? The company owns only one deli (i.e., a small restaurant) in New Jersey. Yet, investors sent its price higher for the simple reason that they do not know what they are buying. It tells us much about the state of the current market, where the abundance of money dictates everything.

In Europe, the UK’s FTSE 100 reached the magical 7,000 level. Despite Brexit, investors are looking for new opportunities and the promise of a faster reopening of the UK economy.

Lower long-term yields in the United States have sent the gold price higher. Investors know that yields and gold move in an inverse relationship: when yields rise, gold falls, and vice versa.

Dollar weakness is also reflected in the WTI crude oil price, which rose to above $63.50 and shows no signs of backing off.

Weekly Analysis

US data made headlines this week. Inflation and retail sales both beat expectations by a mile, fueled by the huge fiscal and monetary stimulus underway in America. In fact, the dollar decline gained pace on Tuesday after the inflation data was released, because higher prices put pressure on the currency as investors sell the dollar in search of a much stable alternative.

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Disclaimer: None of the content in this article should be viewed as investment advice or a recommendation to buy or sell. Past performance/statistics may not necessarily reflect future ...

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