The dollar's dominance on the world stage isn't going away. Here's why.
Happy Friday eve, readers. I'm Phil Rosen. As a financial journalist, I'm always trying to distill complex ideas into plain language (for my own understanding as much as yours).
As for Opening Bell, I've found it helpful to remember that the stock market operates as a zero-sum game.
Like poker or chess, one player's win means another player's loss.
Sure, you don't have to work at a hedge fund to grasp the idea, but looking at the 10 biggest losers in the S&P 500 so far this year got me thinking:
Whoever bet correctly on any of the names on this list pocketed some serious gains in the first quarter.
Now, according to research firm S3 Partners, investors have just made Toronto-Dominion the most-shorted bank in the world, with traders accumulating a staggering $3.7 billion in wagers against the Canadian lender.
Again, one party's about to win big on another's loss.
Game theory aside, today we're taking a look at dollar dominance.
1. The US dollar has been under the microscope in the past year over talk about its dwindling lead in the hierarchy of global reserve currencies.
Recent collaborations between China, Russia, and other so-called BRICS countries — combined with rising tensions between those powers and the US — have raised concerns that the greenback could see its dominance wane in the coming years.
One perhaps unsurprising example comes from Russia, where over the last two months, the Chinese yuan surpassed the dollar as the country's most-traded currency.
The move makes sense, given Russia's growing status as a pariah state, but it also highlights a push to unseat the dollar as a dominant force in global trade.
But to strategists at the Carson Group, a scenario where the dollar isn't the world's primary reserve currency simply isn't in the cards in the near future.
"The US dollar's dominant role is not going to end any time soon, especially since there's no good alternative," the firm's global macro strategist Sonu Varghese wrote in a research note this week.
The Carson Group listed three reasons why the dollar will stay resilient:
- "The World has confidence in the US, and thereby the US dollar"
- "The US dollar is dominant in trade and international finance"
- "The US is willing to maintain massive trade deficits"
Let's zoom in on that third point.
Last year, Americans bought $3.3 trillion in goods from foreign countries. Non-US buyers, on the other hand, bought $2.1 trillion in goods from the US in 2022.
The strategists highlighted that the US is fine maintaining the status quo here because it leaves foreign buyers holding onto a heap of dollars that it needs to put somewhere.
"Foreigners turn around and buy the safest, most liquid security in the world: US treasuries," Varghese said.
"Some of them also simply hold USD in cash. These are liabilities of the US government that the US is more than willing to issue. No other country, including the Eurozone, looks remotely capable or willing to do that anytime soon."
In other news:
2. US stock futures trade mixed early Thursday, after Wednesday's ADP private payrolls report showed job growth slowed in March, reigniting fears of a US recession. Here are the latest market moves.
3. On the docket: Rio Tinto, Levi's, and more, all reporting.
4. Some companies in this batch of oil stocks have upsides of up to 180%, according to strategists at Bank of America. Tightening of the global crude supply is expected to begin in May and stay in place through the end of the year. Get the list of 17 names.
5. Mortgage rates tumbled again but applications for home loans are down because listings are drying up. The Mortgage Bankers Association said Wednesday that the 30-year fixed mortgage rate dropped from 6.45% to 6.40% last week. Yet, compared to a year ago, home listings are down 20%.
6. Russia notched record-high oil sales last week despite sanctions and production cuts. The warring nation has followed through with its vow to ship more energy supplies to allies, pushing crude sales higher. Here's what to know.
7. Michael Saylor's MicroStrategy just added another 1,045 bitcoins to its crypto trove. The business software maker now holds 140,000 of the tokens, and the value of that stash was nearly $4 billion as the token traded above $28,000 this week. The company's latest purchase clocked in at $24 million.
8. Bank of America shared its investing playbook for a recession that's based on 150 years of market history. Strategists are anticipating a downturn — and these five ETFs look like attractive corners of the market right now.
9. These must-see charts illustrate why the economy is heading toward disaster. "Be advised, this is not a gentle setback like 2000," warned Jeremy Grantham. See the data on why stocks are at risk of massive declines ahead.
10. Gold is at a 13-month high and eyeing a new record. Following Wednesday's jobs data, traders pulled back expectations for another Fed rate hike, pushing the precious metal higher. An expert from the World Gold Council pointed out that history says gold performs well in a recession.
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