It was another sloppy session with all the major indices and oil closing lower while gold and bonds edged higher on Wednesday.
Late in the session, President Trump lamented that the U.S. dollar was “getting too strong,” sending the U.S. Dollar Index (DXY) plunging. The DXY was already making lower highs and lows since peaking on December 12, 2016, but it’s come a long way since trading under 75 in 2011.
A cheaper dollar would make President Trump happy, and it would bolster bottom lines of multinational corporations.
On that note, President Trump has decided not to label China a currency manipulator, which tamps down friction between the nations, perhaps making trade compromises easier.
Iron Ore Hammered
The biggest move of the session was the plunge in the price of iron ore. Closing at $68.00 a ton, iron ore lost $6.34 or 8.5%, making it the biggest one-day decline since March 2014. It’s coming off a whirlwind rally that began in November; it peaked at 94.46 in February, but it’s now free-falling more than 28% in the blink of an eye.
Before becoming too hysterical, we need to look at the bigger picture, which puts the current pullback into perspective. The all-time high of $191.90 a ton was in February 2011; it’s a long way from being overbought.
Still, it’s been a roller coaster mirroring global economic turmoil and narratives. The scuttlebutt yesterday was high inventory levels and a slowing China demand. You could also argue the notion of a strong demand via the trillion-dollar infrastructure plan that is also beginning to fade, too.
Today, we’ll get a better idea of the nation’s economic circumstance when several major banks report earnings:
Equity futures have been under pressure all morning long and bank earnings have been mixed with bottom line beats but concerns on slowing loan growth. (These results are making a good argument for bringing back Glass Steagall so Main Street can get a bite at the apple. I will have more on that on the note or Monday morning commentary.) Overall, JPM was most impressive while WFC missed on revenue and continues to suffer a well-deserved PR nightmare.
Then there’s the latest read on inflation that saw producer prices decline after six sequential monthly increases so this gives the Fed some room not to force rate hikes. Of course, the biggest sigh of relief at the Fed was from the chairman’s office, where Janet Yellen got a reprieve from President Trump who told the Wall Street Journal her job is safe. In the same interview, he said he likes the low rate environment.
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