A Bald Eagle flies over Caroons Lake (Photo by Bruce Bennett/Getty Images)

Keep an eye on the tumbling US dollar

The dollar has slumped against the yen, and is reaching a critical inflection point versus other major currencies as well.

Luke Kawa

8/20/24 11:46AM

The eagle’s wings have been clipped.

The US dollar is sinking like a stone, with the Bloomberg Dollar Spot Index down 1% over the past three sessions and more than 3% off its late June 2024 peak.

Of course, the biggest factor behind the ferocity of the USD decline in August was the unwind of the yen carry trade, which propelled the Japanese currency sharply higher.

Analysts at Bespoke Investment Group note that, through Monday, “2.0 percentage points of [the Bloomberg Spot Index’s] total drop has come from the yen, which has gained almost 10 percentage points against the dollar during its recent short squeeze.”

“All other currencies have accounted for only slightly more than 1% of the drop,” they add. “This USD decline is far less about broad dollar weakness than the yen story,”

But scan across the foreign exchange universe, and we’re reaching the point where this could transform from “yen strength” to “broad dollar weakness” – or this nascent trend could peter out.

A suite of central bank speeches at the Jackson Hole Economic Symposium this week – chiefly, Fed Chair Jerome Powell’s address on Friday, could be major currency catalysts.

An overarching reason for the greenback’s swoon has been a narrowing of interest rate differentials between the US and other major economies as expectations for Federal Reserve easing have ratcheted higher. This reduces the appeal of holding the US dollar because you’re getting less extra income from investing in short-term, safe US debt obligations compared to other nations.

Traders are currently pricing about 75% odds that the US central bank delivers a 25 basis point rate cut at its September meeting, and 25% odds of a 50 basis point reduction.

It’s highly unlikely that Powell telegraphs a big cut this week, with another round of jobs data as well as PCE and CPI inflation reports on tap before the next decision.

Other crosses have also moved quite a bit since the US dollar’s 2024 peak; the Swiss franc, South Korean won, and euro are all up more than 4% versus the greenback. The euro is far and away the biggest component of the Bloomberg Dollar Spot Index.

“The euro is right at a huge level as we have closed above 1.1100 just nine times in the past two years,” writes Brent Donnelly, president of Spectra Markets. “We have only closed above 1.1130 five times in the last two years. We are in rarified air.”

Not only the euro, but the currency of America’s neighbor to the north is also at an inflection point. USDCAD is closing in on 1.36, a key level where previous rallies in the Canadian dollar have fizzled out so far this year.

Donnelly flagged two made-in-Canada challenges for the currency in the near term. First, Alimentation Couche-Tard (translation: Late Night Snack) – the biggest retailer in Canada – made a bid to acquire Japanese company Seven & I Holdings (which operates 7-Eleven). Moving forward with that transaction could involve selling a lot of Canadian dollars to buy Japanese yen. Secondly, the looming rail strike in Canada would be a negative for the domestic economy in addition to disrupting North American trade.

For these reasons, he says “I would definitely not be long CAD right now (against anything)” over the next few weeks with these idiosyncratic negatives percolating in the background.

Max Knoblauch & David Crowther11h

Nike’s China business declines for seventh straight quarter, stock sinks as soft guidance outweighs Q3 earnings beat

Sportswear kingpin Nike reported results for its third quarter, which ended in February, after the bell Tuesday. At a headline-level, the fiscal Q3 numbers were pretty solid, with Nike reporting:

Earnings of $0.35 per share, comfortably above the Wall Street consensus of $0.29 per share compiled by FactSet.
$11.28 billion in total revenue, roughly in line with the $11.26 billion estimate.

However, weakness in China and a revenue forecast that implies sales will continue to drop are weighing on the shares, which are down more than 9% in early trading on Wednesday.

On the earnings call, management said that revenue is expected to drop 2% to 4% in the coming quarter, and that overall they "expect revenues to be down low-single-digits versus the prior year, with gains in North America offset by declines in Greater China." That's a disappointment to analysts, who were anticipating 2% growth in the coming quarter, and even more in the latter stages of the year, per Bloomberg.

Nike’s sales in China — where the company earns about 15% of its revenue — fell 7% to $1.62 billion. That’s its seventh straight quarter of sales declines in the market, though this quarter’s was less than feared. The company had issued weak guidance for this quarter considering continued softness in the region.

“This quarter we took meaningful actions to improve the health and quality of our business,” said Nike CEO Elliott Hill. “The pace of progress is different across the portfolio and the areas we prioritized first continue to drive momentum.”

Nike shares are trading near decade lows this month, as tariffs continue to weigh on profits and shipping costs rise amid the war with Iran. As of Tuesday’s close, the stock was down 17% year to date.

Luke Kawa, Tasha Matsumoto

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Stocks end worst quarter since 2022 with best day since May

Optimism that the end of the war may be near sent stocks surging.

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Oil-sensitive travel stocks pop following Iran state media reporting on potential war resolution

Travel stocks are surging on Tuesday as oil prices fall following reports from Iranian state media that President Masoud Pezeshkian said the country has “the necessary will to end this war,” but would only do so with guarantees that “prevent the recurrence of aggression.”

The war has sent oil prices and refining margins surging this month, causing airlines and cruise lines to cut profit forecasts despite reported high demand.

Following Tuesday’s update, shares of the big four US airlines (Delta Air Lines, United Airlines, American Airlines, and Southwest Airlines) all climbed, along with smaller rivals including JetBlue. US airlines have stopped fuel hedging in recent years, increasing their exposure to upward swings in oil prices.

Cruise stocks also rallied, with Carnival and Norwegian up more than 6% and Royal Caribbean up about 5%.

J. Edward Moreno16h

The FDA is expected to lift restrictions on certain peptides, the NYT reports

The Food and Drug Administration is expected to lift restrictions on certain peptides, allowing the experimental, often injectable substances to be sold by compounding pharmacies, The New York Times reported Tuesday.

The potential move was previously reported by The Wall Street Journal, and teased by Health Secretary Robert F. Kennedy Jr. on the “Joe Rogan Experience” podcast in late February.

Peptides have boomed in popularity recently, with search interest for “peptides” surpassing “ozempic” this month. Many of them are currently understudied and not approved for human use, a rule consumers are able to bypass by purchasing them from suppliers that sell them for, ostensibly, research purposes only.

As reports of the FDA changing its stance of peptides mount, consumer health companies like Hims & Hers and Superpower have been getting ready to roll out their peptide offerings as soon as they get the FDA's blessing.

The peptide gold rush: How impending deregulation could supercharge a shadow industry

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Memory stocks bounce as Bernstein analyst calls TurboQuant fears “overdone”

Memory stocks rose Tuesday, after Bernstein analysts called the recent panic over Google’s TurboQuant AI algorithm “overdone.”

Bernstein analyst Mark Newman wrote:

“[Hard disk drive] and Memory stocks have sold off significantly due in part to fears from Google’s TurboQuant report. This however, should have zero impact on HDD demand and negligible impact on NAND demand. Given the stock sell-off we see this as an attractive entry point for Seagate Technology Holdings, Western Digital and Sandisk’s and upgrade WDC to Outperform.”

All three stocks were up early Tuesday, as was memory chip maker Micron.

Today’s rally stands in stark contrast to the pummeling these shares have endured over the last week, after Google Research published a technical paper on March 24 detailing its TurboQuant AI algorithm, which compresses the amount of data associated with AI operations without affecting the accuracy of AI models.

That was seen as a threat to surging AI demand for memory storage, which has supercharged prices for memory chips and memory-related stocks over the last year.