The US dollar recorded one of its strongest weeks since early May. The Dollar Index, a measure of the value of the US dollar against a weighted basket of major currencies, gained 1.69 per cent for the week ending September 25.
As I wrote in my last article on September 9, I expected markets to correct in favour of the US dollar. EUR/USD fully achieved (and broke through) my target of 1.1720 last week, while GBP/USD also comprehensively broke through my first target of 1.30 and now finds itself currently consolidating in the mid-1.28 range.
The dollar's recent appreciation is by no means a change in trend, and should be seen more as a correction. The greenback is primed for monthly gains for the first time in five months – since May, the Dollar Index has closed four consecutive months lower, a period in which it has shed 6.92 per cent.
One thing that should boost markets further and cause erosion to the US dollar will be the long-discussed proposal for the US government's Covid-19 relief
I expect the correction in favour of the US dollar to stretch through the last few days of September, which also marks the end of the third quarter. As asset managers and corporations re-balance their portfolios, the dollar will catch a bid.
Looking ahead to October and the picture becomes a little trickier. Several of the themes raised in my last article remain key considerations – global central bank policy will continue to be scrutinised, along with the sensitivity to emerging pockets of new Covid-19 cases around the globe.
In addition to these existing themes, we are fast approaching one of the most important US presidential elections in recent memory. Margins are very thin – polls show Joe Biden still has a slight advantage but this can change very quickly.
One thing that should boost markets further and cause erosion to the US dollar will be the long-discussed proposal for the US government’s Covid-19 relief. Bi-partisan negotiations have seen this plan drag out for several weeks – but a new scaled back $2.2 trillion Democrat plan is in discussion. Any cross-the-aisle synergy will undoubtedly rally markets.
The Federal Reserve has urged the government to do its part from a fiscal perspective, and this could be a key theme in the presidential debates and US Congress in the lead-up to the November 3 elections.
Looking ahead, we have a busy economic calendar for the rest of the week, which will give traders further clues about growth recovery. China's manufacturing purchasing managers' index was released early this morning and will be followed by data on UK gross domestic product and US GDP later in the day. Expectations are for unchanged quarter-on-quarter growth in the US, likely to show a contraction of 31.7 per cent. Thursday sees the release of euro area and German manufacturing PMIs, followed by US PMI readings.
We end the week with the crucial US non-farm payrolls report on Friday, which will be the final employment report before November’s election. Expectations are for payrolls to rise to 850,000 for September, but still lower than August’s 1.37 million. Next week sees the release of the Federal Open Market Committee meeting minutes on October 7 and crucial industrial and manufacturing production figures from the UK on October 9.
Overall, I would exercise caution through the start of October – with the dollar on the front foot in September, things could change quickly. Worsening data prints should weaken their respective currencies, and I will continue to monitor US Treasury yields, particularly the 10-year yield. Averaging around 0.65 per cent over the past several months, any strength in yields going forward will translate to US dollar strength and vice versa.
I believe the dollar holds below the channel of 94.75/95, while downsides should be capped at 93.75. Considering this, for the next two weeks, I expect gold to range between $1,850 (which represents a safe, long entry level) and $1,940 levels on the upside. During this period, EUR/USD looks good to make a strong test of 1.16.
Gaurav Kashyap is a market strategist at Equiti Global Markets. The views and opinions expressed in this article are those of the author and do not reflect the views of Equiti
On racial profiling at airports
The team
Photographer: Mateusz Stefanowski at Art Factory
Videographer: Jear Valasquez
Fashion director: Sarah Maisey
Make-up: Gulum Erzincan at Art Factory
Model: Randa at Art Factory Videographer’s assistant: Zanong Magat
Photographer’s assistant: Sophia Shlykova
With thanks to Jubail Mangrove Park, Jubail Island, Abu Dhabi
How to apply for a drone permit
- Individuals must register on UAE Drone app or website using their UAE Pass
- Add all their personal details, including name, nationality, passport number, Emiratis ID, email and phone number
- Upload the training certificate from a centre accredited by the GCAA
- Submit their request
What are the regulations?
- Fly it within visual line of sight
- Never over populated areas
- Ensure maximum flying height of 400 feet (122 metres) above ground level is not crossed
- Users must avoid flying over restricted areas listed on the UAE Drone app
- Only fly the drone during the day, and never at night
- Should have a live feed of the drone flight
- Drones must weigh 5 kg or less
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Avatar: Fire and Ash
Director: James Cameron
Starring: Sam Worthington, Sigourney Weaver, Zoe Saldana
Rating: 4.5/5
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RESULT
Bayern Munich 3 Chelsea 2
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Chelsea: Alonso (45' 3), Batshuayi (85')
BMW M5 specs
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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