Marc Chandler of Marc to Market recently joined Jim Puplava on the Financial Sense Newshour to discuss why Marc believes the week of June 15 could be one of the most important weeks this quarter. Marc also shares his thoughts on the dollar and a market recovery. See below for excerpts from his interview.
Recently, the dollar has been going down while gold has been going up. Will this trend continue?
In the big picture, I’d say that the dollar was going strong last year, and many people expected it to extend its gains this year. I thought we were finishing what seemed to be the third big dollar rally since the U.S. left the Bretton Woods system. I was thinking the dollar rally I had anticipated when it began, was rolling over.
Then we got hit with this COVID crisis and the dollar wobbled a little bit. But as you said, it had been trending higher until about late March. I think the first phase of the dollar’s move down was the market simply removing the fear we saw in March.
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With stock market volatility and ranges in currency, it just looked like the market had broken down. Fiscal and monetary policy came to the rescue, stabilized the capital markets and said they were going to underwrite good parts of the high-income economies. We saw the dollar sort of adjust a bit lower but hadn't really turned.
To me, what happened is it really turned in the middle of May. That’s when my longer-term outlook for the dollar super cycle would be coming to an end. I think this is the common theme throughout all the capital markets right now; officials have just pumped so much liquidity into the system. Business investment is very weak, consumption remains weak and all this liquidity is driving up the demand for risk assets.
As people demand risk assets, we saw the S&P 500 on June 8 turn higher for the year and join the NASDAQ, which is up roughly 10% for the year, though those all fell again later in the week. Liquidity is lifting all ships, whether the ships are sustainable or not is a different story.
I think this is what's turning the dollar. We see this first with some of the high beta currencies like the Australian dollar, the Canadian dollar, Mexican peso and Brazilian real. These currencies were the hardest hit in the first part of the year, and they were the strongest currencies in the world in May. And this is spilling over. I think the euro is a big beneficiary of it as well because there's a big short position against the euro.
While the Paycheck Protection Program was extended, many think we could see a second wave of unemployment when it expires if economies aren’t functioning. Then, what happens if we get a second wave of the virus?
Yeah, I think this is why it's such a difficult time for businesses and for investors. You raised a lot of important elements of the uncertain future; we have many key unknowns. So, because of the unknown, they’re really wrestling with, ‘what's the best course of policy given this high degree of uncertainty?’
Maybe, the question first should be what our priorities are, given the kind of economic hit we’re going through. And given these uncertainties, should we be taking our foot off the accelerator and tapping the brake? Or do we still go full throttle until we see if we get convincing signs of something positive? I think that’s really what this fight is over.
Right now, defensive sectors, technology and consumer staples seem to be doing well. This seems like a bifurcated market.
Yes, I think that's exactly what we’re seeing. This is why I think the week beginning June 15, could be one of the most important weeks that we have in this quarter because of what's going to happen. There’s an EU summit to decide about their own joint fiscal policy. The ECB could be making three-year loans at -100 basis points.
In the U.S., we're going to see the May retail sales. Now remember, in April, it was down almost 16.5%, so a big hit in April. But it looks like the recovery is already taking some holds. I think the median forecast is for almost an 8% increase in May retail sales.
It’s the same kind of story in industrial production. There was an 11% loss in April, and it looks like it's stabilized and has come back a little bit, maybe a 3% gain in industrial output. Then we're going to get the June Empire State survey and Philly Fed surveys, which will be the first indicators outside of those weekly jobless claims for how the economy's doing in June.
My guess is that the recovery is already beginning and now it's going to be how fast it is and if it’s disappointing. There are still so many uncertainties that the ultimate trajectory of the economy is highly dependent on the progress against the pathogen.
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