Friday 1845 BST.
A switch in the way the dollar reacts to disappointing US economic data is providing support to stocks and commodities, as traders find the gospel of the buck’s inverse correlation to risk assets difficult to denounce.
The FTSE All-World index is up 1 per cent, WTI crude has reclaimed the $100 a barrel mark and high beta “growth” currencies, such as the Australian dollar are firmer.
The S&P 500 on Wall Street is up 0.5 per cent – just 2 per cent below its cyclical peak – helped by a 0.7 per cent advance for Asia and a 0.6 per cent pop for the FTSE Eurofirst 300. Globally, banks and miners are seeing the strongest gains, and traders rotate into sectors that benefit from falling interest rates and higher prices for physical assets.
Such a bullish tone would normally be met with noteworthy softness in the prices of core bonds, nudging yields higher as investors shifted funds to racier plays.
But the guts of the rally remain weak. Friday’s news of a disturbingly large fall in pending homes sales in April has cancelled out a better than expected reading of consumer sentiment.
Benchmark US Treasury 10-year yields are barely changed at 3.06 per cent, a six-month low reflecting continued evidence that economic activity in the US is stuttering. The S&P 500 also failed a critical test of a technical level, at 1,343, and is pulling back from its days’ highs.
Recently, such weak data would give the dollar a somewhat perverse boost as investors bet on funds flowing into perceived haven currencies as risk appetite waned.
This is not the case on Friday – as investors are faced with the conundrum of risk assets and core sovereigns both displaying strength of late.
One explanation for this is that the soft macro data are temporary but increases the chances the Federal Reserve will stay looser for longer, a scenario much loved by bulls of both stocks and bonds.
The dollar index, which tracks the greenback against a basket of its peers, is down 0.8 per cent to 74.93, helping drive copper up 1.5 per cent to $4.17 a pound, and push gold up 1.1 per cent to $1,537 an ounce.
The dollar has hit a record low versus the Swiss franc of $0.8535.
Part of the reason for dollar weakness is a resurgence in the euro, which is up 0.8 per cent to $1.4278 as the latest pulse of eurozone fiscal fears fades.
Dealers had been spooked on Thursday by a warning from the chair of eurozone finance ministers, Jean-Claude Juncker, that the IMF may not release next month its share of a €12bn aid package to Greece.
The market now seems to be reassessing the likelihood of such a scenario and the euro is also getting support from the crunching of yield differentials with the US currency as the Bund and Treasury yield spread sits at just 7 basis points.
Indeed, such is the trend for lower yields that the Japanese five-year has touched a five-month low of 0.41 per cent, even after Tokyo revealed that surging commodity prices had helped inflation return to the country for the first time since 2008.
The market seemed not especially fussed by news that Fitch was downgrading its outlook on Japan’s sovereign debt.
Earlier in Asian trading the region was mainly positive as strong corporate profit news and the weaker buck overshadowed lingering concerns about the eurozone and the US economy.
However, two of the major bourses remained under pressure. Japan’s Nikkei 225 was led lower by weakness in Sony, after the electronics group’s forecast of a Y80bn profit this year disappointed analysts.
Meanwhile Shanghai, lost another 1 per cent, taking its decline this week to 5.2 per cent. China’s benchmark now sits at a four-month low as traders continue to fret that Beijing’s battle against inflation will require the economy to cool further.
Elsewhere, the tone was more upbeat. The resumption of foreign buying provided some support in Seoul as technology and recently hard hit carmakers – following a production crimping strike in the component sector – pushed the Kospi up 0.4 per cent.
In Sydney, the S&P/ASX 200 rose 0.5 per cent as “bargain hunters” nibbled at blue chips, while Hong Kong’s Hang Seng showed it remains more tightly correlated to the broader global trend than its mainland peer by climbing 1 per cent as banks saw buyers.
Reporting by Jamie Chisholm in London and Telis Demos in New York