The US Dollar Index, a measure of the value of the greenback against a weighted basket of major currencies, fell below 104 this week and was testing a key support level at 103.4, the lowest since June, at the time of writing.
The move was exacerbated by China reopening its borders at the weekend, fuelling optimism that it would boost the country's economic activity and resulting in higher markets in Asia and Europe.
Looking ahead, markets will continue to focus on the US inflationary situation, with Consumer Price Index data — a key measure of US inflation — due on January 12.
Markets are poised for another slowing inflation print, with the annual CPI expected to fall to 6.5 per cent in December, from 7.1 per cent in November.
Core CPI prices (excluding food and energy) are expected to slow annually to 5.7 per cent, from 6 per cent in November.
This would be the sixth consecutive lower CPI print, following inflation peaking at 9.1 per cent in June last year.
Slowing inflation will stoke further speculation that the US Federal Reserve will slow its pace of interest rate increases, which will ultimately lead to a weaker dollar and more appreciation of asset classes against the greenback.
We saw this during last Friday’s US non-farm payrolls report, which was mixed at best.
But markets rallied on the news that average hourly earnings slowed to 0.3 per cent month on month and 4.6 per cent year on year (versus forecasts of 0.4 per cent and 5 per cent, respectively).
The weakening wage growth drove up equities, with the US dollar continuing to sink on Friday, which started the short-term bull rally we find ourselves in.
This could quickly change with Thursday’s inflation report.
It is also the start of fourth-quarter earnings season in the US, with banking heavyweights Wells Fargo, Bank of America and JP Morgan Chase leading the way with their announcements this week.
Despite higher-than-expected inflation, a cooling in earnings reports could irk markets with fears of a potential recession.
Overall, the theme of good news being bad for markets and bad news being good for markets (equities and asset classes against the US dollar) is set to continue.
In addition to the above fundamentals, the US Dollar Index also looks susceptible.
Watch: US Federal Reserve chief warns of 'pain' in reducing inflation
After breaking through the 50-week moving average in December, the index has found resistance in moving back above 104.4 levels, with 103.4 a more likely level to be tested.
Across the pond, we have a relatively light economic calendar for the euro area.
The EUR/USD currency pair has benefitted from the recent downwards dollar move and the common currency looks to test a key resistance level between 1.0740 and 1.0770, which has not been seen since May.
Overall, I would continue to exercise caution amid the current market turbulence.
Waiting for the inflation report on Thursday may prove prudent before building any medium-term trading strategies.
Gaurav Kashyap is risk manager at Equiti Securities Currencies Brokers. The views and opinions expressed in this article are those of the author and do not reflect the views of Equiti Securities Currencies Brokers
Timeline
2012-2015
The company offers payments/bribes to win key contracts in the Middle East
May 2017
The UK SFO officially opens investigation into Petrofac’s use of agents, corruption, and potential bribery to secure contracts
September 2021
Petrofac pleads guilty to seven counts of failing to prevent bribery under the UK Bribery Act
October 2021
Court fines Petrofac £77 million for bribery. Former executive receives a two-year suspended sentence
December 2024
Petrofac enters into comprehensive restructuring to strengthen the financial position of the group
May 2025
The High Court of England and Wales approves the company’s restructuring plan
July 2025
The Court of Appeal issues a judgment challenging parts of the restructuring plan
August 2025
Petrofac issues a business update to execute the restructuring and confirms it will appeal the Court of Appeal decision
October 2025
Petrofac loses a major TenneT offshore wind contract worth €13 billion. Holding company files for administration in the UK. Petrofac delisted from the London Stock Exchange
A UK report on youth social media habits commissioned by advocacy group Volteface found a quarter of young people were exposed to illegal drug dealers on social media.
The poll of 2,006 people aged 16-24 assessed their exposure to drug dealers online in a nationally representative survey.
Of those admitting to seeing drugs for sale online, 56 per cent saw them advertised on Snapchat, 55 per cent on Instagram and 47 per cent on Facebook.
Cannabis was the drug most pushed by online dealers, with 63 per cent of survey respondents claiming to have seen adverts on social media for the drug, followed by cocaine (26 per cent) and MDMA/ecstasy, with 24 per cent of people.
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.”
Option 1: 70% in year 1, 50% in year 2, 30% in year 3
Option 2: 50% across three years
Option 3: 30% across five years
Groom and Two Brides
Director: Elie Semaan
Starring: Abdullah Boushehri, Laila Abdallah, Lulwa Almulla
Rating: 3/5
Muslim Council of Elders condemns terrorism on religious sites
The Muslim Council of Elders has strongly condemned the criminal attacks on religious sites in Britain.
It firmly rejected “acts of terrorism, which constitute a flagrant violation of the sanctity of houses of worship”.
“Attacking places of worship is a form of terrorism and extremism that threatens peace and stability within societies,” it said.
The council also warned against the rise of hate speech, racism, extremism and Islamophobia. It urged the international community to join efforts to promote tolerance and peaceful coexistence.
Brief scoreline:
Toss: South Africa, elected to bowl first
England (311-8): Stokes 89, Morgan 57, Roy 54, Root 51; Ngidi 3-66
South Africa (207): De Kock 68, Van der Dussen 50; Archer 3-27, Stokes 2-12
