foxex: The Greenback Rides Again

The Market Sum | Insight after the bell

By Caleb Silver, Editor in Chief

Thursday's Headlines

Markets Rally on Positive Trade Talk. Dollar Strengthens and Gold Fades

Markets Close

Dow
25,717.46 +0.36%

S&P
2,815.44 +0.36%

Nasdaq
7,669.17 +0.34%

VIX
14.43 -4.75%

INV Anxiety Index
98.9 Low

US 10-Yr Yield
2.389 +0.63%

Markets Rally

U.S. markets posted a slight rally Thursday, as news of momentum in the U.S-China trade talks surfaced after a quiet spell. Reuters reported that Chinese trade officials had agreed to key trade concessions and sticking points around forced technology transfers for U.S. companies doing business in China. At issue, per Reuters, is that U.S. companies say they are often forced to disclose trade secrets and proprietary information to Chinese companies as a condition for doing business in the country. They claim that their technology is then transferred and used by Chinese competitors. Forced technology transfer and intellectual property theft have been two of the biggest issues haunting the trade talks, so a resolution on those could pave the way for a deal.

Chinese Investors Pile into one Money Market Fund

Speaking of China, this story by the WSJ caught our attention today. The Journal reported that one third of Chinese investors had invested in the Tianhong Yu'e Bao fund, which is a money market fund connected to Alipay, the popular payments network widely used in Asia. According to the report, the fund, which means 'leftover treasure', in Chinese, lets users of Alipay invest their spare cash for short periods before they spend their money online. Its assets topped $168.2 billion at the end of 2018. Ant Financial is owned by Alipay. Ant Financial, which is a subsidiary of Jack Ma's Alibaba Group, is said to be the world's most valuable technology startup, valued at $150 billion.

What Is a Money Market Fund?
Good question! A money market fund is a kind of mutual fund that invests only in highly liquid instruments: cash, cash equivalent securities, and debt-based securities with a short-term maturity of less than 13 months and high credit ratings. As a result, these funds offer high liquidity with a very low level of risk. In other words, money market funds are a relatively 'safe' place to invest, given that they don't hold stocks, stock ETFs, or securities that can trade erratically. After the massive selloff in December of 2018, many investors starting piling into money market funds after selling off their stocks. They missed a 12% rally in the US equity markets in 2019, but maybe they felt safer. It looked like this (Chart courtesy of The St. Louis Federal Reserve).

Dollar Strengthens

The U.S. Dollar hit a two-week high today against a basket of other major currencies which is a little unexpected given the Fed's recent doveishness on interest rates. Typically, when the Fed pulls back on raising rates, the dollar weakens. The theory is that lending will slow down as interest rates fall. That's not happening now for one simple reason: The U.S. looks like the cleanest dirty shirt in the laundry bag. By that I mean that other major economies are experiencing or heading into economic slowdowns far more pronounced than what the U.S. might be facing.

A stronger dollar is good for American tourists, but not great for U.S. manufacturers and exporters. It makes U.S. products more expensive in the global marketplace, which puts pressure on profit margins. A strong dollar also hurts gold prices, which have been on the rise. (James is back today, and has more on the precious metal in our daily chart, below). Here's a chart of the U.S. Dollar Index, which measures the greenback against a basket of other major global currencies.

A Lyft Correction

When I'm wrong, I'm wrong. I was wrong yesterday. I mistakenly reported that Lyft would IPO today, when in fact it will IPO tomorrow. It did price its shares at $72 apiece, which is the top of the expected range, today. That would give the company a valuation of $20 billion. Not bad for a company that lost $911 million last year.

Everything else I wrote about the company is true, though. My apologies for jumping the gun.

And, if you are interested in how a company goes through the IPO process on a major U.S. exchange, watch this video with veteran NYSE trader Kenny Policari.

More News:

5 Favorite Pot Stocks From Wall Street's Pioneer Cannabis Analyst

3 Small Biotech Stocks Hitting New Highs

What You Need to Know About Lyft's IPO

Chart of the Day: Gold Dives as Dollar Rises

The price of gold took a sharp dive on Thursday, plummeting well below its key 50-day moving average as the U.S. dollar rose broadly against a basket of other major currencies.

Since the lows of mid-August 2018, gold has been on a relatively sharp upside trajectory, especially as the U.S. Federal Reserve began to get more dovish and interest rate expectations have declined significantly since late last year. When interest rates fall or remain low, non-interest-bearing gold has less competition from interest-bearing instruments. As a result, gold prices and demand for gold tend to rise. And that's exactly what happened.

Gold has also been buoyed in recent months by various market risk concerns, including fears of global trade wars and economic slowdowns, which have helped boost the precious metal in its capacity as a perceived safe-haven asset. Investors tend to buy gold when they are concerned or fearful about global political and economic conditions.

One primary factor that has kept gold from surging even more than it has, and is now helping to pressure it, is the relatively sustained strength of the U.S. dollar in the past several months. Since gold is typically denominated in U.S. dollars, gold and the dollar are generally inversely correlated. As a result, when the dollar drops in value, gold prices tend to rise, and vice versa. Now, as the dollar is on the upswing again and not far off recent highs, gold investors are starting to feel the pain.

From a technical perspective, the sharp drop below the 50-day moving average is significant. Price has also formed a very rough head-and-shoulders pattern, which is considered a strong bearish chart pattern. If the price of gold remains below its 50-day average and the $1300 psychological level, the strong dollar could place significantly more pressure on the precious metal.