Friday, January 6, 2017

Dollar Rally Stalls, DJIA Falls Short of 20K Weekly Market Update: Dollar Rally Stalls, DJIA Falls Short of 20K
Fri, 06 Jan 2017 16:26 PM EST

After a slow start to the New Year, the stock market closed the week on an up-note, with NASDAQ and S&P posting new highs; the DJIA was flirting with the 20,000 barrier again. Investor sentiment over the past week saw a stark change from how the year closed 2016. The markets saw some unwinding of the post-election reflation trade mid-week as buying bonds became popular again, pressuring Treasury yields and the greenback. Big retailers like Macy's and Kohl's revealed holiday season results fell short of expectations, but large-cap tech stocks found renewed favor, with FANG stocks leading the NASDAQ to fresh highs. For the week, the Dow gained 1%, the S&P climbed 1.7% and the Nasdaq rose 2.6%.

The US dollar retreated from 14-year highs against most major currencies, as profit-taking and concerns on the pace of Fed hikes prompted traders to close long-dollar positions. Friday's non-farm payrolls came in at a healthy 156k, although less than expected, which helped the US dollar get back on course, sending it to higher levels for the day. The data also propelled the US stock market higher on the back of solid improvement in wages, but US Treasuries ended the week lower on concerns the salary data could spark faster inflation gains. The 10-Year Notes yield was up by 7bps at 2.42%.

China took steps to protect its currency from further devaluation -- simply mentioning the possibility of market intervention was enough to send the Yuan higher by 2.5% over two days. There was talk of the government having plans to obligate State Owned Enterprises to buy yuan to prop up the currency. In Mexico, the central bank actively intervened in defense of the peso, as the local currency reached new all-time lows against the US dollar. The central bank sold over $1 billion to dampen the effects on the peso following President-elect Trump's comments cautioning auto manufacturers from building plants in Mexico.