DOLLAR DROPS ON WEAK GDP REPORT -- YEN SURGES ON BOJ DISAPPOINTMENT -- BLOOMBERG COMMODITY INDEX BOUNCES OFF TRENDLINE -- EMERGING MARKETS ISHARES HIT 12-MONTH HIGH -- EAFE ISHARES NEAR TEST OF SPRING HIGHS -- QQQ TOUCHES NEW RECORD
DOLLAR DROPS AS YEN SURGES... A combination of factors are pushing the U.S. Dollar sharply lower. One is today's report of GDP growing only 1.2% in the second quarter. That pushed Treasury yields lower and bond prices higher and weakened the dollar. Chart 1 shows the PowerShares Dollar Index ETF (UUP) gapping lower today and putting it well below its 200-day moving average. Most other major currencies are rallying against the dollar, including commodity currencies like the Aussie and Canadian Dollars. The biggest jump, however, is occurring in the Japanese yen which surged nearly 3% today. That resulted from disappointment from the BOJ not adding any additional bond stimulus. That pushed Japanese yields higher along with the currency. Chart 2 shows the yen gapping sharply higher after bouncing off its 50-day moving average. Normally that would weaken Japanese stocks. After an early dip, Japanese stocks rebounded on news that the BOJ would continue buying Japanese ETFs linked to stocks. Chart 3 shows Japan iShares (EWJ) gapping to a three-month high. The EWJ is getting an additional boost from the rising yen.
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Chart 1
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Chart 2
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Chart 3
FALLING DOLLAR BOOSTS COMMODITIES ... One of the immediate side-effects of a falling dollar is higher commodities. Chart 4 shows the Bloomberg Commodity Index ($BCOM) rebounding today off a rising trendline drawn under its January/April lows. The commodity selloff this month has reflected weakness in the price of oil and energy shares which have been weighing on the stock market. Today's rebound may take some pressure off both. Industrial and precious metals (along with shares tied to them) are rebounding today after a minor pullback. Dollar weakness may also be giving a boost to large multinational stocks in the U.S. that depend heavily on foreign business. A weaker dollar is also helping boost emerging markets.
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Chart 4
EMERGING MARKETS ISHARES REACH 12-MONTH HIGH ... Several previous messages have shown the upturn in emerging markets which are rising faster than most developed markets. Chart 5 shows the MSCI Emerging Markets iShares (EEM) trading at the highest level in a year after having broken through a "neckline" drawn over its October/April highs. Commodity currencies in Brazil, Russia, and South Africa have been rallying along with EM Asian currencies. That's a sign that global investors are willing to assume more risk in the search for higher yields.
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Chart 5
EAFE ISHARES LOOK STRONGER ... Although it's encouraging to see emerging markets breaking out to the upside, it would be even better to see developed markets joining the global rally as well. And they're getting close. Chart 6 show MSCI EAFE iShares (EFA) nearing a test of a "neckline" drawn over their October/June peaks. Needless to say, an upside breakout would give a big boost to the global rally. EAFE includes stocks in Europe Australasia and the Far East.
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Chart 6
QQQ TOUCHES RECORD HIGH AS ALPHABET SURGES... Technology stocks have been the week's strongest sector. Chart 7 shows the PowerShares QQQ touching a record on Friday. [The QQQ includes the 100 largest non-financial stocks in the Nasdaq]. The QQQ has drawn strength from several big technology stocks this week including Apple, Facebook, and Amazon.com. Friday's standout performer was Alphabet. Chart 8 shows Alphabet (GOOGL) gapping 4% higher in very heavy trading on strong earnings. The stock is nearing a test of its old high formed in February at 810. The QQQ is also getting help from biotechs which gained nearly 4% during the week.
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Chart 7
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Chart 8
ABBVIE AND CELGENE HAVE STRONG WEEK ... Two biotech standouts are shown below. Chart 9 shows AbbVie (ABBV) climbing on Friday to the highest level since last August. ABBV has been a leader in the biotech group. Chart 10 shows Celgene (CELG) ending the week above its 200-day moving average and challenging its April high. An upside breakout appears likely. Biotech buying helped make healthcare the week's second strongest sector.
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Chart 9
