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USD for the win?

Good morning Coachmen! As earnings season continues today with many heavy hitters across a plethora of industries, we’ll be keeping our eyes on those reporting within the defence sector such as $LMT as well the economic data surfacing in the US on building permits and housing starts.


"The man who complains about the way the ball bounces is likely to be the one who drops it." - Lou Holtz


Market Talk

The S&P 500 traded 2% down yesterday, likely on the mixed earnings reports that surfaced yesterday - however, there isn’t enough data yet to draw even the beginnings of a conclusion as to whether this period is proving successful or not as many of the names across half the sectors within the S&P 500 haven't even reported yet; based on the figures we do have thus far, healthcare has been the market leading sector, followed by consumer disc. and tech. It’s worth noting that analysts heavily adjusted their estimates down over the last month.

Panning to macro-updates, while the housing market in the US seems to be unfolding, building permits and housing starts were reported this morning and both narrowly missed their expectations - losing 2% and 0.6% over the previous month. This further substantiates the reckoning of real estate as many US REITs are down over 25%+ YTD regardless of property type with the exception of farmland. Below is the list of US stocks reporting today.


Long: Citizens Financial Group, Inc. (CFG-NYSE) | Timeline: 3-4 days

Citizens Financial Group, Inc. operates as the bank holding company for Citizens Bank, which provides retail and commercial banking products and services. The company reported earnings before the bell this morning and CEO Chairman and CEO Bruce Van Saun is “pleased to deliver strong results in the second quarter, which featured the completion of the Investors Bancorp acquisition" (Source). Withstanding that, CFG has also declared an 8% increase in their dividend to $0.42 per share and has authorized the Company to repurchase up to $1.0 billion of the Company’s common stock. Not only has CFG positioned themselves to breakout fundamentally, but they are also on the brink of breaking out of this falling wedge - a widely used pattern by traders that occurs just as the trend makes its final downward move, and as the price slides, buyers step in to slow the rate of decline to eventually break above the upper converging trend line.


Part 2 - DXY Strengthening Amid Global Declines

In a continuation of our bulletin from yesterday’s edition, we’re going to break down why the recent strength of the DXY could be contributing to crises across the globe. For those who didn’t see yesterday’s summary, The US Dollar Index, or DXY, is an index that tracks the value of the dollar in relation to a basket of six currencies of US trading partners, those currencies being the Euro, Canadian Dollar, Swiss Franc, British Pound, Japanese Yen, and Swedish Krona. As you can see below, it is gaining strength and retesting highs not seen since 2002, when it was falling after a massive series of FED rate hikes following the tech crash, and has increased >11% on a YTD basis.

While Americans may be complaining about higher prices, in reality, the USD has outperformed the vast majority of currencies across the globe, while notably depreciating against the Russian Ruble. Outside of notable exceptions, this is traditionally great news for American importers, those with travel plans, or those in other countries who get paid in USD, but for the vast majority of financially unstable economies, the DXY strengthening is a debt sentence. Due to the reserve currency status that the dollar holds, in times of crisis, it’s considered to be the best house in a bad neighbourhood. As with most currencies, the dollar is free-floating, meaning this increased demand for dollars creates scarcity in international markets, driving up value in the process. This relative increase in the USD is also often joined by declines in the values of less stable currencies as the global market moves toward a risk-off mentality.

So what’s causing the collapse in the currencies of countries such as Argentina, Lebanon, Turkey, and Sri Lanka? While some of these scenarios have been accelerated due to individual blunders, these crises share a variety of common causes. First and foremost, necessary commodities are settled in USD, the jump in prices throughout the pandemic has caused nations already in precarious financial situations to be pushed underwater. The increase in the relative value of USD-denominated debt, which ballooned throughout the pandemic for many, has caused countries to devalue their own currency through their need for dollars. This vicious cycle will repeat itself until something breaks, whether that be the currency, government, or both. As multiple nations namely; Lebanon, Sri Lanka, Suriname, and Zambia, have already defaulted this year, with many in the danger zone, the effects of the last few years are just beginning to show.

These recent extra normative moves in the DXY may also act as a catalyst for nations to institute the proposed BRIC currency as their reserve. While it may seem far-fetched, the BRIC nations could step in with a promise of stability for these nations hopelessly indebted in USD, an offer they’d be hard pressed to decline unless given the proper motivation from the IMF.


Chart of the Day - Worldwide Movement of Millionaires

Countries gaining and losing high net worth individuals (HNWIs) this year!

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