The dollar was the best place for investors to be in November, beating returns on worldwide bonds, commodities and stocks as Europe’s debt crisis threatened to derail global growth.
The Dollar Index tracking the U.S. currency against six foreign-exchange peers rose 2.9 percent last month, leaving it down less than 1 percent for the year. Even as Treasuries gained 0.7 percent, fixed-income securities around the world lost 0.5 percent, Bank of America Merrill Lynch index data show. The Standard & Poor’s GSCI Total Return Index of commodities rose 1.4 percent, and the MSCI All Country World Index of shares fell 2.9 percent with dividends.
“There’s been a flight to quality, which means investors are keeping their money in U.S. dollars and Treasuries,” said Sean Callow, a Sydney-based senior currency strategist at Westpac Banking Corp., the second-most-accurate foreign-exchange forecaster measured by Bloomberg News. “The U.S. hasn’t been a bad bet, whether you’re on the safe-haven side or you see signs of life in the economy,” he said in a phone interview Nov. 29.
Contagion in Europe’s debt markets spread to Italy last month, boosting yields to euro-era record highs, and curbed demand for German bunds. The Organization for Economic Cooperation and Development this week cited doubts about the survival of Europe’s monetary union as the main risk to the world economy.
The 34 OECD nations will grow 1.9 percent this year and 1.6 percent next, the Paris-based organization said in its twice- annual global economic outlook released Nov. 28, down from 2.3 percent and 2.8 percent predicted in May.
To alleviate stresses in the financial system, six central banks led by the Federal Reserve made it cheaper for banks to borrow dollars in emergencies. The premium banks pay to borrow dollars overnight from central banks will fall by half a percentage point to 50 basis points, the Fed said yesterday in a statement in Washington.
The Fed coordinated the move with the European Central Bank and the central banks of Canada, Switzerland, Japan and the U.K., sparking gains in stocks and commodities, and losses in Treasuries and the dollar.
IntercontinentalExchange Inc.’s Dollar Index rebounded from a 3 percent loss in October to 78.388 as of yesterday, and it’s up from the low this year of 72.696 in May. It will climb to 80 by year-end, Callow said.
The U.S. currency will trade at $1.35 on Dec. 31 against its 17-nation European counterpart, from $1.3446 yesterday, and 77 versus Japan’s currency from 77.62, according to the median estimate of strategist and economists in Bloomberg surveys.
The euro fell 2.97 percent against the dollar in November, according to data compiled by Bloomberg. The yen advanced 0.71 versus the dollar, even after Japan sold its currency for the third time this year on Oct. 31 and Finance Minister Jun Azumi indicated he may do so again. The Brazilian real was the biggest loser among the 16 most-widely traded currencies, depreciating 5.14 percent.
The haven appeal of U.S. assets has been burnished amid signs of strength in the world’s largest economy. The New York- based Conference Board said last month that its index of consumer confidence rose in November by the most since April 2003.
“The favorite strategy will be to locate the cleanest dirty shirts -- the United States, Canada, United Kingdom and Australia at the moment,” Bill Gross, who runs the world’s biggest bond fund as co-chief investment officer at Pacific Investment Management Co. in Newport Beach, California, wrote in his monthly commentary this week.
Bond markets in November showed that a debt crisis that began in Europe’s so-called peripheral markets of Greece and Portugal is starting to impact core economies. Germany failed to get bids for 35 percent of the 6 billion euros ($8 billion) of bonds it planned to sell on Nov. 23. Italy issued bonds this week with coupons that exceeded 7 percent, the threshold that preceded bailouts for Greece, Portugal and Ireland.
Euro-area finance ministers approved enhancements this week to their rescue fund, though they refrained from setting a target for its size.
Europe’s woes helped send Bank of America’s Global Broad Market Index, which consists of more than 19,000 sovereign, corporate, asset-backed and other debt securities with a value of $41.4 trillion, down for the second straight month. The losses trimmed this year’s gains through Nov. 29 to 4.3 percent, after reinvested interest.
America’s government bonds are up 8.8 percent in 2011, set for the best year since returning 14 percent in 2008. The debt extended gains in November even after the U.S. lost its last stable outlook from the three biggest credit-ranking companies. Fitch Ratings on Nov. 28 lowered its outlook on the U.S.’s AAA grade to “negative” following a congressional committee’s failure to agree on deficit cuts.
Treasuries due in 10 years and more have returned 25 percent in 2011, the second most after Sweden among 144 bond indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies.
“Confusion in Europe will help the Treasury market,” said Tsutomu Komiya, a bond investor at Daiwa Asset Management Co. in Tokyo, which oversees the equivalent of $118.7 billion and is a unit of Japan’s second-biggest brokerage. Demand for safety will help keep U.S. yields low, he said.
The nation’s 10-year yield will finish 2011 at 2.20 percent from 2.07 percent yesterday, according to a Bloomberg survey of banks and securities companies, with the most recent forecasts given the heaviest weightings. The record low of 1.67 percent was set on Sept. 23.
Investment-grade corporate bonds lost 1.8 percent last month, while junk-rated debt plunged 2.7 percent, based on the Bank of America indexes. High-yield, high-risk securities are rated below Baa3 by Moody’s Investors Service and less than BBB- at S&P.
The S&P GSCI Total Return Index of 24 commodities advanced in November after surging 9.8 percent in October for its best monthly performance since May 2009.
West Texas Intermediate crude oil futures traded in New York had some of the biggest gains among raw materials, rallying 7.7 percent to $100.36 a barrel. The futures rose after Enbridge Inc. and Enterprise Products Partners LP announced plans to start shipping oil from Cushing, Oklahoma, the contract’s delivery point, in 2012.
The change would add an outlet for North American crude at Gulf Coast refineries, easing a glut at the hub that helped cut the price of the U.S. benchmark against London-traded Brent crude. Brent cost $10.16 per barrel more than West Texas Intermediate oil as of yesterday. The gap has narrowed from a record $27.88 a barrel Oct. 14.
West Texas Intermediate will average $90 a barrel and Brent will average $108.50 a barrel in the fourth quarter, based on the median forecast in a Bloomberg survey of banks.
Concern that Europe’s crisis will curb global growth weighed on demand for other raw materials, with cocoa and nickel posting the biggest losses for the month.
Cocoa futures traded in the U.S. slumped 14.5 percent as exports from Ivory Coast, the world’s biggest producer, resumed after a civil war. Nickel on the London Metal Exchange tumbled about 11 percent as global stockpiles swelled.
No ‘Great Market’
“You can’t get really optimistic or really bullish about the commodity markets,” Jeremy Friesen, commodity strategist at Societe Generale SA, said by phone from Hong Kong on Nov. 29. As long as Europe’s crisis lingers, he said, “it’s not going to be a great market for anything that’s levered to global growth.”
The MSCI All Country World Index retreated after October’s 11 percent rally. The equity benchmark tracking 45 global markets has declined 6.2 percent this year.
The MSCI index is valued at 12.4 times reported profit, 18 percent below the median from the past five years, according to data compiled by Bloomberg. The price-earnings ratio reached 10.4 in September, the lowest in more than two years.
Denmark’s OMX Copenhagen 20 Index rose 6.2 percent and Ireland’s ISEQ Overall Index climbed 0.9 percent, for the only monthly advances among 24 developed markets, according to data compiled by Bloomberg. Venezuela’s IBC Index was the biggest gainer among benchmark emerging market indexes, climbing 7.3 percent.
S&P 500 Retreats
The S&P 500 retreated 0.2 percent in November, after the U.S. equity benchmark posted the worst Thanksgiving-week loss since 1932 as American policy makers failed to reach agreement on reducing the federal budget.
A gauge of financial stocks in the S&P 500 tumbled 4.8 percent as Fitch said Europe’s debt crisis poses a threat to American banks and S&P cut credit ratings of large lenders including Bank of America Corp. and Goldman Sachs Group Inc.
Analysts have reduced 2012 profit estimates for companies in the S&P 500 by 4.2 percent since Aug. 4 to $108.93 a share. The projections now imply earnings will increase 10 percent next year, the slowest pace of growth since 2009.
The S&P 500 will rise to 1,265 by Dec. 31 from 1,246.96 yesterday, the median forecast of banks surveyed by Bloomberg shows.
“We’re concerned that we have lower levels to plumb before we’re through with this, given what’s happening with the economies in Europe,” Bruce McCain, who helps oversee more than $20 billion as chief investment strategist at the private- banking unit of KeyCorp in Cleveland, told Adam Johnson Bloomberg Television’s “Street Smart” Nov. 29. “We have a harder time seeing positive catalysts than negative ones.”
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