The dollar proved to be last month’s best investment, beating stocks, bonds and commodities, confounding officials around the world who said Federal Reserve policies would debase the U.S. currency.
The U.S. Dollar Index, which tracks the currency against those of six major U.S. trading partners including the euro, yen and pound, rose 5.2 percent in November. The Thomson Reuters/Jefferies CRB Index of 19 commodities was little changed. The MSCI All Country World Index of stocks fell 2.2 percent after accounting for reinvested dividends. Bonds lost 1.1 percent including reinvested interest as measured by Bank of America Merrill Lynch’s Global Broad Market Index.
While German Finance Minister Wolfgang Schaeuble said Fed Chairman Ben S. Bernanke’s decision to pump $600 billion into the world’s largest economy by purchasing Treasuries was “clueless,” rising bond yields and signs of economic recovery increased the allure of U.S. assets. The gain in the Dollar Index brought its advance for the year to 4.4 percent, trailing the 5.3 percent rally in bonds, 5.5 percent for stocks and 6.4 percent jump in commodities prices.
“Strong U.S. economic figures have helped the dollar,” said Masataka Horii, one of four managers for the $35.9 billion Kokusai Global Sovereign Open fund in Tokyo, Asia’s biggest bond fund. Global Sovereign Open’s dollar-denominated holdings account for 22 percent of its total, the second-biggest position behind the 28 percent devoted to euro assets, he said.
U.S. central bank policy also revived speculation that inflation will accelerate at the same time that growing concerns about Europe’s sovereign debt damped demand for bonds and equities. The Labor Department may say in two days that American employers added jobs for a second month in November, according to the median estimate of economists surveyed by Bloomberg.
“The U.S. and the European economies will recover next year,” Horii said in an interview. “The dollar and the euro will start getting more attractive.”
Intercontinental Exchange Inc.’s Dollar Index rose to 81.290 yesterday from 77.266 at the end of October. Last month’s gain was the biggest since the measure jumped 5.8 percent in May. The index declined 0.4 percent at 7:43 a.m. in New York, the first drop in four days, amid speculation European Central Bank policy makers meeting tomorrow may signal their willingness to act to prevent the spread of the region’s debt crisis.
Of the 16 most-traded currencies, the greenback had its steepest gain against the euro, strengthening 7.43 percent, followed by a 7.37 percent gain versus Denmark’s krone and 6.17 percent to Norway’s krone, data compiled by Bloomberg show.
America’s currency rose even as Japan Prime Minister Naoto Kan said Nov. 4 the U.S. was pursuing a “weak-dollar policy” through its plan to buy Treasuries. Chinese central bank adviser Xia Bin said the same day the Fed’s policy amounted to “uncontrolled” money printing.
Speculation the Fed’s purchases of Treasuries would succeed in avoiding deflation and bolstering the recovery pushed U.S. government bonds lower, driving the 10-year yield to as high as 2.96 percent on Nov. 16 from 2.6 percent at the end of October.
The average yield to maturity on the more than 19,400 bonds in the Bank of America Merrill Lynch index rose to 2.54 percent from 2.27 percent on Oct. 31. Last month’s decline was the biggest since the index tumbled 1.5 percent in April 2004.
German bunds lost 0.2 percent, U.S. government bonds fell 0.7 percent and Japanese debt dropped 1.2 percent.
Ireland’s bonds slumped 11 percent, the biggest monthly decline since the Bank of America Merrill Lynch indexes began in 1988. The nation sought an 85 billion euro ($110 billion) bailout from the European Union and International Monetary Fund, becoming the second country after Greece to seek aid.
Corporate fixed-income securities from the U.S. to Europe and Asia declined 1 percent on average. The extra yield investors demand to own the debt instead of benchmark government bonds widened to 1.77 percentage points from 1.64 on Oct. 31.
“The euro-zone problem is an issue causing risk aversion,” said Walter De Wet, head of commodity research at Standard Bank Plc in London, a unit of South Africa’s largest lender.
The Thomson Reuters/Jefferies commodities index ended November at 301.41, after reaching a 25-month high of 320.38 on Nov. 9. Wheat was the worst performer, declining 9.3 percent, followed by a 8.9 percent drop in corn and a decline of 7.1 percent for orange juice.
Silver futures traded in New York led commodity gains in November, rallying 14 percent because the metal is a cheaper alternative to gold for investors and jewelers, De Wet said. Gold rose to a record $1,424.60 on Nov. 9, before ending the month at $1,386.02.
“The downside is likely to be limited from here” for commodities, De Wet said, forecasting the Fed’s stimulus package and Chinese demand will boost prices into next year. He favors gold, copper and palladium for the next 6 to 12 months.
Stocks around the world snapped a two-month gain as Europe’s debt crisis and China’s anti-inflation measures curbed demand for equities. The People’s Bank of China raised its benchmark lending and deposit rates in October for the first time since 2007.
The MSCI All Country World Index fell after returning 3.6 percent in October and 9.6 percent in September, the biggest back-to-back monthly gains since soaring 23 percent in April and May 2009.
“We should get some recovery in share markets,” said Shane Oliver, Sydney-based head of investment strategy at AMP Capital Investors Ltd., which manages about $93 billion and is a unit of AMP Ltd., Australia’s second-largest asset manager. “There’s nothing I see to indicate a return to recession.”
The Organization for Economic Cooperation and Development said Nov. 18 the global economy will expand 4.2 percent next year instead of the 4.5 percent predicted in May. Growth will recover to 4.6 percent in 2012, the Paris-based group said in its semi-annual Economic Outlook.
Japan’s Nikkei 225 Stock Average returned 8 percent in November to 9937.04, the best gain among the world’s biggest equity markets, based on data compiled by Bloomberg. Shares advanced as the yen at a two-month low against the dollar improved the outlook for export earnings.
Komatsu Ltd., the world’s second-largest maker of construction equipment, Fast Retailing Co., Japan’s biggest clothing chain operator, and TDK Corp., the world’s largest manufacturer of magnetic heads for disk drives, each returned more than 17 percent.
The Euro Stoxx 50 Index, a measure of equities in nations using the euro, slumped 6.4 percent including reinvested dividends as Ireland accepted the bailout of its banking industry. Concern the debt crisis will spread to other countries sent Spain’s IBEX 35 Index down 14 percent and the FTSE/ASE 20 Index of Greek stocks to an 10.2 percent loss.
China’s Shanghai Composite Index fell for the first time in five months, losing 5.3 percent. The Standard & Poor’s 500 Index of U.S. shares returned 0.01 percent, after rising for two month.
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