March seems to be a very lucky month for the stock markets especially US Dollar, or at least that’s what said Jeffrey Saut, chief investment strategist at Raymond James.
That statement does not come from a single observation, but by a combination of experience and study of some technical factors.
Jeffrey Saut believes that the decline in the US market was reached in February, but he writes in a report: ‘the first week of March should show the reconstituted internal energy that try to reach a new peak’.
Since the first week of March ended, the evidence proves he is right. To help us with this proof, there are multiple factors to analyze, but we will use just two that are good enough.
The first indicator is the S & P SPX that seems to be coming back to increase, but more importantly, it was the US dollar that is catching up in recent days. Credit Agricole also wanted to whet investors wondering if ‘it is time for the return of the greenback’s strength’.
The US currency seems ready to fight because the improvement in macroeconomic data should continue to support the economic outlook provided by the Federal Reserve.
The Non Farm payrolls in the United States surprised with a wonderful 242,000 in February against the 172,000 of January.
The US unemployment rate has not increased but has remained stable at 4.9%, and the ISM Non-Manufacturing/Services Composite was unchanged respect to last month. The ISM manufacturing index showed an increase to 49.5 from the previous 48.2.
At this point, the dollar is also preparing to rise against the euro and the yen.
The rise of the greenback could be linked to three good reasons: the carry trade, the negative rates of Eurozone and Japan and the outflow of capital in both countries.
With the carry trade, there a supply of funds in a country with a low cost of money and then these assets will be used in a country with high interest rates. This is all about euro and dollar right now. Foreign demand for euro funds should intensify as they are more profitable, but then these funds are traded in dollars taking the EUR / USD under a continuous pressure to the downside.
Negative rates of Eurozone and Japan push domestic capital to flow to the outside triggering: the acquisition of overseas assets by Japanese (source: Ministry of Finance of Japan) and the outflow of investment into securities dollars because the greenback is more attractive.
It must be clear there have been months much more favorable, such as 2015 April, November and December. The first days of March, however, showed good results: Saut says that by 1950, the returns of the S&P index have always been positive. According to him ‘the currently placed resistance at 1.950, could change into 2.000 or 2.040’.
Optimism is good, but we have learned that it is right to not trust too much other people’s information. Analyze well all the data and compose your own strategy.