The rise in the Dollar Index is putting pressure on stock indices. MXN rate fell to a 6-week low

At Monday’s close, the Dow Jones Index (US30) was down 0.80%. The S&P 500 Index (US500) was down 0.18%. The NASDAQ Technology Index (US100) closed positive 0.18%. 

On Monday, the Dollar Index approached levels not seen since early August as hopes of a near-term interest rate cut by the Federal Reserve wane. Strong US economic data, such as strong retail sales, combined with the growing likelihood of a Donald Trump presidency, as well as his proposed policies on tariffs and taxes, are lending support to the dollar.

Now that the US Federal Reserve is cutting interest rates to support the economy, optimists expect stocks could rise further. However, critics warn that stock prices look too expensive, given that they are rising much faster than corporate profits. That’s forcing companies to push for profit growth to justify their stock prices, and this week, more than 100 companies in the S&P 500 are expected to detail their performance over the summer. They include heavyweights such as AT&T, Coca-Cola, IBM, General Motors and Tesla. Boeing will report its results on Wednesday. The company’s stock is up 3.1% after reaching an agreement with the union representing striking machinists on a contract proposal. Union members could vote Wednesday on the proposal, which could end a costly strike that has halted airplane production for more than a month.

The Mexican peso fell to 20 per US dollar in October, hitting a six-week low, amid external and domestic pressures that have intensified calls for easing borrowing conditions. Fears of disruptions in Mexico’s vital auto sector were heightened by former US President Donald Trump’s threats to impose tariffs of up to 300% on Mexican-made cars, coupled with his rising electoral prospects. Meanwhile, minutes from the Bank of Mexico’s meeting emphasized a willingness to pursue a less tight monetary policy. Economists estimate a 50 basis point rate cut by the end of the year.

Equity markets in Europe steadily went down on Monday. Germany’s DAX (DE40) fell by 1.00%, France’s CAC 40 (FR40) closed down 1.01%, Spain’s IBEX 35 (ES35) lost 0.71%, and the UK’s FTSE 100 (UK100) closed down 0.48%. 

WTI crude oil prices rose by 1.9% on Monday to above $70.5 per barrel after falling 8.4% last week, helped by economic stimulus measures from China, the world’s largest oil importer. 

The US natural gas prices rose about 3% to above $2.3/mmbtu on Monday, recovering from a significant 14.2% drop last week, thanks to lower production and estimates of colder weather that could boost heating demand. 

Asian markets were mostly down on Monday. Japan’s Nikkei 225 (JP225) fell by 0.07%, China’s FTSE China A50 (CHA50) lost 0.39%, Hong Kong’s Hang Seng (HK50) decreased by 1.57%, and Australia’s ASX 200 (AU200) was positive 0.74%. 

The Australian dollar edged above $0.665 on Tuesday. Still, it remained near its lowest levels in six weeks as the US dollar and Treasury yields rose on signs of continued strength in the US economy and improved chances of a Trump victory in November’s election. Domestically, Reserve Bank of Australia Deputy Governor Andrew Hauser said earlier this week that the strong pace of job growth was a small surprise while indicating that the Central Bank was prepared to react in either direction depending on incoming data. 

The New Zealand dollar rose to 0.605 against the US dollar on Tuesday after hitting a two-month low earlier in the session. The kiwi received support from the recent rate cuts in China, given that China is New Zealand’s largest trading partner. However, the local currency remains under pressure due to the strong US dollar.