LIVE MARKETS-Stock rotation or recession? It matters for the dollar
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US STOCK ROTATION OR RECESSION? IT MATTERS FOR THE DOLLAR
The FX market focus of Monday's tech-led equity rout has been what it means for the dollar, but Deutsche Bank's latest conclusion is the answer is: not very much.
The logic behind the question is that part of the reason for the dollar's recent strength has been the relentless flow of global cash into U.S. shares, which drives demand for dollars to buy them.
Secondly surging U.S. stocks make wealthy individuals feel rich, keeping them spending, keeping the economy growing, and in turn, the Fed cautious about cutting rates.
So, if Monday's equities tumble on the back of the emergence of Chinese AI challenger DeepSeek were to be sustained, that wouldn't be good news for the greenback, at least in theory.
However, Deutsche Bank reckon actually it won't matter much. Their equity analysts broadly conclude that "The recent breakthroughs are likely to be damaging to the "producers" of AI but could be hugely beneficial to the "consumers"."
And "this is in line with the sharp rotation in equity sector performance seen since Monday."
As a result, George Saravelos, Deutsche's Global Head of FX Research says in a Wednesday note: "So long as the US equity market continues to perceive recent developments as "rotation" rather than "recession" (driven by negative capex) the USD impact will likely remain muted."
He sees politics in the form of tariffs and taxes as the main issues for currency markets this year.
(Alun John)
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EARLIER ON LIVE MARKETS:
IN FAVOUR OF A HIGHER US NEUTRAL RATE CLICK HERE
EURO AREA GROWTH: ITALIAN EXCEPTIONALISM IS OVER - BOFA CLICK HERE
TECH STRIKES BACK, LUXURY GOES BACK CLICK HERE
BEFORE THE BELL: EUROPEAN FUTURES RISE, ASML POPS CLICK HERE
TECH NERVES SETTLE JUST IN TIME FOR MAG 7 EARNINGS CLICK HERE
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