Rising Dollar May Temper Enthusiasm

By Michael McCarthy (chief market strategist, CMC Markets)

The New Year is off to a positive start with solid gains in overnight European trading. However a resurgent USD saw bonds sell off and commodity prices drop on Friday night, potentially restraining share buying in local trading today. Even so, futures markets indications of a 39 point drop look excessive in light of the continental gains.

Manufacturing and services PMIs from China, Japan and the USA will likely set the global tone this week. China manufacturing is steady to slightly higher. Further reads along these lines may give encouragement to stocks, particularly in light of the muted finish to 2016.

A bounce back by the USD pushed gold $10 lower and generally weighed on commodities. Copper rose modestly, but oil remained under pressure. On balance, resource stocks are likely to hold back the Australian market today. Movement in bond markets support for European financiers may see the banks leading any gains.

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