Stock index/FX correlation

[ddunne82]

Hi,

Though this a very basic question for most people on these threads, could someone please explain the following:

If the dollar strengthens, what is the likely/logical effect on the stock markets and why?

Thanks

David

 

[TheBramble]

Another question and one which I'll answer, is what is likely to make the Dollar stronger:-

CPI exceeds estimate
Retails Sales exceeds estimate
Index of Leading indicators exceeds estimate
Industrial Production and Capacity Utilisation exceeds estimate
Housing Starts exceeds estimate
Nonfarm Payroll Employment exceeds estimate
PPI exceeds estimate
Real GDP exceeds estimate

Unemployment Rate misses estimate
Initial Unemployments Claims misses estimate

What else tends to happen when the Dollar strengthens?

Very roughly: Stocks Fall, Bonds Fall, Yields Rise.

HTH

 

[Alitheias]

correlation

It depends on which stocks you are referring to. With a weaker dollar the US companies can offer their products at cheaper prices therefore increase their turnover subsequently increases their profits in US currency. That would suggest Weaker dollar = Good news for US Stock markets. At the same time the European companies suffer since their products in the US are more expensive or they will cut their profit margin to stay competitive. That would suggest Weaker Dollar = Bad news for European Stock markets.
I would suggest to you to have the Eurodollar overlay charted with the S&P500 you will be amazed with the extremity of the positive correlation of the two

 

[ddunne82]

Thanks for the responses - i guess its fairly logical when you think about it! Gotta work on that brain of mine!