Dollar Weakness Offers Boost for Global Stocks: State Street

(Bloomberg) -- The slide in the dollar toward its weakest in three years should be helpful for equity markets around the world, according to Michael Metcalfe at State Street Global Markets.

“This is a really important point about not getting too bearish about markets in response to policy if the dollar continues to weaken,” said Metcalfe, the London-based global head of macro strategy at State Street. “We shouldn’t underestimate the role that dollar weakness plays in adding to global liquidity, particularly the growth of central bank FX reserves.”

Dollar depreciation gives central banks incentive to smooth their own currencies’ gains by stocking up on U.S. securities, and indeed several countries have seen their reserves climb to records.

Equities could also benefit from attractive valuations and a positive outlook for earnings, according to Metcalfe.

“Valuations actually aren’t that high -- particularly in some Asian markets and emerging markets,” the strategist said in a Bloomberg Television interview Tuesday while visiting Hong Kong. “Global liquidity as a whole probably stays on track for a little while” thanks to the dollar’s weakness, he said.

--With assistance from Betty Liu

To contact the reporters on this story: Christopher Anstey in Tokyo at canstey@bloomberg.net, Yvonne Man in Hong Kong at yman9@bloomberg.net.

To contact the editors responsible for this story: Christopher Anstey at canstey@bloomberg.net, Cormac Mullen, Colin Simpson

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