DOLLAR INDEX BRIEFLY TOUCHED 100

The Dollar Index briefly touched 100 this morning. In view of its momentum, it could well go above that mark in expectation of the Federal Reserve hiking the US interest rate for the first time in almost a decade.

Many economists are predicting in a 25 - 50 basis point increase in December while some said it could be a gradual 25 basis point increase every quarter in 2016.

I think there could be a possible rate hike in December but after that, the Federal Reserve will be done raising interest rate. I don't think there will be any rate increase in 2016.

The global economic indicators and risks do not support further rate increases.

1) EU, Japan and China will continue their easing policies. This will make US goods more expensive and likely widen the trade deficit between US and the rest of the world

2) Multinationals will suffer a drop in earnings in US$ terms. In fact, many companies in the S & P 500 are already facing earnings recession. This will not support the lofty valuations in the S & P and likely we will see a major correction in the coming months

3) EU GDP growth remains weak, and Japan is in a recession. China could face a hard landing. Despite expanding the monetary base, these countries are not registering the expected growth and this is a clear sign that the global economy is facing a deflation risk

4) Commodity prices are falling to multi-year lows. This is a sign that manufacturing is in recession. There is simply not enough demand to boost prices. To gauge, look no further than the Baltic Index which has fallen below 600

5) The global economy is awash with liquidity and high level of debt. The US has been raising the debt ceiling 6 times since 2009. Tax revenues are falling behind expenditure. To raise interest rates further is akin to borrowing at a higher cost to pay for borrowing at a lower cost. No economy can ever do well when the debt level is more than 100% of the GDP.

All the above does not support a strong Dollar Index. I could only term it as pure speculation. The momentum while strong, will not last.