Marc Chandler

Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Articles by Marc Chandler

FX Weekly Preview: The Week Ahead Excluding Brexit

I feel a bit like the proverbial guy that asks, "Besides that, Mrs. Lincoln, how did you like the play?" in trying to discuss the week ahead without knowing the results of the UK Parliament’s decision on the new deal negotiated between Prime Minister Johnson and the EU.   I will write a separate note about Brexit before the Asian open. However, there are several other developments next week that will help shape the investment climate.

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FX Daily, October 18: Markets Becalmed Ahead of the Week

Overview: The global capital markets are ending the week on a subdued note as the UK Parliament decision on Saturday is awaited. The weaker Chinese Q3 GDP had little impact outside of China, where stocks fell over 1%. A brief suspension of hostilities by Turkey was sufficient for the US to lift its threatened sanctions.

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Cool Video: With Rick Santelli on CNBC

I was invited to Rick Santelli’s Exchange on CNBC earlier today. There is a 3.5-minute clip of the interview that can be found here. Despite being a dollar bull for nearly a decade (since around the time of my first book–Making Sense of the Dollar–), I do not think a strong or weak dollar is desirable. It is about the level that is appropriate depending on business conditions and the economic cycle.

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FX Daily, October 17: EU-UK Deal Sends Sterling and the Euro Higher

Overview: A Brexit deal between the UK and the EU has been struck. Whether it can win Parliament’s approval is a horse of a different color. Meanwhile, US-Chinese relations continue to sour. The capital markets are narrowly mixed as investors await further developments. The MSCI Asia Pacific is consolidated after gaining for the past four sessions.

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FX Daily, October 16: Fickle Market Tempers Enthusiasm

Overview: Fading hopes that a Brexit agreement can be struck is seeing sterling trade broadly lower, while China’s demand that US tariffs be rescinded in exchange for a commitment to buy $40-$50 bln of US agriculture goods over two years, makes the handshake agreement less secure. At the same time, Hong Kong is becoming another front in the US-Sino confrontation.

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FX Daily, October 15: Non-Disruptive Brexit Hopes Remain Elevated

Overview: Ideas that a Brexit deal may be close is helping to firm sterling, while soft Chinese PPI offset the spike in food prices to show the weakness of the world’s second-largest economy. Minutes from the meeting of the Reserve Bank of Australia earlier this month kept a door open to a rate cut before the end of the year.  Japan returned from holiday, and the Nikkei gapped higher, and its nearly 1.9% advance led the MSCI Asia Pacific Index higher. Europe’s Dow Jones Stoxx 600 is recouping yesterday’s 0.5% loss, while US shares are also trading firmer after yesterday’s slippage.

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FX Daily, October 14: Optimism Took the Weekend Off

Overview: Japanese and Canadian markets are on holiday today. While the US bond market is closed, equities maintain their regular hours today. Asia Pacific equities rallied, led by 1% of more gains in China, Taiwan, South Korea, and Thailand. The buying did not continue in Europe, and after a 2.3% rally before the weekend, the Dow Jones Stoxx 600 is about 0.75% lower in the European morning.

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FX Daily, October 11: Nothing Like Approaching the Edge to Focus the Minds

Overview: As the edge of the abyss is approached in three distinct areas, there is hope that victory can be snatched from the jaws of defeat. US-China trade talks continue today, and there is hope of a small deal that could lead to the US not hiking tariffs next week. A shift in the UK toward a free-trade agreement with the EU seems to have opened fertile ground in negotiations that could still avoid a no-deal Brexit.

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FX Daily, October 10: Setback for the Greenback

Conflicting headlines about US-China trade whipsawed the markets in Asia, but when things settled down, perhaps, like the partial deal that has been hinted, net-net little has changed. Asian equities were mixed, with the Nikkei, China’s indices, and HK gaining, while most of the others slipped lower. The 0.9% gain in the S&P 500 yesterday failed to lift European stocks, and the Dow Jones Stoxx 600 is near the week’s lows.

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FX Daily, October 9: Hope is Trying to Supplant Pessimism Today

Overview: The 1.5% drop in the S&P 500 and the deterioration of US-China relations and the prospects of a no-deal Brexit failed did not carry over much into today’s activity. Asia Pacific equities were mostly a little lower, though China and India bucked the regional trend, while Korea was closed for a national holiday. Taiwan led the losses amid a sell-off in semiconductor stocks.

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FX Daily, October 8: Not a Good Day for Negotiators

The re-opening of Chinese markets after a long holiday did not produce the volatility that many expected. Chinese stocks alongside most Asia markets traded higher today, and the yuan advanced. After opening higher and extending its recent rally, Europe’s Dow Jones Stoxx 600 turned down, even though Germany announced an unexpected gain in August industrial output. US shares are trading a bit lower.

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FX Daily, October 7: Markets Unsettled to Start the Week

Overview: The global capital markets are uneasy as the risks that have dominated investors’ concerns–trade and Brexit–remain front and center today. Expectations are low that this week’s talks between the US and China will lead to a breakthrough or will be sufficient to postpone further the next round of tariff increases set for next week. 

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FX Weekly Preview: China Returns, ECB Record, Fed Minutes and the Week Ahead

Many high-income countries experienced little growth but strong price pressures in the 1970s. Since the mainstream economics said the two were mutually exclusive, a new term had to be created, hence stagflation.  Fast forward almost half a century later, and mainstream economists are still having a problem deciphering the linkages between prices and economic activity, such as inflation and employment.

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FX Daily, October 4: The US Jobs Data to Close a Sobering Week

Overview: The recovery of US shares yesterday signaled today’s fragile stability. Gains in Japan, Australia, and Taiwan blunted the losses elsewhere in the region, including a 1% slide in Hong Kong.  The MSCI Asia Pacific Index fell for the third week. China’s markets have been closed since Monday and will re-open Monday and may play some catch-up.

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FX Daily, October 3: Shades of Q4 18?

Overview:  Disappointing economic data again drove US equities lower, which in turn carried into Asia Pacific activity. Losses were recorded throughout the region, with the notable exception of Hong Kong. The Nikkei and Australia’s ASX were off by 2%. After its largest losing session of the year (-2.7%) yesterday, Europe’s Dow Jones Stoxx 600 continues to trade heavily.

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FX Daily, October 2: Greenback Shows Resiliency, Stocks Don’t

Shockingly poor ISM data sent shivers through the market on Tuesday and hand the S&P 500 its biggest loss in five weeks and took the shine off the greenback. The S&P 500 reached a five-day high before reversing course and cast a pall over today’s activity.  All the markets were lower in Asia Pacific, with China and India closed for holidays.

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FX Daily, October 1: Dollar Jumps to Start New Quarter

Overview: The US dollar is rising against nearly every currency today as global growth concerns deepen. Japan’s Tankan Survey showed large manufacturers confidence is a six-year low. The Reserve Bank of Australia cut 25 bp as widely expected and kept the door open for more. The final EMU PMI ticked up from the flash, but it is still at a seven-year low.

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FX Daily, September 30: A Busy Week Begins Quietly

Overview: As the quarter ends, the capital markets are mixed. Equities in Asia Pacific were heavier, except in Hong Kong and Australia, while shares were mixed, leaving the Dow Jones Stoxx 600 little changed through the European morning. US shares are trading firmer. Benchmark 10-year bond yields are 2-3 basis points higher, though Australia’s bond yield was up seven basis points.

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FX Weekly Preview: Forces of Movement at the Start of Q4 19

The world’s largest economy appears to have grown by about 2% in Q3 at an annualized pace, the same as in Q2, and in line with what many Fed officials understand to be trend growth.  The strength of the US labor market underpins consumption, the powerful engine of the US economy.  The latest readings of both the labor market and consumption will highlight the economic data in the week ahead. 

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FX Daily, September 26: Greenback Remains Firm

Overview: A compelling narrative for yesterday’s disparate price action is lacking. A flight to safety, which is a leading interpretation, does not explain the weakness in the yen, gold, or US Treasuries. Month- and quarter-end portfolio and hedge adjustments may be at work, but the risk is that it is a black box: is difficult to verify and lends itself to misuse as a catch-all explanation.  Nevertheless, the rise in US equities yesterday helped lift most Asia Pacific shares today, with China, Taiwan, and Australia the notable exceptions.

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FX Daily, September 25: Risk Appetite Stymied: Dollar Recovers while Stocks Slide

Overview:  Global equities and fixed income reacted to the large moves yesterday in the US when the 10-year note yield fell eight basis points, and the S&P 500 fell by 0.85%.  Investors have focused on three separate developments and two of which came from President Trump’s speech at the UN.  He dismissed the likelihood of a short-term trade deal with China and was critical of the large social media platforms.

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FX Daily, September 24: UK Supreme Court Deals another Defeat to Johnson

Overview: A fragile calm hangs over the capital markets today.  Equities in Asia Pacific were narrowly mixed.  Japan, China, and HK advanced. India saw some profit-taking after a two-day surge in response to the unexpected corporate tax cuts but recovered in late dealings. European shares are recovering after posting its largest loss in a month yesterday (-0.8%). US shares are trading firmer in Europe.

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Great Graphic: Views Distill to Short Sterling Long Yen Opportunity

GBP/JPY, March-September 2019

We have argued that the road to an orderly Brexit remains arduous and that sterling had entered an important technical area ($1.2500-$1.2530).  At the same time, see the dollar as having approached the upper end of its broad trading range against the yen.  One of the important drivers lifting the dollar was the dramatic rise in US yields. 

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FX Daily, September 23: Dreadful European Flash PMI Drags the Euro Lower

Overview: The critics who claim the ECB’s policy response was disproportionate got a rude shock today with the unexpected weakness revealed by the flash PMI. The euro looks to re-visit the lows set recently near $1.0925. Sentiment has also been eroded by the poor South Korean export figures. Asia Pacific equities moved lower, though Tokyo markets were closed. Indian equities, however, continue their pre-weekend surge.

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FX Daily, September 20: UK and India Provide Excitement Ahead of the Weekend

Overview: A word of optimism on a Brexit deal has sent sterling to its best level in two months. Corporate tax cuts sparked a more than 5% rally in Indian stocks as the week draws to a close. The MSCI Asia Pacific Index snapped a four-day losing streak to pare this week’s decline.  Europe’s Dow Jones Stoxx 600 was flat for the week coming into today, and its four-week advance is at stake.

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FX Daily, September 19: Investors Looking for New Focus

Overview:  Central bank activity is still very much the flavor of the day, but investors are looking for the next focus.  The Bank of Japan and the Swiss National Bank stood pat, while Indonesia cut for the third consecutive time and the Hong Kong Monetary Authority and Saudi Arabia quickly followed the Fed. Brazil cut its Selic rate yesterday by 50 bp as widely expected.

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FX Daily, September 18: FOMC Meets Amid Money Market Pressures

Overview:  News that Saudi Arabia was able to restore 40%-50% of the oil capacity lost by the weekend strike coupled with the Fed’s efforts to offset the squeeze in the money markets are allowing the global capital markets to trade quietly ahead of the conclusion of the FOMC meeting.  Equities are little changed with a lower bias that has been seen in the first few sessions this week.

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FX Daily, September 17: Markets Calm(er)

Overview: Oil prices have stabilized after yesterday’s surge. Both Brent and WTI are holding on to around $7-$8 a barrel gain. Equity markets are mixed. Some are attributing the losses in Asia Pacific outside of Japan (Nikkei rose its highest level since late April), Korea and Australia to the rise in oil prices. European shares opened lower are straddling unchanged levels.

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FX Daily, September 16: Oil Surge Pared, Markets Remain on Edge

Overview: Oil prices surged in the initial reaction to the unprecedented drone attack on Saudi Arabia facilities. Saudi Arabia may be able to restore around half of the lost production in a few days. Saudi Arabia and other countries, including the US, prepared to tap strategic reserves, oil prices have seen the initial gains halved. Brent is trading near $65 after finishing last week near $60.

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FX Weekly Preview: Six Things to Watch in the Week Ahead

The prospect of a third trade truce between the US and China helped underpin the optimism that extended the rally in equities.  Bond yields continued to back-up after dropping precipitously in August, led by a more than  30 bp increase in the US yield benchmark.  The Dollar Index fell for the second consecutive week, something it had not done this quarter.

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Cool Video: Thoughts on ECB

A few hours after the ECB announced a new package of monetary accommodation, I joined a discussion on CNBC Asia with Nancy Hungerford and Sir Jegarajah.  Here is a clip of part of our discussion. I make two points.  The first is about the euro’s price action.  What impressed me about it was that the euro posted an outside up day, trading on both sides of the previous day’s range and closing above its high.

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FX Daily, September 13: Bonds and the Dollar Remain Heavy Ahead of the Weekend

Overview: The markets are digesting ECB’s actions and an easing in US-Chinese rhetoric. Next week features the FOMC meeting and three other major central banks (Japan, Switzerland, and Norway). The US equity rally that saw the S&P 500 edge closer to the record high set in late July spilled over to lift Asian markets. Chinese and Korean markets were closed for a mid-autumn holiday.

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FX Daily, September 11: Dollar is Firm as ECB is Awaited

Overview: Global equities are extending their recent gains while bonds remain on the defensive.  The dollar is firm.  There is a degree of optimism that is prevailing. There are some more overtures in terms of US-Chinese trade. In Hong Kong, developers and banks led an equity rally on ideas that the political tensions may ease. South Korea reported better trade data for the first ten days of September.

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FX Daily, September 10: Turn Around Tuesday

Overview: The momentum from the end of last week carried into yesterday’s activity, but the momentum began fading.  Today, equities were mixed in Asia Pacific and weaker in Europe. The Dow Jones Stoxx 600 reversed lower yesterday and is slipped further today.  The S&P 500 may gap lower at the open.

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FX Daily, September 9: Market Sentiment Still Constructive

Overview: The improvement of investor sentiment seen last week is carrying over into the start of the new weeks. Global equities are firm as are benchmark yields. Asia Pacific equities advanced, except in Hong Kong, where Chief Executive Lam’s promise to formally withdraw the controversial extradition bill failed to deter protests.

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FX Daily, September 03: Pound Punished in High Drama

A showdown between UK Prime Minister Johnson and Parliament over Brexit pushed sterling below $1.20. The euro is extended its losses after finishing last week below $1.10. Growth concerns are seeing equities retreat. Japanese and Chinese shares managed to eke out gains, but the Asia Pacific and European stocks have been sold.

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What Happened Monday

Markets in the US and Canada were closed on Monday for national Labor Day holidays. Here is a succinct summary of key developments that will set the backdrop for Tuesday. On September 1, the new round of tariffs in the US-China fight took effect. The US placed a 15% tariff on around 3000 Chinese goods that thus far had escaped action.

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September Monthly

Three forces are shaping the investment climate. The US-China trade conflict escalates at the start of September as both will raise tariffs on each other’s goods and are threatening another round in mid-December (US 25% tariffs on $250 of Chinese imports will increase to 30% on October 1).

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FX Weekly Preview: Talking and Fighting in the Week Ahead

Equity markets and the US dollar closed last week and August on a firm note. Ahead of the weekend, the dollar rose to new highs for the year against the euro, Swedish krona, Norwegian krone, and the New Zealand dollar. While the next set of US and Chinese tariffs start September 1, the market is making the most of the lull.

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FX Weekly Preview: The Week Ahead is not about the Week Ahead

It’s the last week of August. Several economic reports will be released in the coming days. They include the US deflator of consumer expenditures that the Federal Reserve targets, China’s PMI, and the eurozone’s preliminary August CPI. It is not that the data do not matter, but investors realize the die is cast.

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G7 to Deliver a Nothing Burger

A Bloomberg article about the weekend G7 meeting says, “multilateralism is dead.”  An op-ed in the Financial Times suggests that the most important political alliance may be “rejuvenated” at the G7 meeting.  The truth is likely found somewhere in between. 

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FX Daily, August 22: Tick Up in EMU PMI Does Little, Waiting for Powell

Overview:  Soft data in Asia and the continued decline in the yuan (six days and counting) prevented Asian equities from following the US lead from yesterday when the S&P 500 advanced by 0.8%.  European shares are paring yesterday’s 1.2% advance despite an unexpected gain in the EMU flash PMI.  US shares are little changed in the European morning.

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FX Daily, August 20: Marking Time Ahead of PMI and Powell

Overview:  Global equities and bonds are firmer in quiet turnover, and the dollar is narrowing mixed in narrow ranges.  The big events of the week, the eurozone flash PMI and Powell’s speech at Jackson Hole still lie ahead.  The MSCI Asia Pacific Index rose for the third consecutive session, led by Korea and Australia’s 1%+ gains. 

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FX Daily, August 19: China’s Rate Reform Helps Markets Extend End of Last Week Recovery

Overview: China announced some changes in its interest rate framework that is expected to lead to lower rates.  This helped lift equity markets, which were already recovering at the end of last week from the earlier drubbing.  Chinese and Hong Kong shares led the regional rally with 2-3% gains.  The Nikkei gapped higher for the third time in six sessions, and the first two were followed by lower gaps. 

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FX Weekly Preview: A Vicious Cycle Grips Markets

The capital markets are in their own doom loop. Poor data from Germany and China, coupled with the escalation of the US-China trade dispute and rising tensions in Hong Kong spur concerns about the risks of a global recession. Interest rates are driven lower, and curves flatten or go inverted, spurring more concern about the outlook. The problem is that it is not clear how this vicious cycle ends.

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FX Daily, August 16: Markets Take Collective Breath Ahead of the Weekend

Overview:  The global capital markets are ending the tumultuous week calmly, but it is far from clear that is will hold long.  Next week’s flash PMIs have potential to disappoint, and there is risk of new escalation in the US-China trade conflict as the PRC threatens to take action to countermeasures to the new US tariffs.

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FX Daily, August 15: Animal Spirits Lick Wounds

Overview:  It took some time for investors to recognize that the scaling back of US tariff plans was not part of a de-escalation agreement. There was an explicit acknowledgment by US Commerce Secretary Ross that there was no quid pro quo. The US tariff split was more about the US than an overture to China. 

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FX Daily, August 14: Markets Paring Exaggerated Response to US Blink

The US cut its list of Chinese goods that will be hit with a 10% tariff at the start of next month by a little roe than half, delaying the others until the mid-December. This spurred a near-euphoric response by market participants throughout the capital markets. However, as the news was digested, it did not seem as much of a game-changer as it may have initially.

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FX Daily, August 13: Investors Remain on Edge

Overview:  The confrontation in Hong Kong and the fallout from the Argentine primary over the weekend join concerns the conflict between the two largest economies and slower growth to force the animal spirits into hibernation.  Global equities remain under pressure.  Japan’s Topix joined several other markets in the region to have given up its year-to-date gain. 

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FX Daily, August 12: Yen Remains Bid, While Macri’s Loss in Argentina Weighs on Struggling Mexican Peso

Overview: China again tried to temper the downside pressure on the yuan, and this appears to be helping the risk-taking attitude. Many centers in Asia were closed today, including Japan and India, though most of the other equity markets advanced modestly, including China, Korea, and Australia. Europe’s Dow Jones Stoxx 600 opened firmer but is staddling little changed levels unable to stain any upside momentum.

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FX Weekly Preview: Macro Deterioration

The US-China tensions remain the dominant driver of investor risk appetites. President Trump has repeatedly accused China of manipulating its currency on twitter, and finally Treasury Secretary Mnuchiin acquiesced after China failed to prevent the dollar from rising above CNY7.0.

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Yes, the Dollar is Above CNY7.0, but No, the Sky is Not Falling

The world’s two great powers are at loggerheads. Chinese nationalism meet your sister, US nationalism. Import substitution strategy of Made in China 2025 meet your cousin Make America Great Again. Paradoxically, or dialectically, the similarities are producing divergent interests that extend well beyond economics and trade policy.

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FX Daily, August 7: Three Asian Central Banks Surprise Investors

While investors keep a watchful eye on the dollar fix in China (a little firmer than projected) and tensions with the US, two other developments compete for attention. The Reserve Bank of New Zealand and the central banks of India and Thailand surprised the market with lower rates. The RBNZ cut by 50 bp, India by 35 bp, and the fact that Thailand cut at all was unexpected.

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Cool Video: The implication of CNY7.0+

President Trump’s tweets last week announcing the end of the tariff truce signaled a new phase in the US-Chinese tensions.  China responded as did investors.  I was fortunate to have been invited to the Bloomberg set to discuss the issues of the day.

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FX Daily, August 5: China Strikes Back

Overview:  Chinese officials took the US tariff hike quietly last week but struck back today.  The PBOC fixed the dollar higher (CNY6.90), which it has not done, and will halt imports of US agriculture. The dollar shot through CNY7.0 to finish the mainland session a little above CNY7.03 and CNH7.07 for the offshore yuan. 

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FX Weekly Preview: The Dog Days of August are Upon Us

The die is cast. To defend the uneven expansion and ward off disinflationary forces, monetary authorities will provide more accommodation. The Federal Reserve delivered its first rate cut in more than a decade and stopped unwinding its balance sheet two months earlier than it previously indicated (worth $100 bln of additional buying of Treasuries and Agencies).

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August Monthly

After falling against all the major currencies in June, the US dollar rebounded in July. The Dollar Index finished the month at new two-year highs with the Fed’s suggestion it was engaged in a mid-course correction rather than a sustained easing cycle. The dollar also appeared buoyed by the extent of the dovishness by the ECB and the heightened risks that the UK leaves the EU at the end of October without an agreement.

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Brexit Update

The October 31 deadline for the UK to leave the EU is less than 100 days away.  The new Prime Minister is beginning to convince others that that UK will, in fact, leave at the end of October.   PredictIt.Org shows the odds of the UK leaving has risen to almost 50% from about a 33% chance a month ago.   Here is a summary of where the situation stands and some key dates going forward. 

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FX Daily, August 2: End of Tariff Truce Trumps Jobs

Overview: The market was finding its sea legs after being hit with wave and counter-wave following the FOMC decision, and more importantly, Powell’s attempt to give insight into the Fed’s thinking. Trump’s tweet than signaled an end to the tariff truce with a 10% levy on the $300 bln of imports from China that have not been subject to action previously.

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FX Daily, August 1: Mid-Course Correction Sends Greenback Higher

Overview:  The Federal Reserve delivered the first rate cut since the Great Financial Crisis but couched it in terms of a mid-course correction rather than the start of a larger easing cycle.  By doing so, Fed chief Powell cast the cut in less dovish terms than the market expected and the reaction function of the market has been clear. 

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FX Daily, July 31: Sterling Steadies, Attention Shifts to FOMC

Overview: After a shellacking in recent days, sterling has stabilized though there is not much of a bounce to speak of, suggesting the adjustment to the risk of a no-deal Brexit may not be complete. After the S&P 500 posted back-to-back declines, Asia Pacific equities struggled. Hong Kong shares led the regional decline.

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FX Daily, July 30: Sterling Pounded

Overview:  The prospect of a no-deal Brexit continues to pound sterling lower.  A little more than two months ago, it was testing $1.32.  Two weeks ago it was around $1.25.  Today it traded near $1.2120 before stabilizing.  On the other hand, the 10-year Gilt yield is below 65 bp, a new multiyear low, while the international-laden FTSE 100 is holding its own in the face of heavier equity prices in Europe.

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FX Daily, July 29: Prospects of a No-Deal Brexit Weigh on Sterling

Unrest in Hong Kong and disappointing earnings reports from South Korea weighed on local equity markets, and the MSCI Asia Pacific Index fell for the third consecutive session. European equities are edging higher in tentative trading. The Dow Jones Stoxx 600 is firmer for the sixth session of the past seven. US shares are little changed after record-high closes before the weekend.

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Seven Points on the ECB and the Price Action

Confusion

As soon as it was clear that the ECB was not easing today, the euro began to recover, after making a marginal new low for the year (just above $1.11). Draghi made it clear that easing was going to be delivered in September and on several fronts including rates (with mitigating measures like tiering) and new asset purchases (not decided on instruments, which plays into speculation of equity purchases—though I strongly doubt this will materialize).

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FX Daily, July 25: ECB Takes Center Stage

The euro remains stuck in its trough below $1.1150 ahead of the ECB meeting. The US dollar is firmer against most of the major currencies. The yen continues to resist the draw of the greenback. Most emerging market currencies are lower. The Turkish lira is weaker ahead of its central bank meeting, which is expected to deliver a large cut (~250 bp).

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FX Daily, July 24: Poor PMI Weighs on Euro Ahead of ECB

EUR/CHF and USD/CHF, July 24

Overview:  Disappointing flash PMI pushed an already offered euro lower ahead of tomorrow’s ECB meeting. European bonds rallied and equities, amid a rash of earnings, is trying to extend the advance for a fourth consecutive session.  Italian and Spanish 10-year benchmark yields are off four-six basis points, while core bond yields are off two-three basis points.

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FX Daily, July 23: Debt Deal Help Lifts the Dollar

The gains in US equities and the apparent US budget agreement has underpinned equities today and the US dollar. Asia Pacific equities recouped yesterday’s losses, and Europe’s Dow Jones Stoxx is posting gains for the third consecutive session, helped by some earning beats, to probe two-week highs. US shares are firmer. Benchmark 10-year yields are mixed with the Asia Pacific softer and European firmer.

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FX Weekly Preview: Highlights in the Week Ahead

Three events that will capture the market’s attention next week: The consequences of the Japanese election, the first look at US Q1 GDP, and the ECB meeting. The central banks of Turkey and Russia also meet. Both are expected to cut interest rates, following rate cuts in the middle of last week by South Korea, Indonesia, and South Africa.

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FX Daily, July 19: Dollar Pares Losses as Market Partly Corrects Confusion of Magntiude and Timing of Fed

Overview: Comments underscoring the importance of acting preemptively by two Fed officials sent the dollar reeling and helped lift equities after the S&P fell to a two and a half week low. The decline in rates and the US shooting down of an Iranian drone in the Gulf helped spur gold to new six-year highs. There was some attempt to clarify the (NY Fed’s) comments and the dollar has pared yesterday’s losses.

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FX Daily, July 18: Dollar on Back Foot as Equities Slide

Overview:  Profit-taking continues to weigh on global equities earnings concerns saw the biggest drop in the S&P 500 in three weeks.  The MSCI Asia Pacific Index fell for the fourth consecutive session.  The Nikkei gapped lower for the second straight session and has now retraced half of the gains scored since early June.  The Shanghai Composite is at its lowest level in a month.

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FX Daily, July 17: Back to the Well Again

Overview:  After slapping punitive tariffs on structural from China and Mexico last week, US President Trump threatened to end the tariff truce with China because it is not stepped up its purchases of US agriculture products.  Trump said the tariff freeze was in exchange for ag purchases, but at the time it seemed as if granting licenses to US companies to sell to Huawei was the quid pro quo.

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FX Daily, July 16: Sterling Weakness Punctures Subdued Session

Overview: Summer in the northern hemisphere contributing to the subdued activity in the global capital markets. The MSCI Asia Pacific index stalled after a four-day advance, with Japanese, Chinese, and Australian equities offsetting gains in Taiwan, South Korea, and India.  Europe’s Dow Jones Stoxx 600 is flattish, struggling to extend its three-day rally.

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FX Daily, July 15: Marking Time on Monday

Overview: The new record highs in US equities ahead of the weekend coupled with Chinese data that suggested the economy was gaining some traction as Q2 wound down is helping underpin risk appetites to start the week. Japanese markets were closed today, but equities were mostly firmer in the Asia Pacific regions, markets in China, Hong Kong, Taiwan, and India firmed. 

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FX Weekly Preview: What to Watch if Fed and ECB are Committed to Easing

There is little doubt after the Federal Reserve Chairman Powell’s testimony last week and the FOMC minutes that a rate cut will be delivered at the end of the month. Similarly, after comments by several ECB officials and the record of their recent meetin.g confirms it too is prepared to adjust policy. The timing of the ECB’s move is more debatable, an adjustment at the July 25 meeting appears to have increased.

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FX Daily, July 12: Greenback Limps into the Weekend

Overview:  Higher than expected US CPI and the second tepid reception to a US bond auction this week pushed US yields higher and helped stall the equity momentum. Asia Pacific yields, especially in Australia and New Zealand jumped 8-10 bp in response, and Spanish and Portuguese bonds bore the burden in Europe. 

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FX Daily, July 10: North American Focus: Poloz and Powell

Overview: The US Treasury market is retreating for the fourth consecutive session ahead of Fed Chairman Powell’s testimony before Congress. It is the longest losing streak in six months, and the 10-year yield has risen 15 bp over the run. This is helping drag up global yields, and today Asia Pacific yields mostly rose 2-3 basis points while core European bond yields are 5-7 bp higher and peripheral yields up a little less.

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FX Daily, July 9: No Turn Around Tuesday, as Equities Extend Losses and the Greenback Remains Firm

Overview:  Global equity benchmarks are headed for their third consecutive loss today as caution prevails at the start of Q3 after a strong first half.  Ten-year benchmark yields are edging higher after a soft start in Asia.  Italian bonds continue to outperform.  Greek bonds have been set back as the new government reiterated its commitment to ease fiscal commitments as if Tsipras did not try, and got a similar rebuff.

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FX Daily, July 8: Macro Monday

Overview: The capital markets have begun the week in a mixed note. Asia Pacific equities tumbled, led by 2%+ losses in China and South Korea, but European shares are edging higher, and a positive close would be the seventh in the past eight sessions. The S&P is little changed. Asia Pacific bond yields moved higher, as anticipated after the jump in US yields after the jobs data.

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FX Weekly Preview: In Bizzaro Beauty Contest, the US is Still the Least Ugly

Our hypothesis that the market had reached peak dovishness toward the Fed remains intact after the employment data.  Job growth was the strongest since January.  The participation rate and the unemployment rate ticked up. Average hourly earnings edged 0.2%  higher, and, with revisions, maintained a 3.1% year-over-year pace, which is a bit disappointing.  

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FX Daily, July 05: Dollar is Bid Ahead of Jobs Report

Overview: The dovish response to news that Lagarde was nominated to replace Draghi was extended by the dismal German factory order report that has pushed the euro to new two-week lows and kept bond yields near record lows. The focus ahead of the weekend is squarely on the US employment data, where a second consecutive poor report will fan expectations for a large Fed cut to initiate an easing cycle.

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FX Daily, July 03: Yields Extend Decline

Overview: Interest rates are lurching lower.  The US 10-year yield is at new two-year lows, but the driver is European bonds where peripheral yields are 6-7 bp lower,  though Italy’s benchmark is off 12 bp, while core yields are down 2-3 bp to new record lows.  The German benchmark is almost minus 40 bp, while the Swiss 10-year is beyond minus 100 bp.  Italy’s two-year is breaking more convincingly below zero.

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FX Daily, July 2: Post-G20 Euphoria Fades, Stuck with Same Reality

Overview: The euphoria that greeted the resumption of US-China and US-North Korea talks has subsided. Global equities have turned mixed after yesterday’s surge. Hong Kong played catch-up, and despite ongoing demonstrations, the Hang Seng rallied over one percent, and the Hong Kong Dollar strengthened beyond its band midpoint for the first time in nine months.

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FX Daily, July 01: Trade Optimism Meet Reality of Disappointing PMI

Overview: A new tariff truce between the US and China, coupled with the North Korean diplomacy and Russia-Saudi tentative agreement boosted investor confidence and sharp equity rallies. Japanese and Chinese equities rallied 2-3%. Most markets rallied in Asia-Pacific except for South Korea’s Kospi and Hong Kong markets were closed as the handover was commemorated.

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FX Daily, June 28: The World may Look Different Come Monday

Overview: Quarter-end positioning seems to dominate today’s activity. The outcome of bilateral talks at the G20 gathering partly reflects the influence of the US President who eschews multilateral efforts as a hindrance to its sovereignty.  Equities in Asia Pacific slipped today but held on to modest gains for the week.

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FX Daily, June 27: Ready. Set. Wait.

Overview: The approaching month/quarter-end and the G20 meeting dominate considerations. Although the S&P 500 closed on its lows for the third consecutive session yesterday, Asia Pacific equities liked the apparent increase in the prospect of a tariff freeze between the US and China and the pullback in the Japanese yen.

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Cool Video: Sketch of Bullish Case for Gold

I know some people who are always bullish gold. I am not. In fact, I often think I can find higher returning assets. However, I have recently have turned bullish gold, and while in Toronto on business, I was invited to the set of Bloomberg to discuss my change of heart.

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FX Daily, June 25: Heightened Political Risks Weigh on Sentiment

Overview: It is far from clear that the US sanctions against nine Iranian officials, with the foreign minister to be added later brings negotiations any closer. At the same time, US officials trying to keep expectations low for the weekend meeting between Trump and Xi. The heightened political anxiety will have to make room for Fed Chairman Powell’s talk in NY.

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FX Daily, June 24: Slow Start to Important Week

The Trump-Xi meeting at the G20 this coming weekend and heightened tensions in the Gulf, with the US set to impose new sanctions on Iran’s crippled economy are keeping investors on edge. News the opposition won the re-do of the Istanbul mayoral election has lifted the Turkish lira.

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FX Weekly Preview: Cutting to the Quick

Central banks are prepared to take fresh measures to strengthen and extend the business cycle primarily because price pressures are below what their predecessors thought would be acceptable levels. Draghi, speaking for the ECB, the Federal Reserve, and the Bank of Japan ratcheted up their concerns, which, even without new initiatives, were sufficient to drive interest rates lower.

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FX Daily, June 21: Markets Pause Ahead of the Weekend

The global capital markets are trading quietly ahead of the weekend. Equity markets are mostly narrowly mixed. Chinese shares extended their run, and the major benchmarks were up 4%+ on the week. Japan, Australia, South Korea, and India saw gains pared.

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FX Daily, June 20: Doves Rules the Roost Except in Oslo

Overview:  The prospect of “lower for longer” continues to fuel the bond and stock rally.  The initial US equity response to the Fed was positive but not strong and closed about 0.3% higher.  Asia Pacific equities followed suit with mostly modest gains, except for China and Hong Kong, where gains of more than 1% were recorded.

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FX Daily, June 19: Still Patient?

Overview:  Risk-taking was bolstered by the dramatic shift in Draghi’s rhetoric less than two weeks after the ECB meeting and a Trump’s tweet announcing that there was going to be an  “extended” meeting between him and Xi at the G20 meeting and that the respective staff would begin coordinating. It was later confirmed by the Chinese media.

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FX Daily, June 17: Quiet Start to Big Week

Overview: The global capital markets are off to a subdued start to what promises to be a busy week, featuring the FOMC, BOE, BOJ meetings, and the flash June PMIs. Investors also expect some signal whether Presidents Trump and Xi will at the G20 meeting later this month. Asian equities were narrowly mixed.

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FX Daily, June 14: Waning Risk Appetite Going into the Weekend

Overview:  Worries about an escalation in the Gulf following US accusations that Iran was behind yesterday’s two attacks and weaker growth impulses, while trade tensions remain high, are dampening risk appetites ahead of the weekend.  Equities are lower.  Nearly all the stock markets in the Asia Pacific region fell today with Japan and Australia being the notable exceptions.

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FX Daily, June 13: Financial Statecraft or Whack-a-Mole

Overview: After roiling the markets by threatening escalating tariffs on Mexico, US President Trump has threatened China that if Xi does not meet him and return to the positions that the US claims it had previously, he will through on imposing tariffs to the remaining goods the US buys from China that have not already been penalized. 

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Great Graphic: Euro’s (OECD) PPP

US President Trump recently bemoaned the fact that the euro is undervalued. While his critics complain that he is prone to exaggeration, in this case, the euro is undervalued. This Great Graphic a 30-year chart of the euro has moved around its purchasing power parity as measured by the OECD. Currently, the euro is about 22% undervalued, and it has been cheap to PPP since for the past five years.

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FX Daily, June 12: Anxiety Ticks Up, Risks Pared

Overview: The S&P 500 snapped a five-day advance yesterday and set the heavier tone for equities today.  Continued protests in Hong Kong were not shrugged off as they have been in the last couple of sessions.  The Hang Seng’s nearly 1.9% decline was the largest in a month and led the region lower. 

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FX Weekly Preview: US Policy Mix Flips and Will Take the Dollar with It

There is a new game, afoot. For the last couple of years, it has been about normalizing policy. Even the Bank of Japan, which has never declared it was tapering, has gradually reduced the amount of government bonds it purchases. Countries like the US, or Canada in 2017, who could raise interest rates were rewarded with stronger currencies.

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FX Daily, June 7: Jobs Data and Tariffs Dominate

Overview:  Global equities continue to recover from the recent slide.  Chinese and Hong Kong markets were on holiday today, but the MSCI Asia Pacific Index eked out a minor gain and ensured that its four-week slide ended.  Europe’s Dow Jones Stoxx 600 is up about 0.7% through the European morning. 

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FX Daily, June 6: US Tariff Threats on Mexico Compete with ECB for Attention

Overview: The implications of President Trump’s assessment that there has not been “nearly enough” progress in negotiations with Mexico that would avert the tariff on June 10 competing for investors’ attention, which had been squarely today’s ECB meeting. Minutes before Trump spoke Fitch cut its sovereign rating for Mexico to BBB from BBB+, while Moody’s cut its outlook to negative from stable.

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FX Daily, June 05: Dollar Remains on Back Foot

Overview: The Federal Reserve’s patience never excluded a rate cut should conditions warrant. The acknowledgment of this without signaling a change its stance is being seized upon to justify aggressive pricing of rates. At the same time, there has some tempering of trade anxiety on the margin that is also constructive. Asia and European equities were pulled higher after the strongest rally in several months in the US. 

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FX Daily, June 04: Nervous Calm Settles Over Markets

The global capital markets are stabilizing today after taking a body blow of broadening the use of US tariffs (in migration dispute with Mexico), threatening the ratification of NAFTA 2.0, and still escalating hostile rhetoric between the US and China, and the threat of anti-trust action against the largest digital platforms.

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FX Daily, June 03: US Penchant for Tariffs Keeps Investors on Edge

Overview:  The weekend failed to break the grip of investor worries that is driving stocks and yields lower.  The US Administration’s penchant for tariffs is not simply aimed at China, where there is some sympathy, but the move against Mexico, dropping special privileges for India, and apparently, had considered tariffs on Australia.  At the same time, the threat of 25% tariff on auto imports.

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FX Weekly Preview: Curiouser and Curiouser

The first week of June features the Reserve Bank of Australia meeting, an ECB meeting, and the US employment data.  The RBA is expected to deliver its first rate cut in three years.  The market appears to have discounted not only a second cut in H2 but has priced nearly half of a third cut as well.

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FX Daily, May 31: US Struggles to Build Physical Wall, Tries Tariff Wall on Mexico

Overview: The US announcement to lay a 5% tariff on all goods coming from Mexico (starting June 10) until it stops the flow of “illegal migrants” spurred sharp losses in the Mexican peso and general risk-off move that strengthened the yen. The tariffs are set to rise every month until reaching 25%. This is a significant surprise and especially given that the Trump Administration is preparing to formally submit the USMCA to Congress.

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Canada, Mexico, and the USMCA

The US dollar closed today above CAD1.3500 for the first time since January 2.  Despite the setback, the Canadian dollar is the strongest of the major currencies year-to-date with a little less than a one percent gain.  The yen, in second, has is up about 0.2% (~JPY109.50).  Among emerging market currencies,  the Mexican peso’s 2.6% gain puts it in in second place behind the Russian rouble’s 7.2% appreciation.

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FX Daily, May 30: Kill Bull: Intermission

Overview:  After significant moves in equities and interest rates, investors are taking a collective breath, waiting for fresh developments.  A nervous calm has settled over the capital market.  China, Japan, and Australian equities leaked lower, but other bourses in the region, including Korea and Taiwan posted modest gains, while Indonesian equities are still responding positively to the recent election.

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FX Daily, May 29: Equity Slump Deepens while Yields Plunge

Overview:  The slump in equities continues after the poor showing in the US yesterday.  Nearly all bourses in Asia Pacific and Europe are lower.  Indonesia is the notable exception as domestic operators re-position after the election.  Foreign investors have been notable sellers of Korean and Taiwanese shares this month (in excess of $6.2 bln). Europe’s Dow Jones Stoxx 600 is testing its lowest levels since March, and the S&P 500 is poised to gap lower through the 2800-level that has offered support in recent weeks.

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FX Daily, May 28: Risk Appetites Curbed, US Leadership Awaited in FX

Overview:  The euro initially reacted positively to the EU Parliament elections.  The populists did not do quite as well as many expected.  The two main groupings failed to secure a majority, but with the help of the Liberals, and possibly the Greens, that did well throughout Europe, a new European Commission will be forged.  The heads of state meet later today, but no real decisions are likely.  The horse trading will likely take most of the next few months. 

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FX Weekly Preview: The Evolution of Three Issues are Key in the Week Ahead

As May winds down, the light economic calendar will allow investors to take their cues from the evolution of three disruptive forces–trade, Brexit and the US economy. With actions against Huawei and possibly a handful of Chinese surveillance equipment producers, the US raised the stakes. The retaliatory tariffs are effective on June 1, but Beijing has not formally responded to the moves against Chinese companies.

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FX Daily, May 23: Trade, Brexit, and Disappointing Flash PMIs Weigh on Global Markets

Overview:  The deterioration of the investment climate is spurring the sales of stocks and the buying of bonds. The dollar is firm.  China and the US appear to be digging as if the trade tensions will remain for some time and the breech is beginning to look too big for Trump and Xi to pull another rabbit out of the hat like they did at the end of last year when the tariff truce was struck.   The move against Huawei and possible a number of companies involved in surveillance equipment represents a new front.  India and Indonesia were notable exceptions to the sell-off in Asian Pacific shares, which saw the Shanghai Composite fell almost 1.4%.  Modi looks to have secured a majority.  European bourses are lower with the Dow Jones Stoxx 600 off almost 1% following the disappointing

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FX Daily, May 22: Sterling Can’t Get Out of Its Own Way

Overview:   There is a nervous calm in the capital markets.  Yesterday’s rally in US shares failed to excite global investors.  China, Hong Kong, and Taiwan markets fell, while Japan was mixed. Foreign investors continued to sell Korean shares, but the Kospi rose.  European shares narrowly mixed, leaving the Dow Jones Stoxx 600 little changed.

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Rare Earths may Provide Leverage

Many American observers argue that the trade imbalance gives the US an advantage in a trade war with China. The US enjoys escalation dominance in tariffs because Chinese imports of US goods are so much less than the US imports of Chinese goods.  However, the focus on quantities may be misleading.

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FX Daily, May 21: Equities Find Some Traction while the Dollar Firms

Overview:  Equities are paring some of their recent losses.  The MSCI Asia Pacific Index is posting its first back-to-back gain in a month, led by a more than 1% rally in China.  Heightened prospects for an Australian rate cut in a few weeks helped extend the run in the local equity market to a new record high.  European bourses are higher, with the Dow Jones Stoxx 600 rising around 0.3% in the morning session.

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Cool Video: End of Tariff Truce Spurs Over Correction

The S&P 500 recorded a key reversal on May 1, and the end of the tariff truce ensured follow-through selling.  With today’s early losses, it is off nearly 3.5% this month.   In my brief chat with Stuart Varney at Fox Business, I suggest that the stretched technical condition left the market vulnerable to a “buy in May and go away”  scenario. 

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FX Daily, May 17: China Questions US Sincerity

Since the presidential tweets on May 3, the US had the initiative in the negotiations with China, but today, China has pushed back. It is cool to the idea promoted by the US that trade talks will resume shortly. Now it may take the Trump-Xi meeting at the end of next month to restart talks. This, coupled with US sanctions on Huawei banning imports from it and sales to it, threatens to disrupt business and this took a toll on Chinese, Taiwanese and Korean shares. 

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FX Daily, May 16: US Struggles to Strike a Less Strident Tone

Overview: Retail sales and industrial production disappointed in both the US and China prior to the end of the tariff truce, declared by the US in a series of presidential tweets on May 5.  The reaction function of the US to the drop in equities was to play down tensions on three fronts.  First, a US team is expected to return to Beijing in the coming weeks. 

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FX Daily, May 15: Angst Continues

Overview: Disappointing Chinese April data spurred speculation that more stimulus will be forthcoming and bolsters hopes that a trade deal with the US by the end of next month helped Asian Pacific equities advance for the first time this week.  Indonesia, which reported a record trade deficit on the back of collapsing exports (-13.1% year-over-year in April, nearly twice the decline expected after a 10% fall in March) kept the pressure on its equity market.

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Why China Finds it Difficult to Weaponize the Yuan and US Treasuries

It looks so easy on paper. China can sell its holding of US Treasuries and/or weaken the yuan to offset the tariffs and boost exports. It is the first and easy answers from strategists, journalists, and some academics. Often times, it is presented a novel idea; as if diplomats, investors, and policymakers have not thought it.

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FX Daily, May 13: Investors Still Looking for New Balance

The end of the tariff truce between the US and China has discombobulated investors. They had been repeatedly that a deal was close and there had even been talk at the US Treasury about where Trump and Xi should meet to sign the agreement. Now China was given around a month to capitulate to US demands or face a 25% tariff on their remaining exports to the US.

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FX Weekly Preview: Trade, the Dollar, and the Week Ahead

China is isolated on trade. No one supports its trade practices. The idea that China was going to “naturally” evolve to be more like the US, or Europe for that matter, was always fanciful and naive. The emergence of China, as Napoleon warned two centuries ago, would make the world shake.

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FX Daily, May 10: Waiting for the Other Shoe to Drop

Overview:  Contrary to hopes and expectations, the US made good on the presidential tweet and raised the tariff on around $200 bln of Chinese goods from 10% to 25%.  Trump indicated that the process that will levy a 25% tariff on the remaining Chinese imports has begun. Also contrary to expectations, Chinese officials did not detail their response, though it is expected to be forthcoming.

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FX Daily, May 09: De-Risking as US-China Trade Talks Resume

The end of the tariff truce between the US and China continues to dominate investment considerations. The truce was often cited in narratives explaining the recovery of equities from the Q4 18 slide. Ahead of the midnight US tariff hike, global equities are being smashed. Korea’s Kospi was off 3%, and Hong Kong’s Hang Seng was shed 2.4%. Shanghai lost 1.5%.

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FX Daily, May 08: Markets Trying to Stabilize

Overview:  It is taking investors a bit more than two sessions to find its footing after being the unexpected end of the tariff truce between the US and China struck last December. Asia Pacific equities tumbled after the S&P 500 shed nearly 1.7% yesterday, the third largest decline in 2019, but Europe’s Dow Jones Stoxx 600 is consolidating near yesterday’s lows.

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FX Daily, May 07: Markets Steady as China Pushes Forward

Overview: News that the US tariff escalation did not scupper trade talks with China has helped the global capital markets stabilize today.  China’s Vice Premier Liu He is still leading a delegation to the US.  Most Asian equities recouped part of yesterday’s losses, including China, Hong Kong, Taiwan, Australia, and Singapore.  Japanese and Korean markets were closed on Monday and bore some selling pressure today.

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FX Daily, May 06: Trump’s Tariff Tweets Help Investors Discover Volatility

Reports that a US-China deal could be struck by May 10 before the weekend left investors ill-prepared for the presidential tweets yesterday that announced that the US was ending the tariff truce. Trump indicated that the 10% tariff on $200 bln of Chinese goods would be lifted to 25% at the end of the week and that the remaining $325 bln of Chinese goods that have not been subject to an extra levy, will be slapped with a 25% tariff soon.

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FX Daily, May 03: Ahead of US Jobs Report, the Greenback Remains Firm

Overview: The US April jobs data stand before the weekend, and the greenback is holding on to most of yesterday’s gains as participants wait for the report. Equities in the Asia Pacific region were mixed without leadership from China and Japan, where the markets remain closed for the extended holiday. On the week, Australia’s ASX was the worst performing.

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FX Daily, May 02: Dollar Consolidates Fed-Inspired Recovery

Overview:  The US dollar is consolidating yesterday’s post-Fed rally, and this is giving it a slightly heavier tone today.   Equities are mostly lower and Europe’s Dow Jones Stoxx 600 is off about 0.5% in late morning turnover, which if sustained would be the largest decline in three weeks.  The S&P 500 posted a potential key reversal yesterday by setting new record highs and then closing below the previous session’s low.

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FX Daily, April 30: Dollar Pares more Gains as EMU GDP Surprise

Overview: The S&P 500 set a new record high and close yesterday, but the lift to global markets was not strong enough to overcome the disappointing Chinese PMI.  Although Chinese equities traded higher on ideas that the news will spur additional stimulative measures, other Asian markets were mixed. 

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Cool Video: Q1 US GDP Optics may Mark Near-Term Peak in Divergence Theme

I joined Tom Keene and Francine Lacqua to talk about US GDP with David Riley from BlueBay Asset Management. Here is a link to a 2.5-minute clip. The initial estimate of Q1 US growth was well more than nearly anyone expected. The details were underwhelming as the consumption was halved and the GDP deflator was halved. Final private domestic sales, which strips away inventories, trade, and government spending rose 1.3%, the least more than five years.

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FX Daily, April 29: The Busy Week Begins Slowly

Overview: It promises to be an eventful week with the FOMC and BOE meeting, US jobs report and EMU April CPI and Q1 GDP on tap.  However, the week is marked by the May Day holiday in the middle of the week.  Japan’s markets are closed all week, while China’s markets are closed from mid-week on for an extended holiday.  The week has begun on a decidedly consolidative tone. 

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FX Daily, April 26: Greenback Consolidates Ahead of Q1 GDP

Overview:  The equities are finishing softly after the rally stalled in the middle of the week.  The large markets in Asia fell, led by China, and the MSCI Asia Pacific Index fell for a third session, the longest losing streak in two months.  Europe’s Dow Jones Stoxx 600 ended an eight-day advance with a two-day loss coming into today where it is a little softer. 

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FX Daily, April 25: Equities Waiver, the Dollar Does Not

Overview:  After closing at record highs on Tuesday, the S&P 500 slipped yesterday, and the Dow Jones Stoxx 600 snapped an eight-session advance.  Asia followed suit, with the Shanghai Composite posting its biggest loss (~2.4%) in over a month.  It is off about 4.6% this week, which if sustained tomorrow, would be the largest loss in six months.

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FX Daily, April 23: Oil Extends Gains While Markets Await Fresh Incentives

Overview: Financial centers that have been closed for the extended holiday have re-opened, but the news stream is light and market participants are digesting developments and positioning for this week’s central bank meetings and the first look at Q1 US GDP. The US decision to end exemptions to the embargo against Iran led to a surge in oil prices, which are extending gains to new six-highs today.

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Cool Video: Discussion of the Deflationary Risks in Japan and Brexit

I joined CNBC Asia’s Amanda Drury and Sri Jegarajah via Skype earlier today as the new week was beginning in Asia. In this three minute clip, we discuss the outlook for the BOJ and sterling. Most of the rise in Japan’s inflation is due to food and energy prices. Despite an aggressive balance-sheet expansion effort, the BOJ has missed its target by a long shot.

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FX Daily, April 22: Surge in Oil Punctures Holiday Markets

Overview: With many centers closed for the extended holiday, the calm in the global capital markets has been punctuated by reports that the US is considering ending its exemption for eight countries to have bought Iranian oil over the past six months.  The waivers were to end on May 2, but previously it was thought that a couple of waivers, like for China and India, would be extended.

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FX Weekly Preview: Six Events to Watch

The divergence thesis that drives our constructive outlook for the dollar received more support last week than we expected. A few hours after investors learned that Japan’s flash PMI remained below the 50 boom/bust level, Europe reported disappointing PMI data as well. And a few hours after that the US reported that retail sales surged in March by the most in a year and a half (1.6%).

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FX Daily, April 19: Holiday Note

Many financial centers are closed today. These include Australia, India, most European markets, and the US. In Asia, equity markets that were open moved higher. The Nikkei, which gapped higher on Monday, rose 0.5% today for a 1.5% gain on the week. China’s Shanghai Composite rose 0.6%, lifting the weekly increase to 2.6%.

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FX Daily, April 18: EMU Disappointment Lifts the Dollar

Overview: A bout of profit-taking in equities began in the US yesterday and has carried through Asia and Europe today. The MSCI Asia Pacific Index fell for the first time in five days, while the Dow Jones Stoxx 600 is snapping a six-day advance.  The Nikkei gapped higher to start the week and a gap low tomorrow would undermine the technical outlook.

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Cool Video: Trump Ahead in 2020?

Marc Chandler

First, I tried playing down the significance of Goldman’s call. The markets have anticipated this. redictIt.Org has shown the President to be an easy favorite since the start of the year. Charles Payne, the host, dismissed these results because he said they reflect professional gambler. I don’t know if that is true or even relevant (ad hominem?).

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FX Daily, April 16: The Dollar and Stocks Catch a Bid

Amid light news, global equities are moving higher In Asia, the Nikkei rose to a new high since early December, while the Shanghai Composite rose 2.3% and posted its highest close since March 2018. European equities are solid, with the Dow Jones Stoxx 600 moving higher for the fifth consecutive session.

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FX Daily, April 15: Redemption Monday

The holiday-shortened week is off to a slow, tentative start. The surge of the S&P 500 before the weekend failed to inspire today. Asia markets were mostly firmer, led by Japan, while China, Hong Kong, and Singapore moved lower.

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FX Weekly Preview: Dollar Super Cycle Revisited

In the big picture, we argue that the dollar’s appreciation is part of the third significant dollar rally since the end of Bretton Woods. The first was the Reagan-Volcker dollar rally, spurred by a policy mix of tight monetary and loose fiscal policies.

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FX Daily, April 12: Euro Bid Above $1.13 for the First Time this Month

Overview:  The consolidative week in the capital markets is drawing to a close.  Equity markets are narrowly mixed.  In Asia, most indices outside of the greater China (China, Taiwan, and Hong Kong) edged higher, leaving the MSCI Asia Pacific Index slightly lower on the week.  The MSCI Emerging Markets Index snapped a ten-day rally yesterday and is little changed so far today. 

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FX Daily, April 11: Market Yawns at Latest Brexit Extension

The S&P 500 closed higher yesterday for the ninth session in the past ten, but the coattails are short and global equities are trading with a heavier bias today. A firm CPI reading in China took a toll local shares with the Shanghai Composite, shedding 1.6%, the most in more than two weeks. European bourses are mostly in the red.

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FX Daily, April 10: Be Careful What You Wish For

There were only a few formal disputes under NAFTA 1.0. It says more about the adjudication process than the underlying issues. It was not binding. The Democrats want stronger enforcement provisions in what the NAFTA 2.0. It is understandable. Still, without opening up the agreement, which had been already agreed to by three heads of state, it is difficult to see how this will happen.

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FX Daily, April 09: Is the USMCA Dead?

The heads of state may have agreed on the modernization of NAFTA, but the necessary legislative approval may not be forthcoming this year. The US legislative process has been complicated by the fact that the Democrats secured a majority in the House of Representatives last year.

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FX Daily, April 8: Brexit, the EU-China, and the Abandonment of the Open Door

(I am in Mexico at the World Trade Center General Assembly, participating on a panel about USMCA–NAFTA2.0–for which approval remains elusive.  It is possible that the US threatens to pull out of NAFTA 1.0 to force action by the US Congress.  Mexico is due to pass legislation this week that may meet demands by the some in the US and Canada for stronger labor protections.

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FX Weekly Preview: Important Steps Away from the Abyss

It seems to be well appreciated among by policymakers and investors that the system is ill-prepared to cope with another financial crisis. It is understandable that so many are concerned that the end of the business cycle could trigger a financial crisis. In practice, it seems like it has worked the other way around. The financial crisis triggered the Great Recession.

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FX Daily, April 03: Optimism Sweeps Through the Capital Markets

Overview: Japan announced the name of the new era that begins May 1 and a new emperor.  The connotation is of beautiful harmony.  And investors have taken the bit and run with it.  Optimism that the US and China near reaching an agreement on trade. China and Europe have reported better than expected PMIs today. 

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FX Daily, April 02: Herding Cats

After surging yesterday, equities are struggling to maintain the momentum that carried that S&P 500 to its best level since last October. Most Asia Pacific equity markets advanced. Japan’s small losses were a notable exception. The Dow Jones Stoxx 600 has advanced in four of the last five sessions and is little changed, while US shares are trading with a heavier bias.

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April Monthly Currency Outlook

Poor economic data and soft inflation saw several central banks, including the Federal Reserve and European Central Bank, take a dovish turn in March. Contrary to expectations that interest rates would rise as the G3 central banks were no longer adding to their balance sheets on a combined basis.

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FX Weekly Preview: The Green Shoots of Spring

Investors have worked themselves into a lather. Equities crashed in Q4 last year amid on corporate earnings and concerns about growth. The Fed’s tightening decision in December was made unanimously. The above-trend growth, the preferred inflation measure was near target, unemployment was the lowest in a generation and real rates were historically low.

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FX Daily, March 28: Brexit Uncertainty Deepens as Parliament is Divided, while Turkey’s Short Squeeze Falters

The lurch lower in global interest rates continue. The US 10-year yield is at new 15-month lows, five basis points through the average effective Fed funds rate. Late yesterday, it appeared that 10-year German Bund yields slipped below similar Japanese government bond yields for the first time since Q4 16, but when the JGB market opened, it the 10-year JGB yield fell a couple more basis points to minus 10, the most negative since August 2016.

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FX Daily, March 27: Global Bond Rally Continues, Greenback Remains Firm

Overview: The US 10-year yield is trading below the Fed funds target. The two-year yield is trading below the lower end of the Fed funds target range. A warning by New Zealand that the next rate move could be a cut sent New Zealand and Australian yields to new record lows. In Japan, the 10-year yield slipped below the overnight unsecured call rate.

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Cool Video: Bloomberg–Sterling and the Euro

I joined Shey Ann and Amanda Lang on the Bloomberg set to talk about sterling and the euro. The media makes it sound like there was a coup in the UK and Parliament has taken control of Brexit. This is an exaggeration. The House of Commons did secure tomorrow to have “indicative votes” on the different alternatives. These votes are not binding on the Prime Minister who as already indicated some alternatives that she will not accept.

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FX Daily, March 26: Semblance of Stability Re-Emerging

Overview:  The sell-off in equities seemed to peak yesterday, and US indices were narrowly mixed. Traders found comfort in that performance, even though the S&P 500 finished a little below 2800, and took the markets in the Asia-Pacific region higher, except in China, where the Shanghai Composite fell 1.5%. 

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Europe and China

The US-China trade talks look like they may very well continue through most of the second quarter, despite how much progress is being claimed.  Meanwhile, the tariffs remain in effect, but the market’s sensitivity to developments has slackened since it was clear the Trump and Xi were not going to meet at the end of this month.

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FX Daily, March 25: Monday Blues: Equities Pare Quarterly Gains

Overview:  Global equities have soured after the US shares dropped the most since very early in the year before the weekend.  Asia’s sell-off was led by the 3% decline in Nikkei, while Malaysia fared among the best, surrendering 1%.  Europe’s Dow Jones Stoxx 600 is off for a fourth session. It lost 1.2% at the end of last week and gapped lower today but stabilizing after the better than expected German IFO survey.

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FX Weekly Preview: The Week Ahead

The combination of the dovish hold by the Federal Reserve and the eurozone’s miserable flash Purchasing Managers Index casts a pall over the economic outlook.  Japan’s flash PMI remained stuck at February’s 48.9, while core inflation unexpectedly eased.  Three months after the European Central Bank stopped buying bonds, the German 10-year Bund yield fell below zero for the first time since 2016.

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FOMC: Above Trend Growth Requires Continued Monetary Support

The Federal Reserve sounded more dovish than many expected and this prompted a 5-7 bp drop in US rates, and the dollar fell to new lows for the week against many of the major currencies.  The median Fed forecast now anticipates no hike this year but one next year.  The Fed will also taper the roll-off of its balance sheet and completing it by the end of September.

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FX Daily, March 22: Dreadful EMU PMI and US Machinations Rival Brexit for Attention

Overview:  The S&P 500 recovered from the post-FOMC reversal to close a new 5-month high yesterday, led by technology.  Financials were the only main sector to retreat.  The large equity markets in Asia, Japan, China, Australia, South Korea, and Taiwan all advanced.  Europe’s Dow Jones Stoxx 600 reversed its initial gains and is nursing a small loss on the week.

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FX Daily, March 20: Brexit Drama Continues but Fed Moves to Center Stage

Overview: US stocks were not able to hold onto early gains yesterday, and this has helped set the stage for today’s heavier bias. Asia Pacific markets were narrowly mixed, with Japan and Korea eking out small gains while China and Taiwan slipped a little. Europe’s Dow Jones Stoxx 600 is threatening to snap a five-day advance as materials, healthcare, and energy leads the profit-taking while communication and real estate are proving a bit more resilient.

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FX Daily, March 19: Third Vote on Withdrawal Bill Scuppered Until after EU Summit

Overview:  The capital markets remain subdued.  Many Asian equity markets eased after a strong two-day advance.  European equities are slightly firmer.  The S&P 500 closed at new five-month highs yesterday.  Benchmark 10-year yields are mostly a little softer.  Australian 10-year bond yield fell five basis points, and the discount to the US widened to a new high since the early 1980s. 

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FX Weekly Preview: Three Highlights in the Week Ahead

Three events next week will shape the investment climate. The Federal Reserve meets and will update its forecasts and guidance. The British House of Commons may vote for a third time on the Withdrawal Bill before Prime Minister May heads of the EU Summit to ask for an extension of the UK leaving the EU. The eurozone sees the flash March PMI, with great hope that the green shoots of spring will be evident.

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There at the Beginning

Sometimes it is difficult to gain perspective. That is why it may be difficult to see the forest for the trees. It is as we spend most of our time climbing a mountain: One handhold and foothold at a time. Immediacy and urgency limit our peripheral and forward visions.

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FX Daily, March 15: Euro and Yen Volatility Slips to New Five-Year Lows on the Ides of March

Overview: The capital markets are calm ahead of the weekend.  Outside of Australia and Thailand, Asia Pacific equities advanced, while European shares are mostly little changed. The regional benchmarks, like the S&P 500 have recouped last week’s losses.  Benchmark 10-year yields are little changed on the day, leaving the US 10-year yield virtually unchanged on the week near 2.62%.

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FX Daily, March 14: Another UK Vote, but No Closure

Overview:  The Brexit drama continues to play out, and the Withdrawal Bill that has been twice defeated is ironically not dead yet. Today’s vote, in fact, is predicated on another “meaningful vote” before seeking an extension.  Sterling remains firm near yesterday’s highs, which were the best levels since last June.

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FX Daily, March 13: Still Waiting for Brexit Climax

The Brexit drama continues to command attention. A vote on leaving without an agreement will be held today, and if that fails, there will be a vote tomorrow on an extension. Meanwhile, the first increase in headline US CPI in four months failed to impress as the year-over-year pace fell to 18-month lows.

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FX Daily, March 12: Wave of Optimism Sweeps through the Capital Markets

Last minutes statements meant to clarify what many MPs find to be the most odious part of the Withdrawal Bill, the backstop for the Irish border is goosed global equity markets even though it does not seem as if the Withdrawal Bill has changed one iota. And after the big rally in US shares yesterday, there might have been follow-through buying in any case today. Asian markets did not disappoint.

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FX Daily, March 11: Greenback Starts New Week Decidedly Mixed, with Brexit Anxiety Weighing on Sterling

Overview:  Asian shares recovered from opening losses to finish mostly higher, with the Shanghai Composite up nearly 2% and India tacking on 1% after the election was called, starting April 11.  European markets, led by energy, communication, and materials sectors, is up about 0.5% through midday. The S&P 500, which closed lower every day last week is looking a little firmer. 

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FX Daily, March 07: EMU Looks to ECB

The ECB meeting is today’s highlight. A dovish signal is expected. The euro remains pinned near its lows ahead it. The global equity market rally in January and February is faltering this week. Asian equities were mixed, but the Nikkei eased for the third consecutive session.

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Thoughts about the ECB and Euro

draghi

Mario Draghi’s term at the helm of the ECB is winding down. He will step down in October. It has not been an easy job. The light at the end of the tunnel in 2017 turned out to be another train in 2018. The eurozone enjoyed 0.7% quarterly growth every quarter in 2017. The ECB was able to outline an exit from its asset purchases. The debate began over sequencing and when the first rate hike could be delivered.

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FX Daily, February 28: Trump Walks Away from North Korea. Should Beijing Worry?

Overview:  News that the US-North Korean summit ended abruptly without an agreement spurred losses in equities and gains in the Swiss franc and Japanese yen. US President Trump willingness to walk away from the talks is important in and of itself, but it also sends a warning not to go all in on a US-China trade agreement that could also sour at the last minute.

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CNBC Clip: February 24 Brexit

We tried a CNBC hook-up in Asia via Skype on February 25.  I did not think there would be a clip, but I stumbled on it looking for something else.  Click here for the roughly 2.5-minute interview done from my apartment in NYC.  The discussion is on Brexit and sterling. 

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FX Weekly Preview: The Week Ahead

After a dismal end of 2018, investors are faring better through the first two- thirds of the Q1 19. Equity markets have recouped a good part of the late-2018 decline. Bond yields, however, have not returned to where they previously were. The tightening of financial conditions, which was both cause and effect of heightened anxiety among investors, and spooked some central bank have eased considerably.

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FX Daily, February 22: Markets Ending Week with A Whimper

Overview:  The global capital markets are winding down what appears to be an inconclusive week quietly and on a mixed note.  The MSCI Asia Pacific Index is poised to snap a four-day advance but held on to a nearly 2% gain for the week.  European bourses are mostly higher, and although the weekly advance of around 0.5% may not be that impressive, Dow Jones Stoxx 600 has only fallen in one of the first eight weeks of the year for a 9.5% year-to-date gain.  Benchmark yields are mostly one-two basis points lower, with Australia and Italy the notable exceptions.  The US dollar is confined to its well-worn ranges and is narrowly mixed.  The Australian dollar has pared yesterday’s losses amid efforts by officials to play down the disruption of coal exports to China.  Sterling

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Cool Video: Fox Business–Stocks and the US Consumer

Marc Chandler Fox Business TV

I joined Varney and Company on Fox Business TV earlier today. Varney had liked by bullish call on stocks from the end of last year, but seemed dismayed that I have turned cautious. I suggested that the S&P are approaching a key area a little above 2800 that has capped in Q4 18.

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FX Daily, February 20: US-China Trade and Brexit Dominate Ahead of FOMC Minutes

Overview:  The US dollar is narrowly mixed against the major currencies, but the strongest currency today is the Chinese yuan, following reports that US wants China to keep the yuan stable and not offset US tariffs with currency depreciation.  The second monthly decline in Japanese exports weighted on the yen.  In the UK, another Labour MP left, while there is speculation that a few Conservatives may defect today. 

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FX Daily, February 19: Investors Need Fresh Incentives

Overview: Activity in the global capital markets is subdued as investors await fresh developments. New wording for the Irish backstop apparently is being drafted. US-China trade talks resume. No decision has been made on US auto tariffs, but European and Japanese officials seem to be playing down the threat. 

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FX Daily, February 18: Dollar Drifts Lower

Overview:  In quiet turnover, the US dollar slipped lower against most of the major currencies to start the new week.  The news stream is light and the US markets are closed today.  The MSCI Asia Pacific Index was up five of the past six weeks and extended its gains today.  Nearly all the equity markets in the region rose but India.

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FX Weekly Preview: Drivers, While Marking Time

The main issues for investors have not changed. There are three dominant ones: Trade, growth, and Brexit. Unfortunately, there won’t be any closure in the week ahead, and that may make short-term participants reluctant to turn more aggressive.

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FX Daily, February 15: Equities Stall While Greenback Remains Firm

Overview:  The S&P 500 snapped a four-day advance yesterday, and equities in the Asia Pacific followed suit.  All the markets in the region were lower but in Australia.  MSCI’s regional benchmark stalled after reached a four-month high in the middle of the week.  European markets were mostly higher in the morning session after slipping yesterday. 

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Socialism, Keynesianism, and Fascism

The American political discourse has changed since the 2018 midterm election. Enthusiasm and passion were to be found on the left-wing of the Democratic Party. A new sense of hope and mission replaced the defeatism and cynicism seen in 2016. Some identified with democratic socialism, but in the political rhetoric the broad brush of “socialism” has been used to paint the entire party

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FX Daily, February 13: QT is not the Opposite of QE

silence

The Federal Reserve has long been clear on the sequence of events as it innovated the playbook during the Great Financial Crisis. There would be a considerable period between when the Fed would finish its credit easing operations that involved purchasing Treasuries and mortgage-backed securities (MBS) and its first-rate hike.

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FX Daily, February 12: Dollar Buying Pressure Subsides

The Dollar Index’s eight-day advance is in jeopardy. Although the greenback recorded new highs against some major currencies, the momentum appears to be stalling. The news stream is constructive as a compromise seems to have been reached to avoid another US government shutdown, and there is some optimism that the US and China will strike a deal even if not by March 1.

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FX Weekly Preview: Little Resolution in the Week Ahead

According to legend, the person who unraveled the Gordian Knot would rule the world. No one succeeded until Alexandar the Great took his mighty sword and sliced the knot in half. A young boy saw him afterward, crying on the steps of the Temple of Apollo. “Why are you crying?” the boy asked, “you just conquered the world. “Yes'” Alexander wept, ” now there is nothing else for me to do.”

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Cool Video: Noise or Signal?

From the second half of last week through the first half of this week, the S&P 500 rallied.  It surpassed our target of 2700 and made it to almost 2740, retracing more nearly 2/3 of the decline from the record high set last September. It stalled ahead of the 200-day moving average, which had previously offered support declines. 

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FX Daily, February 07: Dollar’s Gains Extended

The five-day advance of the S&P 500 stalled yesterday and global equities are mixed today. Most Asian centers remain closed, Japan and some small markets were lower, while Taiwan, Australia, and India moved higher. The seven-day rally in Europe’s Dow Jones Stoxx 600 is under threat today.

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FX Daily, February 06: Dollar Gains by Default

Overview: The rally in equities is threatening to pause today, even though the few markets open in Asia edged higher.  Europe’s Dow Jones Stoxx 600, which has advanced in eight of the past ten sessions and six in a row, is seeing some profit-taking pressures.  US shares are also trading heavier in Europe.  The S&P 500 has a five-day rally in tow but looks poised for some backing and filling action. 

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FX Daily, February 05: Greenback Remains Firm

Overview: The US dollar is little firmer against most of the major currencies.  Despite some disappointing data (retail sales, trade, PMI), the Australian dollar has recovered from initial losses below $0.7200 on the back of the central bank’s reluctance to adopt an easing bias.  A small upward revision in the eurozone’s flash service and composite PMIs help steady the euro after it neared $1.14.

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FX Daily, February 04: Subdued Start to Quiet Week

Overview: The Lunar New Year celebration made for a quiet Asian session while a light diary in Europe saw subdued turnover. Equity markets are narrowly mixed. Among the three large markets open in Asia Pacific, Australia and Japanese equities rose while India slipped. European bourses are little changed, putting the Dow Jones Stoxx 600 four-day advance at risk.

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Short Note on Jobs Report

The January employment report was mixed.  It is unlikely to have a material impact on expectations for Fed policy.  However, it does suggest the downside risks may not materialize. The US economy grew 304k jobs, well above expectation.  It is marred by a 70k net downward revision of the past two months, and notably a 90k cut in December’s estimate, which brings it to 222k (from 312k). 

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Two Brinkmanship Games and a Possible Third

Some historians give Adlai Stevenson credit for inventing the word “brinkmanship” as part of his criticism of US foreign policy under Dulles, who said that “if you are scared of going to the brink, you lost.” But surely we can agree that the tactic is as old as civilization. The idea is you take the issue to the very edge, risking a significant confrontation, to force a deal, is the way it may seem.

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FX Daily, February 01: Did the Fed Steal the Jobs Data Thunder?

Overview:  Weak manufacturing PMI readings are curbing risk appetites ahead of the US jobs report.  Growth concerns are top and center after dovish Fed and the Bundesbank’s Weidmann warning that Germany may undershoot 1.5% growth this year, though the ink is barely dry on the central bank’s forecast for 1.6% growth this year and next.

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FX Daily, January 31: Did Powell Toss in the Towel or was it a Tactical Retreat?

Overview: The Fed’s dovish tone and earnings news are the main drivers of the capital markets today, helping lift stocks, bonds, and currencies.  Large equity markets in Asia, including Japan, Hong Kong, China’s CSI 300, India, and Indonesia, all rose more than 1%, putting the MSCI Asia Pacific Index in a good position to extend its rally for a fourth consecutive week. 

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FX Daily, January 30: She Can’t Accept No

Overview: The UK Prime Minister has two weeks to strike a new deal with the EC over the Irish backstop or return to Parliament in mid-February to consider alternatives, six weeks before Brexit. Sterling has recovered about half of yesterday’s drop. The Australian dollar jump back to $0.7200 was aided by the nearly 10% jump in iron ore price after Vale announced a sharp reduction in output.

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FX Daily, January 29: Fragile Tone Persists

The positive impulse in the capital markets seen last week has faded. The gap higher opening ahead of the weekend by the S&P 500 was follow by a gap lower opening yesterday. The US threatened crackdown on Huawei disrupted equities in that sector, with as many as two dozen companies on the Shenzhen exchange that were limit down (10%).

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Cool Video: Bloomberg Clip US Growth in Relative Terms

Marc Chandler

With a jam-packed week for investors, and several high profile earnings reports, first look at Q4 GDP, the resumption of US-China trade talks, the FOMC meeting, and US jobs, it was a good time to be invited on the set of Bloomberg TV, with David Westin and Lisa Abramowicz. The clip here is with Matt Winkler, Editor-in-Chief Emeritus.

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FX Daily, January 28: Getting Ducks Lined Up for Later in the Week

Overview: The global capital markets are consolidating ahead of this week’s big events, which include the FOMC meeting, US jobs, an important Brexit vote in the UK parliament and the first look at Q4 EMU and US GDP. The US dollar is narrowly mixed. Equities are mostly lower. European benchmark 10-year yields have edged up, though the US 10-year yield is struggling to hold above 2.75%.

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FX Weekly Preview: Divergence Reinvigorated

Last week the focus was on Europe. Prospects of a delay in Brexit helped extend sterling’s gains to 11-week highs. Disappointing flash PMI for the eurozone and a dovish Draghi pushed the euro below $1.13 for the first time since mid-December.

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Summary of Fox Biz Talk

I had a brief talk on the set with of Fox Business with Varney & Co today, but there is no video available. We began by talking about stocks. For several weeks, I have been suggesting to viewers that the S&P 500 could recover to 2700. Last Friday, the S&P 500 gapped higher and reached 2675. I did not like the gap and thought it would be quickly filled.

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ECB Preview: Worries Increase but Not Quite Ready to Act

Draghi Conductor

The ECB meets Thursday, and it may be best conceived as a transition meeting. It will lay the rhetorical groundwork for two things: a likely downgrade to the staff’s growth forecasts and moving toward a new round of long-term loans (targeted long-term refinance operations).

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FX Daily, January 22: Dollar Consolidates and Equity Rally Stalls

The US dollar is firmer against most major and emerging market currencies. The yen is a notable exception, and it is firmer, but well within recent ranges. The dollar-bloc currencies and the Norwegian krona are the weakest of the majors as a setback in equities and oil reflects a diminished risk appetite.

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FX Daily, January 21: Chinese Data and UK Brexit Start New Week

Overview: Mixed data from China and the anticipation of Prime Minister May’s “Plan B” are the main talking points, while US stock and bond markets are closed today.  Asia Pacific equities were higher, while European markets have failed to follow suit.  Benchmark 10-year bond yields are mostly softer, with the on-the-run Japanese Government Bond yield dipping back into negative territory.

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FX Weekly Preview: Things to Watch in the Week Ahead

“The sky is falling. The sky is falling,” they cried, as equities plunged in December. It is signaling a recession, we were told. Instead, global equities have begun the year with a strong advance. The S&P 500 gapped higher ahead of the weekend, extending this year’s rally to about 14%.

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FX Daily, January 18: Markets Finishing Week on Positive Note

Sentiment has improved since the volatility last month spooked investors and, perhaps, some policymakers. Global equities are rallying. The Shanghai Composite and the Nikkei are at their best levels in almost a month, while the Dow Jones Stoxx 600 is at its best level since early December, gapping above a downtrend in place since late last September.

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The Death of a Business Cycle

How do business cycles end? In the US, conventional wisdom is that they are murdered by the Federal Reserve. It is too slow to raise rates and then goes too quickly. This view is espoused by numerous well-respected economists and policymakers. President Trump’s criticism of the Federal Reserve is anchored by such views.

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FX Daily, January 16: Markets are Eerily Calm

Overview: There is an eerie calm over in the capital market through the European morning today despite some ostensibly worrisome developments.  While many, like ourselves, expect UK Prime Minister May to survive a vote of confidence, it hardly clarifies the outlook. 

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Cool Video: Brexit–Now What?

Marc Chandler CNBC

I joined Wilf Frost, and Sara Eisen on the CNBC set at the NYSE shortly after the House of Commons delivered an unprecedented defeat to UK Prime Minister May. Catherine Mann (Citi) and Christopher Smart (Barings). The guests generally agreed that a delay in Brexit was likely.

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FX Daily, January 15: New Phase Begins with UK Vote

Several of the equity benchmarks are flirting with six-week highs, including MSCI Asia Pacific Index and the Emerging Markets Index. The Dow Jones Stoxx 600 is trying to extend its advancing streak for a third week, something not done since July.

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FX Daily, January 14: Dismal Chinese Trade Data Sets Tone

Overview:  China’s exports and imports were weaker than expected, though the trade surplus swelled to its widest in a couple of years. The implications have undermined equities and weighed on risk appetites more broadly. Nearly all the Asia-Pacific markets were lower except Japan and the Dow Jones Stoxx 60o in Europe is off 0.5% near midday to snap a four-day advance.

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FX Weekly Preview: Europe Moves to the Center Ring

In recent weeks, the macro story focused on the shifting outlook for Fed policy and the Sino-American trade relationship. There is unlikely to be further progress on either issue in the week ahead. The Fed won’t raise interest rates until toward the middle of the year at the earliest.

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Two Takeaways from ECB Record

The record of the ECB’s December meeting was released, and there are two takeaways. The first is that officials may have been more concerned with the deteriorating situation than they let on at the time. Apparently, paring near-term growth forecasts was seen as a sufficient signal that risks were increasing. This allowed Draghi to maintain the “broadly balanced” risk assessment.

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FX Daily, January 09: Equities Continue Recovery, Greenback Remains Heavy

Overview:  Global equities have extended the New Year rally. The MSCI Asia Pacific Index advanced for the fifth consecutive session and the 10th in the past 11.  The Dow Jones Stoxx 600 in Europe is rising for the second consecutive session, something it has managed to do only one other time in the past month.  The S&P 500 is off to one of its best starts in years. 

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Keep Fitch’s Warning in Perspective

meh

The global head of Fitch’s sovereign ratings warned that the continued US government shutdown could jeopardize the AAA-status the rating agency grants America. It spurred little market reaction (and for good reason).

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FX Daily, January 8: Dollar Steadies, but Weakly for Turn-Around Tuesday

Overview: The global capital markets remain calm after the surge in volatility seen over the last couple of weeks. Asian equities were mixed, with the Japanese, Australia and Indian shares gaining, but other large regional markets, like China, South Korea, and Taiwan fell. European equities are firmer. Benchmark bond have edged higher. 

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FX Daily, January 07: Recovery Falters in Europe

Overview:  The combination of robust US jobs and wage growth, more comforting words from Powell and a strong rally US stocks before the weekend helped lift Asian markets today and underpinned risk-taking appetites.  However, renewed protests in France (and Hungary) coupled with weak German factory orders have prevented European bourses from fully participating in the equity recovery. 

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FX Weekly Preview: For the Millionth Time, Markets Exaggerate

The S&P 500 fell more than 12% in a few weeks. The 10-year Treasury yield fell nearly 40 bp. There were cries that the sky was falling. A recession is imminent, we are warned by prognosticators. The Fed went ahead and raised interest rates on March 21, 2018, and the S&P 500 proceeded to gap lower the next day and continued to sell-off the following day. Investors did not like the unanimous decision.

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Apple, China, Yen, and US Jobs: Welcome to 2019

The New Year is off to an auspicious start.  The Japanese yen, the third most actively traded currency behind the dollar and euro, got caught in a vortex of a retail short squeeze, algos, and who knows what else.  The US dollar plunged from around JPY109 to a slightly below JPY105 in a few minutes a little more than an hour after US markets closed yesterday.  

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A Word on Q3 COFER-It Might not be What You Think

Foreign Exchange Reserves by Currency, Q1 2016 - Q3 2018

The IMF offers the most authoritative report on central bank reserves on a quarterly basis with a quarter lag.  The report, the Currency Composition of Official Foreign Exchange Reserves (COFER), covering Q318 has been released.  It may be have been overlooked during the holidays, but if and when the pundits see it, the leading takeaway is that the dollar’s share of global reserves fell below 62% for the first time five years.

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Technical Musings about the Euro and Dollar Anchored by Macro

Tunafish

The $1.1475-$1.1550 is an important area for the euro.  Many bulls see a rounded bottom being carved and a break above it would be embraced as a confirmation. The lower-end corresponds to the 100-day moving average. Such a bottom pattern, if confirmed, would project toward $1.1800 the high in H2 18. On the downside, the low from H2 18 was near $1.1200.  This is just above a key (61.8%) retracement of the January 2017-February 2018 rally. 

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Week Winding Down on Firm Note, but Wild Ride may Not Be Over

The biggest reversal in the S&P 500 since 2010, allowing it to string the biggest two-day rally in three years helped lift Asian and European shares today. All the Asia-Pacific equity markets advanced today but Japan, where the strength of the yen saw the Nikkei and Topix buck the move. European equities.

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Some Thoughts on What is Happening

Elephant

People do not just disagree on what should and will happen, but they disagree on what has happened. As William Faulkner instructed: “The past is not dead. Actually, it’s not even past. This is clear in the narratives about the sharp drop in equity markets.

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Forex Forensics: The Case of the Yen

Over the past five sessions, the yen is the strongest of the major currencies, appreciating about 1.7% against the US dollar, eclipsing the Swedish krona, which rallied strongly today after the Riksbank’s surprise rate hike.  Given the sell-off in equities and the decline in markets, the yen’s strength is not surprising. 

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FX Daily, December 21: Markets Stumble into the Weekend

Overview: There is little reprieve from the equity meltdown ahead of the weekend. Major markets in the Asia-Pacific region, including Japan, China, India, and Australia pushed lower. The MSCI index of the region is near 15-month lows. The Dow Jones Stoxx 600 is off about 0.6% near midday in London to make new two-year lows. US shares are also trading lower in Europe.

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FX Daily, December 18: Stock Rout Deepens, Casts Shadow over Holiday Spirit

Overview: The 2% slide in the S&P 500 to new lows for the year yesterday hit Asian and European equities today. Bond yields are lower, and the dollar is softer against most major currencies. The dramatic equity losses and some disappointing data sparked doubts about the ability of the Fed to raise rates tomorrow at the conclusion of its last meeting of the year.

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FX Daily, December 17: Markets Quiet to Start Fed Week

Activity in the global capital markets is subdued as investors move to the sidelines as the year-end approaches. The Federal Reserve headlines the holiday week that also features a Bank of England a Bank of Japan meeting. Only the Fed is expected to change rates.

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FX Weekly Preview: FOMC Dominates Week Ahead Calendar

The last FOMC meeting of 2018 is at hand. After hiking rates three times in 2017, the Fed signaled that four hikes were likely this year and with a widely expected move on December 20, it would have fully delivered, though many steps along the way, skeptical investors had to be led by the nose, as it were, to minimize the element of surprise.

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FX Daily, December 14: Week Closing on a Disappointing Note

Overview:  A string of disappointing economic is spurring risk-off sentiment today.  Global shares prices are being punished and core bonds are being snapped up.  The US dollar is trading higher against most major and emerging market currencies.  The MSCI Asia Pacific Index was flat on the week coming into today’s session.

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FX Daily, December 13: May Survives but its Draghi’s Day

Overview: There is a sense of optimism among investors today that may be tested as the session progresses. News that China may reconsider its “Made in China 2025” initiative as an apparent concession to the US while reports suggest it has bought 1.5-2.0 mln tons of soy is easing trade tension fears. 

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FX Daily, December 11: Fragile Calm Threatens to Break Out

Indications that US and Chinese trade talks are proceeding, coupled with a dramatic reversal in the S&P 500 yesterday is helping stabilize the capital markets today. Asian equities were mixed, but the Greater China (China, Hong Kong, and Taiwan markets) alongside India and Australia posted modest gains.

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Cool Video: Bloomberg Economic Discussion

Marc Chandler and Chris Wolfe on set of Bloomberg's Daybreak

I joined Chris Wolfe from First Republic Wealth Management on the set of Bloomberg’s Daybreak to discuss market developments and the outlook for the US economy. We generally agreed that while the economy is slowing it is doing so from unsustainably strong levels.

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FX Daily, December 10: Lack of Closure Weighs on Sentiment

Investors angst over trade tensions and Brexit continue remains elevated, and poor Chinese and Japanese economic news played on global growth fears. Equities continue to slog lower. Bond yields are little changed, and the dollar is lower against most of the major currencies.

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FX Weekly Preview: The Week Ahead: Don’t Skip Steps on Escalation Ladders

The drop in US yields and disappointing economic data weighed on sentiment and the dollar last week. Even weakness in equities, which had seemed to lend the greenback support, failed to do so at the end of last week. With the real Fed funds rate (adjusted for inflation) below zero, employment at 50-year lows, and some fiscal stimulus still in the pipeline, the doom and gloom cant of a recession next year seems misplaced.

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FX Daily, December 06: New Spanner in US-China Relations Weighs on Risk Appetites

Overview: The global capital markets were fragile amid trade uncertainty and economic slowdown fears. News that Canada arrested the CFO of Huawei on behalf of the US, ostensibly for violating the embargo against Iran triggered an almost immediate risk-off wave that has extended the equity markets losses, sending core bond yields lower, with the US 10-year slipping below 2.9%, and underpinning the dollar against most currencies, with the notable exception of the Japanese yen and Swiss franc.

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The Dollar and Its Rivals

I was in graduate school, studying American foreign policy when I stumbled on Riccardo Parboni’s “The Dollar and Its Rivals.” This thin volume showed how the foreign exchange market was the arena in which capitalist rivalries were expressed. More than any single book, it set me on a more than 30-year path.

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Great Graphic: The Dollar Index Climbs a Wall of Worry

To be sure, the Dollar Index is not the dollar. It is not even a trade-weighted measure of the dollar. Two of America’s largest trading partners, China and Mexico, are not represented. It is heavily weighted to the euro and currencies that move in its orbit, like the Swiss franc Swedish krona, and arguably the British pound.

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FX Daily, December 03: G20 Fan Animal Spirits

The US and China kept their trade guns cocked at each other but offered the last opportunity for a negotiated settlement before escalation. What is billed as a 90-day freeze on tariff increases is really only 60 days beyond January 1 when Trump had threatened to increase the 10% tariff on $200 bln of Chinese goods to 25%.

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FX Weekly Preview: Dramatic Week Ends with Whimper?

There is an eerie calm in the capital markets today as the G20 meeting gets underway. There is much uncertainty, and the event calendar is chock full next week, with the Brexit debate getting underway in the UK Parliament, the CDU picks a new leader to replace Merkel, possible partial US government closure, Powell’s testimony before Congress, OPEC+ meeting, and US employment data.

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Cool Video: Santa Claus Rally and Trade

Marc Chandler in Fox Business

I was on Fox Business today. Stuart Varney introduced me by asking me about my forecast for a Santa Claus rally–a year-end recovery in equities. From a technical perspective, I liked the fact that the S&P 500 successfully retested last month’s lows last week. I liked that the price action made last Friday’s price action into an island bottom, with a gap lower opening followed by Monday’s gap higher opening.

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Great Graphic: Weekly Jobless Claims and the S&P 500

S&P and Weekly Jobless Claims

The softer than expected PCE deflator today plays into the dovish market mood. There may be little that can resist it until next Friday’s employment data, which should be another robust report with hourly earnings holding above 3% year-over-year.  Last November, average hourly earnings rose by 0.3%. As this drops out of the year-over-year comparison, even a healthy bounce back from the 0.2% drop skewed by the hurricane will be needed just to hold the rate at 3.1%.

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FX Daily, November 29: Reluctant to Extend Dollar Losses

Overview: The biggest US equity advance since Q1 has helped lift global markets today. The MSCI Asia Pacific Index rose for the fourth session, and nearly all the bourses in the region rallied with the notable exception of China and Hong Kong. Almost all the sectors in Europe are rallying but energy and real estate. US oil inventories rose three times more than expected and Putin expressed little support for fresh output cuts.

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FX Daily, November 28: Powell Awaited

Overview:  Global capital markets are relatively calm as investors gird for drama.  The Bank of England reports its assessment of the impact of Brexit and the stress tests a little before Fed Chair Powell speaks at midday in NY.  The G20 meeting begins Friday, and several bilateral meetings are taking the spotlight from the larger gathering. 

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FX Daily, November 27: Market Shrugs Off Latest US Tariff Provocation

The global capital markets have taken the US latest tariff threats in stride.  Most of the Asian equity markets advanced, including Japan, Korea, Taiwan, India, and Australia. China and Hong Kong were exceptions with marginal losses. European markets are trying to extend their recovery for a third session, but the industry performance is mixed with energy and materials lower, and utilities, consumer staples, and information technology/communication advancing. 

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Near-term Outlook

There are three key scheduled events between now and the end of the year.  In chronological order, this weekend G20 meeting is first.  It will shape expectations for trade tensions between the US and China, with extensive secondary impact. Saudi Arabia and Russia’s meeting may help shape expectations for the price of oil, which has collapsed here in Q4 18.

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FX Weekly Preview: Powell and Draghi, Xi and Trump

The investment climate will be shaped by three events next week.  ECB President Draghi’s testimony before the European Parliament to kick-off the week.  Fed Chairman Powell speaks to the NY Economic Club in the middle of the week.  Presidents Trump and Xi are to meet at the G20 meeting to end the week in hopes of dialing back the escalating trade conflict.  Also at the G20 summit, the NAFTA2.0 is expected to be signed, and the steel and aluminum tariffs on Canada and Mexico may be modified (turned into quotas?) shortly.

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FX Daily, November 23: Friday

The US dollar is firmer against most of the major currencies. Japanese and Indian markets were closed for holidays and a weaker than expected flash EMU PMI helped keep the euro pinned near this week’s lows. Although the EU seemed to thrown UK’s embattled May a lifeline with some compromise wording in a draft declaration, the challenge remains the same–Parliament’s approval.

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Cool Video: CNBC Squawk Box

I was part of the “Trading Block” on CNBC earlier today. The sharp fall in stocks and oil would have led many, like Joe, to anticipate dollar weakness. Instead, the dollar rallied. Perhaps, I suggested, the dollar was acting like a safe haven. Bill yields are high enough to make cash a reasonable alternative to park one’s savings.

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FX Daily, November 21: A Semblance of Stability Returns

Yesterday’s frenzy has burnt itself out for the moment. Equities began recovering in Asia after early losses. China, including Hong Kong, Singapore, and Thailand closed higher and European markets are recouping some of yesterday’s decline. The Dow Jones Stoxx is trying to snap a five-day decline and is up a little more than 0.5% near midday.

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FX Daily, November 20: Equity Slide Continues

Yesterday’s 3% drop in the NASDAQ is setting the tone for today. The US stock market advance had been led by a narrow group of equities, and those have come under strong pressure amid slower consumer demand and stricter export control. Asian equities were a sea of red today. Chinese markets led the sell-off with more than a 2% drop. In Europe, the Dow Jones Stoxx 600 is for a fifth session. 

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Cheat Sheet

biking

The market always has taken the Fed’s forecast for three rate hikes next year with a large dose of skepticism. The fed funds futures strip implies growing expectations that the Fed pauses after a hike in December and Q1 19. It is still unclear the direction of fiscal policy next year. It may be difficult for the Democrats to oppose making middle-class tax cuts permanent and an infrastructure initiative cannot be ruled out.

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FX Weekly Preview: Unfinished Business

Often, and apparently wrongly attributed to Mark Twain is the observation that it is not what we know that gets into trouble, but “what we know that just ain’t so.” Now though, investors suffer from a different problem. Several processes are in motion, and there is little confidence in their outcomes. Among these are Brexit, US-China trade, the trajectory of Fed policy, and the EC’s efforts to enforce the agreed-upon budget rules.

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FX Daily, November 16: Turning Brexit into a Dog’s Breakfast

Overview: It is the height of irony or tragedy that what was offered as a non-binding referendum on UK’s membership in the European Union to bring the country, or at least the Tory Party, together is the most destabilizing event since the UK unceremoniously quit the European Exchange Rate Mechanism more than a quarter of a century ago. 

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FX Daily, November 15: UK Political Drama Roils Sterling

Overview: The resignation of the UK’s Brexit negotiator after Prime Minister May had secured support from a majority of the cabinet sent sterling sharply lower.  Raab’s resignation underscores the difficulty the Brexit agreement faces in the UK Parliament.  Sterling was hammered nearly 2.5 cents on the news and trade below $1.28.

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FX Daily, November 14: Dollar Comes Back After Yesterday’s Profit-Taking

Overview:  Investors are on pins and needles today.  Oil prices are trying to stabilize after WTI’s outsized 7% fall yesterday, its largest in three years.  Global equities are heavier, dragged down by energy, but also larger than expected Q3 contractions in Japan and Germany, and a mixed bag of Chinese data that showed possible stabilization of the industrial sector though weaker consumption. 

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Cool Video: Euro Pressured Lower

As a long-term dollar bull, I was happy to accept Bloomberg TV’s invite to come to the set on the day that the Dollar Index made new highs for the year and the euro punched through the $1.1300 support that has held since mid-August.  

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FX Daily, November 13: Weak Turn-Around Tuesday

Overview:  The US dollar has a heavier bias against most of the major and emerging markets currencies, but the pullback is shallow, and the greenback’s underlying strength is still evident.  Asian equities were mixed.  Concern that Apple may be reducing orders weighed on suppliers, but news that China and US trade talks are resuming boosted sentiment, allowing Chinese stocks to recover helped lift the Australian and New Zealand dollars.

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Cool Video: Fox Biz TV Broad Economic Discussion

I joined Charles Payne on Fox Business TV for a broad economic discussion today.  Payne, like many, are concerned that the Fed continues to tighten and worries this is going to end the business cycle.  He also argued that the strong dollar was a significant threat of US multinational earnings.

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FX Daily, November 12: Sterling’s Losses Lead Dollar Rally

Overview: The US dollar is enjoying broad gains against most major and emerging market currencies. Sterling, dragged down by Brexit concerns, is leading the way. With today’s losses, sterling has shed nearly 3.7 cents over the last four sessions. The euro, for its part, is at a new 17-month low (~$1.1250). 

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FX Weekly Preview: DOTS in the Week Ahead: Divergence, Oil, Trade and Stocks

The Federal Reserve’s confidence in the economy and its need to continue to gradually increase interest rates stands in sharp contrast to most of the other major central banks. The European Central Bank will finish its asset purchases at the end of the year, but it is in no position to begin to normalize interest rates. Indeed, the risk is that it may feel compelled to off another Targeted Long-Term Repo, which would, in effect, allow the borrowers to extend the maturities of existing funds.

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Fed Sticks To Script, Enjoys the Sweet Spot

The Federal Reserve kept policy on hold, and its sparse statement gave little clue as to what it makes of the pressures in the money markets or the weakness in the housing market.  The effective Fed funds rate is bumping against the cap provided by the interest rate on reserves.  Some repo rates, like SOFR (the intended replacement for LIBOR), have on occasion poked above what should be the ceiling.

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FX Daily, November 09: Greenback Stabilizes at Higher Levels

The US dollar’s gains scored in the wake of the Fed’s signal that will continue on course to gradually hike rates have been extended. Most emerging market currencies are lower as well.  Equity markets are heavy.  Bond yields in Europe and US are a little lower, with the exception of Italian bonds. 

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FX Daily, November 07: Equities and Bonds Jump While the Dollar Slumps

The dollar has fallen against nearly every currency. It had been moving lower at the start of the week, but what seems like a correction broadened and deepened following the US midterm election. The outcome was largely in line with expectations for the Republicans to hold the Senate and the Democrats to take a majority of the House for the first time since 2010.

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Euro and Yen Outlook

Broadly speaking, the risk is that the dollar’s cyclical advance is not complete. The drivers will likely remain in place through at least the middle of next year. Additional gradual interest rate hikes by the Federal Reserve and a favorable policy mix underpin the dollar.

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FX Daily, November 6: US Goes to the Polls

Overview: The US dollar is narrowly mixed against the major currencies today, largely consolidating its recent losses. Equities are mixed.  In Asia, Japan, Australia, and Hong Kong equities gained around 1%, while most other bourses were softer.  In Europe, the Dow Jones Stoxx 600 is little changed in late morning turnover.

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Talking Turkey

Turkey’s economic challenges arise from the imbalances created during the economic boom that saw poverty halved between 2002 and 2011, extensive urbanization, and integration in the world economy through trade and capital flows. The dramatic economic changes saw the rise of Erdogan, who was re-elected as President for a second term in June. His party (AKP) is joined by the Nationalists (MHP).

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FX Weekly Preview: Stocks, Trade, and the Fed in the Week Ahead

Last month’s downdraft in equities spooked investors. The fear that is often expressed is that the end of the business cycle may coincide with the end of a credit cycle and a return to 2008-2009 crisis. It seems like an increasing number of economists agree with the sentiment expressed by President Trump that the Fed is too aggressive.

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FX Daily, November 01: Dollar Slumps to Start New Month

Overview: It appears that month-end considerations deterred the dollar selling that the technical indicators warned was coming and as the new month starts, the dollar is offered. It is weaker against all the major currencies and most of the emerging market currencies.

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Cheat Sheet

Jobs data ahead of the weekend should recover after a storm depressed the September jobs growth. The base effect will allow earnings to show a strong year-over-year gain. The FOMC meets next week. A 25 bp rate hike in December remains the most likely scenario despite the heightened volatility in the stock market.

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FX Daily, October 31: No Fright on This Halloween

After sliding hard this month, equities continue to stabilize into month-end. All of the equity markets in Asia-Pacific rallied with the help of a solid close in the US. European bourses are higher too as the Dow Jones Stoxx 600 tries to extend the recovery for a third consecutive session, led by energy, materials, and information technology.

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FX Daily, October 30: Another Attempt to Put a Bottom in Stocks

Overview: First, reports suggested that if China refused to make any trade concessions, the Trump-Xi meeting on the sidelines of the G20 meeting next month would not take the issue up.  Fair enough.  Then, new reports indicated that the White was prepared to take additional trade measures if there was no agreement between Trump and Xi. 

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FX Daily, October 29: Market Awaits US Leadership

The Dollar index is trading within last Friday’s trading ranges. The year’s high, set on August 15, was just shy of 97.00. The euro continues to straddle the $1.14 level but is spending more time in Europe below there. There is a 1.5 bln euro option expiring today at $1.1350 and an almost 600 mln euro option at $1.1400 that will be cut.

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FX Weekly Preview: Thumbnail Sketch of Six Things to Monitor This Week

Global equities have sold off hard. The magnitude of the recent loss is similar to what happened earlier this year. The MSCI World Index of developed countries fell 10.5% in January-February carnage and are now off about 11% this month. The MSCI Emerging Markets Index has matched the 11% loss back at the start of the year, but never truly recovering in between.

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FX Daily, October 25: ECB Overshadowed by Equity Market Drama

The Dollar Index broke above 96.00 yesterday and is consolidating today. Provided the 96.00 area holds, the next target is the year’s high near 97.00. The euro has been confined to a little more than a quarter of a cent. Players seem reluctant to sell it below $1.14 and note there is a 570 mln euro option at $1.1420 that expires today.

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FX Daily, October 24: Disappointing Flash PMI Weighs on Euro

The US dollar is firmer against the major currencies and most emerging market currencies.  While the seemingly fragile equity markets are still the center of investors’ attention, the weakness of the eurozone flash PMI is disconcerting and has sent the euro closer to $1.14.  China’s officials continue to unveil initiatives to minimize the disruption of the equity and debt markets while seemingly adding to moral hazard risks. 

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Europe Challenged

Europe is in an untenable position. It is being challenged on many fronts. A weaker euro need not result, but it is the path of least resistance. The economy has lost its momentum. What was first written off as a soft patch, now looks a bit more serious.

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FX Daily, October 23: Stock Slump Pushes Yields Lower and Buoys Yen

There is one main story today, and that is the resumption of the slide in equities. It is having a ripple effect through the capital markets. Bond yields are tumbling. Gold is firm. The dollar is narrowly mixed, though the yen stands out with almost a 0.5% gain. Most of the large equity markets in Asia, including Japan, China, Hong Kong, Korea, and Taiwan were off mostly 2%-3%.

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Cool Video: Bloomberg Discussion of Late US Cycle

An assessment of the US economy is an important input into the expectations of the dollar’s behavior in the foreign exchange market. As a currency strategist, my views of the US economy are often subsumed in discussions or talked about indirectly by talking about Fed policy.  However, in this clip with Alix Steel and David Westin, I have an opportunity to sketch outlook for the US economy.

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FX Daily, October 22: Collective Sigh of Relief?

After a slow start in Asia, the US dollar has turned better bid. The euro recovered from $1.1430 before the weekend to $1.1550 today, where an option for almost 525 mln euros expires today. There is another option (1.6 bln euros) at $1.1500 that also expires today.

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FX Weekly Preview: What Can Bite You This Week?

Several major central banks will meet next week, including the European Central Bank, but it is only the Bank of Canada that is expected to hike rates. The flash PMIs and the first official estimate of Q3 US GDP are among the data highlights. Beyond the events and data, the volatility from global equity markets from Shanghai to New York will continue to have a strong influence on other capital markets.

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FX Daily, October 18: China’s Angst Stays Local

Asian equities were lower, led by a nearly 3% drop in Shanghai, while European shares shrugged it off and the Dow Jones Stoxx 600 is up about 0.4% in late morning turnover. The S&P 500 is off by about 0.25%. Global bond yields were dragged higher by US Treasuries where the 10-year yield is straddling 3.20% after rising four basis points yesterday.

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Brexit: Five FAQs

Brexit

The UK voted in s referendum to leave the EU in June 2016. It will happen at the end of March 2019. What is the status of the negotiations? It had been hoped that the two sides would be close enough to allow a special summit to be called next month to finalize an agreement.

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Great Graphic: What is Happening to Global Equities?

The decline in the global equity market is the most serious since the February and March spill. In this Great Graphic, the white line is the S&P 500. With the setback, it is up a little more than 8% for the year. It managed to recover fully from the sell-off earlier in the year.

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FX Daily, October 16: Semblance of Stability Returns

Overview:  Although the S&P 500 was unable to sustain early gains yesterday, the largely consolidative session was part of the stabilization of equities after last week’s jump in volatility.  Asia and European stocks are also cautiously steadying.  Most Asia equity markets advanced with the Nikkei’s 1.25% advance most bourses higher.  China was a notable exception, The Shanghai Composite recorded new lows for the year and finished uninspiringly on its lows.  Europe equities are mostly firmer, led by Italy and Spain.

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Macro Cheat Sheet

Fred

The dollar’s recovery ahead of the weekend was aided by the stabilization of the stock market, where the S&P 500 managed to close back above the psychologically important 200-day moving average.
Interpolating from prices, the market does not expect the President’s criticism to alter the Fed’s course.

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FX Daily, October 15: Monday Blues

Despite the pre-weekend gains that lifted the S&P 500 above its 200-day moving average, global equities are moving lower today. The main news over the weekend included the US renewing its threat to impose more tariffs on China and Saudi Arabia threatening retaliation for any sanctions relating to the disappearance of the journalist Khashoggi, and the lack of a breakthrough in UK-EU negotiations.

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FX Weekly Preview: Forces of Movement

There are three broad forces of movement in the week ahead: the equity market performance, political developments, and economic data. It was a tumultuous week for equities, and there was not clear or obvious trigger.  With US bond yields and equities trending higher this year, there does not seem to a reason why it ended last week. 

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FX Daily, October 12: Market Fever is Burning Itself Out Ahead of the Weekend

 Equity markets are stabilizing today as Asian and European markets shrug off the failure to get traction in the US yesterday.   As everything and nothing was behind the dramatic sell-off in recent days, the same could be said about today’s recovery.  Most accounts seem to be emphasizing two developments:  a report indicating that despite the talk earlier in the week, there is a recognition by the US Treasury staff that China’s actions do not reach the threshold of manipulation, and signs that the US tariffs were not having much impact on Chinese trade through last month.

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Macro Cheat Sheet

clouods

Rising US rates in absolute terms and relative to other countries, coupled with the policy-mix and US tax reform are the main drivers. The market has nearly completely discounted three more Fed hikes by the end of next year, while the Fed has signaled that four hikes may be appropriate.

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FX Daily, October 10: US Dollar Pullback may Continue in North America

The euro bottomed yesterday near $1.1430 and reached $1.1515 in Asia. Support is seen near $1.1480 and should hold if the euro’s upside correction is to continue. There are options struck $1.1500-$1.1510 for nearly 1.4 bln euros that expire today. For the third consecutive session, the dollar found bids a little below JPY113.00. There is a $1 bln JPY113 option that will be cut today.

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FX Daily, October 09: A (Short) Reprieve For China while the Dollar Stays Firm

The small gains in China’s Shanghai Composite and the yuan is helping sentiment today. News that Italy’s budget watchdog may reject the government’s fiscal plans has helped stabilize Italian assets initially, but renewed pressure quickly materialized. Most Asian equities retreated while Europe’s Dow Jones Stoxx 600 is struggling to snap a three-day slide. US shares are trading heavily in Europe.

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Cool Video: Clip from CNBC Squawk Box

Marc Chandler

The combination of divergence and the US policy mix is underpinning the dollar and I was invited to share my views on CNBC’s Squawk Box earlier today. It dovetailed nicely Matthew Diczok (from Merrill Lynch) views on Fed policy and US interest rates.

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FX Daily, October 08: China and European Woes Weigh on Equities but Buoy the Dollar

Overview:  The markets are having a rough adjustment to the return of the Chinese markets are the week-long holiday.  The cut in the required reserves failed to lift investor sentiment.  The Shanghai and Shenzhen Composites fell almost 4%, and the yuan slid nearly 0.8%.  It is an unusually large decline for the closely managed currency.  The offshore yuan fell by a little more than 0.5%. 

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Great Graphic: The Dollar’s Role

Currency's Share of the Category in the International Monetary System Q4 2017

This Great Graphic comes from Peter Coy and team’s article in Business Week. It succinctly shows three metrics for the internationalization of domestic currencies: global payments, international bonds, and foreign exchange reserves. It does not strike me as surprising, and the role of the euro as a payments currency reflects its role in intra-European trade.

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Cool Video: Bloomberg Clip from Discussion on Emerging Markets

In my first television appearance since joining Bannockburn Global Forex, I joined Tom Keene and Francine Lacqua on the Bloomberg set. In this nearly 2.5 min clip, we talk about the Indonesia rupiah and the dollar’s move above the IDR15000 level for the first time since the 1997-1998 Asian financial crisis.

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FX Daily, October 02: Greenback Advances

The US dollar is rising against most of the major and emerging market currencies. The Swiss franc and the Japanese yen are the exceptions and are holding their own. Global equities are mixed. Asia, excluding Japan, was mostly lower, with 1.2% losses in Taiwan and South Korea and 2.5% drop in Hong Kong and in the H-shares that trade there.

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A Word About the Q2 COFER Report

US Dollars in Billions, Q2 2017 - Q2 2018

The IMF reports the most authoritative currency allocation of global reserves at the end of every quarter with a quarter delay. Invariably, an economist, strategist, or journalist is inspired to write why some data nugget confirms the demise of the dollar as the dominant currency.

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Fed Delivers, Market Yawns

The Federal Reserve did what it was widely to do. The fed funds target range was lifted 25 bp to 2.00-2.25%. Three-quarters of Fed officials anticipate a hike in December. The market had discounted around an 80% chance. The Fed sticks with the three rate hikes in 2019 and one in 2020. The year-end rate in 2021 is the same as in 2020.

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FX Daily, September 28: Dollar Remains Firm While Italy is Punished

The US dollar’s post-Fed gains have been extended, though the upside momentum appears to be stalling. Japan’s Nikkei advanced 1.35% on the back of the yen’s declines and reached its highest level since 1991. Chinese shares (A and H) rallied amid reports that MSCI and FTSE-Russell are boosting Chinese shares in their benchmarks.

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FX Daily, September 26: The Dollar Index has Fallen Four of the Five Times the FOMC met this Year

The US dollar is trading with a softer bias in tight ranges. The euro and sterling have been confined to yesterday’s ranges, while the greenback briefly traded above JPY113.00 for the first time in two months. The South African rand and Turkish lira are leading the most emerging market currencies higher. Asian equities moved higher, led by Hong Kong, which returned from yesterday’s holiday.

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FX Daily, September 25: Greenback Remains at the Fulcrum

The major currencies are mixed in quiet turnover. Most of the European currencies are firmer, while the dollar-bloc currencies, yen and Swiss franc are softer. Emerging market currencies are steady to higher, though there are a few exceptions in Asia, where the Indonesian rupiah and the Chinese yuan are off about 0.3%, while the Indian rupee and Malaysian ringgit are around 0.2% lower.

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FX Weekly Preview: Next Week’s Drivers

It is a testament to the Federal Reserves communication and the evolution of investors’ understanding that we can say that the rate hike that the central bank will deliver is not as important as what it says. A rate hike is a foregone conclusion. According to the CME’s model, there is about an 85% chance of December hike discounted as well.

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Portfolio Re-Balancing and the Dollar

Boosted by tax reform, deregulation, and strong earnings growth, US equities have motored ahead, leaving other benchmarks far behind. As the Great Graphic here shows, most of the other benchmarks are lower on the year. The S&P 500 (yellow line) is up 8.8% for the year before the new record highs seeing seen now, while the Dow Jones Stoxx 600 from Europe (purple line) is still off 1.7%.

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FX Daily, September 20: The Mixed Performance Makes it Difficult to Talk about The Dollar

Sometimes the dollar is the key mover, but sometimes, like today, it seems to be the fulcrum, reflecting disparate moves among other currencies.  While the euro is at two-month highs, the yen is near two-month lows.   The euro is bouncing off two-month lows and the 100-day moving average against sterling.   Most emerging market currencies are advancing against the dollar today. 

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FX Daily, September 19: Dollar Trades Heavily as Emerging Markets Follow China

One would not have a clue looking at global equities that there has been a sharp escalation in trade tensions in the past 36 hours. As was well tipped the US imposed a 10% tariff on $200 bln of Chinese goods and indicated that the tariff will rise to 25% at the start of next year. President Trump also threatened to quickly follow up with another tariff on $267 bln of Chinese goods it retaliated.

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Dollar Slips, though Emerging Markets Trade Heavily

The US dollar is beginning the new week on a soft note, as China threatens not to accept the invitation for trade talks in Washington if the US imposes new tariffs on $200 bln of its goods, which the Wall Street Journal reports could come as early as today. Meanwhile, the MSCI Emerging Markets Index is giving back half of the 2.5% rally seen in the second half of last week.

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FX Weekly Preview: Dollar Pullbacks Remain Shallow as Rate Differentials Widen

The trajectory of monetary policy in the US and Europe has been fairly clear. There is practically no doubt that the Fed will hike rates on September 26. Despite softer than expected PPI and CPI figures, the market has become more confident of another move in December. The Federal Reserve’s balance sheet unwind reaches its maximum velocity of $50 bln a month in Q4.

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FX Daily, September 14: Dollar Losses Extended

The US dollar remains on the defensive after retreating yesterday.  Its losses against the most of the major and emerging market currencies are being extended today.  The combination of softer US inflation coupled with a less dovish than expected ECB, a Bank of England lifting growth forecasts, while warning that a Brexit without an agreement could spur higher mortgage rates, and a more aggressive rate hike by Turkey conspired to force the dollar lower. 

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FX Daily, September 13: Vulnerable To Disappointment

There is an eerie calm in the markets ahead of the highlight for the day and week. The central banks of the eurozone, UK, and Turkey hold policy meetings, and the US reports August CPI. The greenback is a mostly firmer, with the Australian dollar as the notable exception. On the one hand, we would note that is it higher for the fourth consecutive sessions, after finding some support near $0.7100 earlier in the week. 

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FX Daily, September 12: Dollar Chops in Narrow Ranges

Eurostat confirmed that EMU industrial output fell for a second consecutive month in July. The 0.8% decline was larger than expected and is the third decline of such a magnitude in four months and weighed on the euro. German and Spanish industrial output had surprised on the downside last week, and Italy matched suit today with a report showing a 1.8% contraction, much larger than expected, and bringing the year-over-year rate to -1.3% (workday adjusted).

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Great Graphic: Did the CRB Bottom?

The CRB index has been trending lower since late May. It fell nearly 10% to retrace 50% of the rally come June 2017. This Great Graphic shows the 4 1/2 month trendline. It had been violated in late August but fell back under it at the end of last week.  

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FX Daily, September 11: Dollar May Prove Resilient if it is Turn Around Tuesday

The euro and sterling extended their recovery from the US hourly earnings lows seen before the weekend. However, the move stalled in the European morning, after the UK reported better than expected earnings itself. Sterling approached the 61.8% retracement of the decline from the July high (~$1.3365) found just below $1.31. It has been correcting higher since reaching almost $1.2660 on August 15.

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Cool Video: What Earth Really Looks Like

Here is the challenge:  Representing a three-dimensional object in two-dimensions.  It is impossible to do without distortions.  Those distortions can reflect cultural biases as well as the function of the map, such as for navigation purposes.  

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FX Daily, September 10: Initial Extension of Euro and Sterling Losses Stall

The US dollar’s pre-weekend gains were extended against most the major currencies, but the euro, sterling, and Australian dollar have recovered in the European morning.  Emerging markets currencies are mixed. The Indian rupee is the weakest(of the emerging market currencies (~-0.8%) following the widening of the Q2 current account deficit at the end of last week and ahead of the August trade deficit which is expected to show the impact of rising oil prices and the past currency depreciation. 

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Great Graphic: Is that a Head and Shoulders Bottom in the Euro?

EUR Curncy, 6 month chart

The euro recorded the low for the year so far on August 15 near $1.13. We had been anticipating a corrective phase for a couple days before the low was recorded. Recall that the previous Friday, August 10, all the major currencies, but the Japanese yen and Canadian dollar were beyond their Bollinger Bands. The euro recovered toward $1.1735 on August 28, stopping shy of our initial objective of $1.1750.

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Jump in Hourly Earnings is Key to US Jobs, while Canada adds 40k Full-Time Positions

The 201k rise in US non-farm payrolls edged above the median forecasts, but the 50k downward revision to the past two-months removes the gloss.   It is the first August report in seven years that the initial estimate was above the Bloomberg median.  The most important part of the report was the 0.4% jump in hourly earnings, lifting the year-over-year rate to a new cyclical high of 2.9%.

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FX Daily, September 7: Emerging Markets Stabilize While Euro Shrugs Off Disappointing Data

The global capital markets are finishing the week on a more stable note than it began.  Indeed, since the middle of the week, many of the besieged emerging market currencies, like the South African rand, Turkish lira,  and Argentine peso have posted some corrective upticks.  Today, the MSCI Emerging Market Index is snapping a seven-day slide register a modest gain, ahead of the Latam session.  

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FX Daily, September 6: Fragile Calm Weighs on Greenback

The global capital markets are calmer today.  This is not preventing the MSCI Emerging Market Index from extending its drop into the seventh consecutive session, but there has been a respite in the sell-off of emerging market currencies, where the Mexican peso, South African rand, Turkish lira, and Indonesian rupiah are modest, modest gains.  At the same time, the Philippine peso, Korean won, and Indian rupee continued to weaken.  

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FX Daily, September 05: Continuing EM Pain Helps the Dollar, but does Little for Yen

The dollar is posting gains against most of the emerging market and major currencies. The MSCI Emerging Markets Index is off 1.6% and extending the drop to a sixth consecutive session. Indonesia’s bourse saw the largest decline (~3.75%) in the region. In part, it reflects concern that the rupiah’s weakness (falling now nine of the past 10 sessions) will boost corporate debt servicing costs.

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Cool Video: Emerging Markets Continue to Sell-Off

Marc Chandler

I had the privilege of being on the Bloomberg set with Tom Keene and Francine Lacqua earlier today. Lakshman Achuthan, co-founder of ECRI also joined us for the discussion. This 6.5 min video clip captures the essence of the discussion. The US dollar was rallying against all the major and most EM currencies.

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FX Daily, September 04: Dollar Gains Broadly

The US dollar is rising against all the major and emerging market currencies today. The signals from the White House suggest strong pressure will be exerted on Canada to sign on to NAFTA 2.0 or risk losing part of its auto sector, which of course is primarily the production of US brands. At the same time, the US is in no mood to negotiate with Europe or China.

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The Big Picture 18-24-Month Outlook: Some Preliminary Projections

The winding down of the North’s summer provides a suitable time to consider not the near-term outlook, which many investors do on a daily basis, but to reflect on where we are heading down the road a bit. What will the next 18-24 months hold? Of course, we harbor no illusions of prescient vision and accept the hazards of the assignment and so should the reader.

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FX Daily, August 31: Month-End Adjustments and Tentative Stabilization in Emerging Markets Ease Demand for Dollars but Not Yen

The dramatic price action seen yesterday among several emerging market currencies is eased today, but here at month-end, demand for risk-assets is tentative at best. The macro backdrop, including the increase in US core inflation, expectations for continued hikes by the Federal Reserve, and unambiguous signals that trade tensions will increase in the coming weeks dampens the risk appetite.

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FX Daily, August 30: Brexit Optimism Underpins Sterling

The US dollar is mostly firmer, while global equities are softer and bonds little changed.  The Turkish lira and South African rand remain under pressures.  However, there does not appear to be an overall theme in today’s markets.  

Disappointing data from Australia and New Zealand has seen the Antipodean currencies move lower.  New Zealand’s business confidence fell to a ten-year low, and this sent the Kiwi tumbling.  Its nearly 0.9% fall leads the majors.  It is followed by the Australian’s dollar’s 0.25% loss in the wake of building approval (-5.2% vs. the median forecast of -2.0%) and capex (-2.5% vs. the median forecast of a 0.6% increase)  misses.  The Aussie held yesterday’s low near $0.7275.  Last week’s low was near $0.7240.  

Japan reported that July

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FX Daily, August 29: Dollar Finds Support, but Downside Correction May Not be Over

The US dollar has steadied after pulling back in recent days, but the downside correction does not appear complete, and month-end flows are still a risk to picking a dollar-bottom. The Australian dollar is the weakest of the majors. The main drag is paradoxically Westpac, one of Australia’s largest banks, raised the variable rate mortgage by 14 bp to 5.38%. Others are expected to follow.

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FX Daily, August 28: Greenback Remains On Defensive

Corrective forces continue to weigh on the US dollar. Sometimes the narratives drive the price action and sometimes the price action drives the narratives. Currently the latter appears to hold sway. The dollar’s downside correction began around the middle of the month, well before Powell’s August 24 Jackson Hole speech.

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FX Daily, August 27: A Dog Day of Summer

Last week’s dollar losses were initially extended in Asia before it came back bid. The euro briefly poked through $1.1650 for the first time in three weeks. However, the gains were sold into, and the euro finished the Asian session near $1.16, where there is a 782 mln euro option expiring, and 2.4 bln euros struck at $1.1625.

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FX Weekly Preview: Macroeconomic Considerations

The force that had pushed the US 10-year Treasury yield to 3% and the dollar above JPY113 at the start of the month, and the euro to $1.13 a couple of weeks ago has dissipated. The 10-year yield is near 2.80%. The dollar was near two-month lows against the yen a week ago, and the euro was back toward the middle of its previous $1.15-$1.18 trading range.

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5 Things Investors Should Know About US Strategic Petroleum Reserves

US Department of Energy announced yesterday offered for delivery between October 1 and November 30, 11 mln barrels of sour crude oil from the Strategic Petroleum Reserves. The move has nothing to do with operationalizing President Trump’s complaint that oil prices were too high. Instead, the sales are part of the fiscal compromise in 2015 budget legislation and the health care act of 2016.

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Merkel, European Autonomy, and the ECB

Merkel has again shown herself to be more wily than most. While pundits, investors, and politicians anticipated she would push hard for a German to replace Draghi as ECB President when his term ends next October. After all, it is German’s turn at the helm, and its interests were ridden roughshod over by the extraordinary and prolonged monetary policy.

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FX Daily, August 24: Greenback Marks Time Ahead of Powell

The US dollar is paring some of yesterday’s gains in quiet turnover ahead of Fed Chief Powell’s speech at Jackson Hole, the week’s last highlight. The euro and sterling are trading inside yesterday’s ranges, which the dollar has extended its gains against the yen to reach a two-week high near JPY111.50.

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FX Daily, August 23: Dollar Rebounds

After correcting lower since the middle of last week, and pushed faster if not further by President Trump’s comments, the US dollar is rebounding against most of the major and emerging market currencies today. After an initial wobble on the back of the FOMC minutes, the greenback’s recovery began in earnest.

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Three Things that may Disappoint Investors

There are three areas that we suspect that many investors are vulnerable to disappointment. NAFTA, trade talks with China, and Powell speech at Jackson Hole on Friday. With problems elsewhere, the Trump Administration has been playing up the likelihood of an agreement as early as today with Mexico, which would be used, apparently to deliver a fait accompli to Canada.

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Cool Video: Bloomberg TV Clip-Dollar Developments

Bloomberg Cool Video

The US dollar was sliding as I joined Vonnie Quinn and Shery Ahn on the Bloomberg Markets show. I tried making the case, as I have in recent posts, that the dollar’s rally in the first half of the month had left it over-extended. Most of the major currencies were outside of their Bollinger Bands a week ago and had begun correcting since August 15.

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Great Graphic: Head and Shoulders Top in Dollar Index

This Great Graphic depicts what appears to be a head and shoulders top in the hourly bar chart of the Dollar Index. The neckline is found near 96.00 and rotating the pattern along it produces a measuring objective near 95.00. The bearish pattern was formed in the last few days, and the Dollar Index was resting near the neckline before Trump’s comments gave it the push.

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FX Daily, August 21: Trump Comments Hit Dollar, Little Impact on Rates

The US dollar is broadly lower following President Trump’s comments yesterday, criticising Fed policy and reiterating his previously made claim that China and the EU are manipulating their currencies. We suggested that last week’s presidential tweet that identified strong capital inflows into the US may not have been written by President Trump.

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FX Daily, August 20: Greenback Consolidates Pre-Weekend Pullback in Quiet Turnover

The US dollar is slightly firmer against most of the major currencies, as the light participation and lack of fresh news see a consolidative tone emerge after the pullback at the end of last week. Although markets in Turkey are closed for a nearly week-long holiday, it has not prevented the lira from weakening. After closing a little below TRY6.02 before the weekend, the greenback has moved to TRY6.15 in the European morning.

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Capital Flocks to the US

The US policy mix gets a privileged place in our understanding of what is the dollar. Tighter monetary policy and looser fiscal policy could be the closest thing to an elixir for currencies.  It is the policy mix that the US is pursuing.  

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FX Daily, August 17: Dollar Limps into the Weekend

The US dollar is trading heavily against most of the world’s currencies today.  The main exceptions come from the emerging markets where the Turkish lira, Russian ruble, and Mexican peso are the chief exceptions, and their losses are modest.  This week’s dollar gains are being pared in largely corrective activity and amid a light news stream. 

The threat of more sanctions on Turkey if it does not release the American pastor is helping the dollar recoup yesterday’s losses and puts it back near TRY6.0.  Turkey has adjusted its policies to make it harder to short the lira, and Qatar signaled it would invest $15 bln.  However, the unorthodox policies have not been addressed, and even if the lira were to stabilize here, the effect of the dramatic slide would work its way

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Great Graphic JPY Struggles at Trendline

This Great Graphic is a weekly bar chart of the dollar-yen exchange rate.  It shows a three-year downtrend line (white line).  The US dollar had popped above it last month, but this proved premature and has not closed about it for a month.  The trendline is found near JPY111.55 now.

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FX Daily, August 15: Lira Rallies on Cut in Swaps, but Fails to Dent Dollar Demand

The Turkish lira is extending yesterday’s recovery today on the back of actions by officials that are aimed at limiting foreign access to the lira to short. Without introducing new capital controls, regulators halved the amount of swap transactions banks can do to 25% of shareholder equity. This is meant to make it more difficult to access lira in the offshore swaps market, which is an important channel.

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Cool Video: CNBC Discussion on Turkey

I had the opportunity to join Professor Hanke to discuss the crisis in Turkey. The professor sketched out his view expressed in a recent op-ed piece in the Wall Street Journal, arguing that Turkey is best served by adopting a currency board, anchoring the lira to hard currency, like the euro or dollar, or gold. 

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FX Daily, August 14: Brief Respite but Little Relief

Corrective pressures grip the capital markets today, helped by the easing of the selling pressure on Turkey, but its more a respite than a relief as no new policy initiatives are behind the lira’s upticks. The implication of this is that it is unlikely to last. In fact, the dollar’s low in early Europe a just above TRY6.41 after trading a little above TRY7.23 yesterday may be about the most that can reasonably be expected.

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Great Graphic: Possible Head and Shoulders Top in Euro

Euro BGN Currency

The euro appears to have carved out head and shoulder top. As this Great Graphic depicts, the euro was sold through the neckline at the end of last week and is 1% below it today. It is not unusual for the neckline to be retested. It is found near $1.15. It also dovetails with our near-term caution given that the euro is likely to close below its Bollinger Band for the second consecutive session (~$1.1440).

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FX Daily, August 13: Turkey Drives Risk-Off, but Pressure Abating

The failure of Turkey to grab the bull by the horns, so to speak, and come to grips with the situation saw the dollar soar above TRY7.23(from TRY6.43 at the end of last week) and to ZAR15.55 (from ZAR14.09). The Mexican peso, the strongest currency this year, and which has been partially protected by prospects of a new NAFTA agreement has suffered as well.

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FX Weekly Preview: Testing the Dollar’s Breakout

The US dollar surged last week, with the Dollar Index rising 1.25%, the most since April. The dollar is being boosted by two drivers. The first is the policy mix and interest rate divergence. The other is the intensification of pressure on emerging market. Turkey has a disastrous combination of more fundamentals, large short-term foreign currency debt obligations, unorthodox policies, and the lack of credibility.

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The Yin and Yang of the US-China Relationship

Chimerica always seemed like an oversimplification of a complex and dialectic relationship between the US and China.  However, it did express an underlying truth, that China’s rise over the last 40 years has been predicated on Deng Xiaoping’s political and economic reforms and, importantly, the world of free-trade (a reduction in tariff barriers to trade) promoted by the United States.  

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FX Daily, August 10: The Dollar Muscles Higher as Turkey Melts Down

The US dollar has surged. The main impetus comes from the dramatic slide in the Turkish lira. After moving above TRY5.0 yesterday, it reached TRY6.30 today before stabilizing a little below TRY6.0 as the European morning progressed. The trigger seemed to be the lack of credibility of the government’s response as investors await officials to elaborate on the outline of the “new economic model” provided yesterday.

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US-Japan Trade Talks

The withdrawal of the US from the Trans-Pacific Partnership trade agreement lift it exposed on two fronts. First, the TPP was going to modernize the NAFTA. Without, the US remains locked in protracted negotiations. A breakthrough in talks with Mexico has been reportedly imminent for weeks.

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Some Initial Consequences of Trade Tensions

The Trump Administration argues that other countries have been taking unfair advantage of the US on trade for years, and what many are calling a trade war is really only the US finally saying enough. The US has taken many several countries, including China, to the WTO for trade violations and wins the vast majority of cases it has brought.

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FX Daily, August 07: Turn Around Tuesday for the Greenback

The US dollar is pulling back today after yesterday’s advance. All the major currencies are higher and even the Turkish lira, which plunged nearly 5% yesterday to cap a six-day slide, is trading firmer today (~@TRY5.25). The dollar’s losses are modest and appear corrective in nature.

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FX Weekly Preview: Dog Days of August Begin

With most of the major central bank meetings and important economic data out of the way, the dog days of August are upon us. In terms of drivers, it means that players will have to look elsewhere for inspiration and it means that market liquidy is likely not at its best.

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Great Graphic: Is Something Important Happening to Oil Prices?

Oil prices are weaker for the third straight day and are off in four of the past five sessions, the poorest run in two months. Supply considerations may threaten a year-old trend line. OPEC and non-OPEC, essentially Saudi Arabia and Russia are making good on their commitment to boost output, and US oil inventories unexpectedly rose.

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Fed Looks to September

There was little doubt in the market’s collective mind that the Federal Reserve, which hiked rates in July, would stand pat today. It did not disappoint. The statement itself was almost identical. Growth was said to be “strong” instead of “solid,” for example, a nuance to be lost on most observers. It recognized that the unemployment rate stabilized after falling.

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FX Daily, August 01: Trade and Japan Drive Markets Ahead of Stand Pat Fed

Investors recognize the risks to growth posed by the tariffs and counter-tariffs being imposed, but the way the US is going about it is also disconcerting. Within a few hours of signals that the US and China were looking to re-engage in high-level talks, which have not taken place for two months according to reports, the US signaled that the 10% tariff on $200 bln of Chinese goods could now face a 25% tariff instead.

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Tensions Beyond Trade

Chinese officials do not seem to appreciate the extent of its isolation. The disruption from the US as Trump positions the US as a revisionist power-one that wants to alter the world order, which it was instrumental in constructing, may have obscured the fact that China’s practices are a source of frustration and animosity broadly and widely.

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FX Daily, July 31: BOJ Prepares for QE Infinity

The Japanese yen has been sold following the adjustments to policy and outlook by the BOJ that will allow the unconventional policies continue for an “extended period of time.” Cross rate pressure and month-end demand have lifted the euro and sterling through yesterday’s highs.

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Great Graphic: USD Pushes Below CAD1.30

For the first time since mid-June, the US dollar has traded below CAD1.30. The greenback is weaker against all the major currencies. However, for the most part, it is still in well-worn ranges, which makes the breakdown against the Canadian dollar even more notable. It is not clear that today’s break will be sustained. Indeed, we lean against it.

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FX Daily, July 30: Equities, Bonds, and the Dollar Start Week Softer

The week’s big events lie ahead. It is seen as the last important week before the dog days of summer when many participants will take holidays. The BOJ’s two-day meeting concludes tomorrow. Speculation that the BOJ is looking for ways to tweak its program continues to spur a small taper-lite tantrum in Tokyo.

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FX Weekly Preview: Three Central Bank Meetings and US Jobs data

The week ahead sees three major central bank meetings and the US employment report. It will likely be the most important work before a hiatus that runs through the end of August. Of course, and perhaps more than ever, market participants are well aware that the US President’s communication and penchant for disruption is a bit of a wild card.

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FX Daily, July 27: Greenback Remains Firm Ahead of Q2 GDP

The US dollar is trading firmly in Europe after consolidating yesterday’s gains during the Asian session and ahead of the first look at Q2 GDP. Yesterday’s economic reports, including durable goods orders and inventory data, saw the Atlanta Fed’s GDPNow tracker lower its forecast to 3.8% from 4.5%.

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FX Daily, July 26: Equities like EU-US Trade Truce more than the Euro

The markets generated a collective sigh when Juncker and Trump announced that there would be no new tariffs while new trade negotiations took place.  This was particularly important because Trump reportedly wanted to press ahead with a 25% tariff on car imports.  It was also announced that the EU would buy more soy and liquid natural gas from the US. 

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Great Graphic: US 2-year Premium Grows and Outlook for G3 Central Banks

Two-year differential between the US and Japan

A cry was heard last week when President Trump expressed displeasure with the Fed’s rate hikes. Some, like former Treasury Secretary Lawrence Summers, claimed that this was another step toward becoming a “banana republic.” Jeffrey Sachs, another noted economist, claimed that “American democracy is probably one more war away from collapsing into tyranny.”

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FX Daily, July 25: Narrow Ranges Prevail

The US dollar is trapped in narrow trading ranges. That itself is news. At the end of last week ago, the US President seemed to have opened another front in his campaign to re-orient US relationships by appearing to talk the dollar down. Contrary to fears, and media headlines of a currency war, the dollar is fairly stable.

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Great Graphic: Is the Euro’s Consolidation a Base?

EUR/BGN, daily

Speculators in the futures market are still net long the euro. They have not been net short since May 2017. In the spot market, the euro approached $1.15 in late-May and again in mid-June. Last week’s it dipped below $1.16 for the first time in July and Trump’s criticism of Fed policy saw it recover. Yesterday it reached $1.1750 before retreating. On the pullback, it held the 61.8% retracement of the recovery (~$1.1640).

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Cool Video: Bloomberg Television–Dollar Outlook

The issue is the dollar’s outlook. The greenback had looked to be on the verge of breaking out higher before the US President expressed disapproval with the Fed rate hikes and, then the following day, aggressively accused the EU and China of manipulating their currencies.

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FX Weekly Preview: It was Supposed to be a Quiet Week

It was supposed to be a quiet week. The economic data and event calendar was light. There were three features, and none would likely disrupt the markets much. The first two are in Europe. The eurozone flash PMI for July, the first insight into how Q3 has begun. The PMI is expected to paint a mostly steady economic activity.

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Euro, Yen, and Equities: Reviewed

US equities and the dollar appear to be moving higher together.  The greenback is near its best level this year against most of the major and emerging market currencies.  The Chinese yuan is not an exception to this generalization.  At the same time, the S&P 500 is at its best levels since the downdraft February, and the NASDAQ set a new record high earlier in the week. 

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FX Daily, July 20: Dollar Consolidates after Trump Wades In

The US dollar is little changed but mostly softer as the week draws to a close. The market is digesting the implications of yesterday’s comments by President Trump about interest rates and foreign exchange, and without fresh economic data, are content to go into the weekend. Since Trump’s comments yesterday, the euro has not been below $1.1625 nor above $1.1680.

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FX Daily, July 19: Greenback Extends Gains

The US dollar is extending its recent gains against most of the world’s currencies.   We continue to see the most compelling case for the macro driver being the diverging policy mixes.  There are also more immediate factors too.  The surprisingly poor UK retail sales report, for example, managed to do what the Brexit chaos and softer than expected CPI fail to do. 

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FX Daily, July 18: Greenback Extends Gains-For Now

After softening in Europe yesterday, the dollar recovered in the North American session with the help of assurances by Fed Chair Powell who reaffirmed the path gradual path despite clear recognition that tariffs threaten wages and growth.  The greenback has extended those gains today and is higher against all the emerging market currencies, expected the Turkish lira, which is slightly firmer.

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Great Graphic: Fed Raising Rates, but Yields Still Negative

3-month US Treasury

The yield on the 3-month US Treasury bill is pushing above 2% today for the first time since 2008. The yield had briefly dipped below zero as recently as late 2015. Although today’s yield seems high, this Great Graphic shows the nominal generic three-month yield going back to 1990. Then the three-month bill yielded 8%. The peak in the last cycle (2006-2007) was a little above 5%.

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FX Daily, July 17: Dollar on Back Foot Ahead of Powell

The US dollar eased in Asia session and the European morning. The greenback had appeared technically vulnerable, and the economic news stream is light. Sterling, unlike most of the other major currencies, remains within yesterday’s range. Yesterday’s high, a little above $1.3290, maybe reinforced a little today by the GBP245 mln $1.33 option that is expiring. Brexit concerns may also be acting as a drag.

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Great Graphic: Two-year Rate Differentials

Two-year interest rate differential between the US and four countries

Given that some of the retail sales that were expected in June were actually booked in May is unlikely to lead to a large revision of expectations for Q2 US GDP, the first estimate of which is due in 11 days.  Before the data, the Atlanta Fed’s GDPNow projects the world’s biggest economy expanded at an annualized pace of 3.9% in Q2. 

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FX Daily, July 16: Dollar Softens a Little as Market Awaits Developments

The US dollar is slightly softer against most of the major currencies but is in narrow ranges ahead of today’s key events, which include US retail sales and the debate in the UK parliament over Brexit.  The yen is the main exception.  The local markets are closed for a public holiday, and the yen did initially strengthen (the dollar eased to ~JPY112.10) but surrendered those gains and consolidating its biggest loss last week in 10 months.

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Great Graphic: Two Stories for Two Trend Lines

The Dollar Index made a marginal new high for the year at the end of June a touch below 95.55. It fell through the start of this week when it reached nearly 93.70. With the earlier gains, the Dollar Index briefly traded above the 61.8% retracement of the pullback (~94.85). A move now below 94.20 would be disappointing.

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Great Graphic: Is Mr Market Thinking About the First Fed Cut?

EDZ0 Comdty - EDZ9 Comdty, Jan 2017-Jul 2018

The US economy is among the strongest among the large economies. Goosed by the never-fail elixir of tax cuts and spending increases, the US economy is accelerating. Nevertheless, we continue to see the fiscal boost as short-lived, and a recent Fed paper suggested that fiscal stimulus in an upswing may not have the same multiplier as during a downturn.

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FX Daily, July 13: Trump Trips Sterling, but Greenback Enjoys Broad Gains

President Trump weighed in on Brexit and spurred the largest drop in sterling in more than two weeks.  Trump encouraged Brexit, but he indicated he “would have done it much differently” and that he “actually told Theresa May how to do it, but she did not listen.”  Trump cautioned that May’s plan would mean it would still be too close to the EU and this would “kill” a free-trade deal with the US.  In effect, Trump backed the harder Brexit camp position.

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FX Daily, July 12: Dollar Remains Firm as Risk Returns

The US dollar rallied yesterday as the escalating trade tensions between the world’s top two economies choked off the animal spirits and a marked down in equities and risk assets.  It remains firm today even as risk has come back.  Equities are mostly higher today and bonds lower.  Emerging market currencies, from Turkey to South Africa are firmer, as is the Chinese yuan. 

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FX Daily, July 11: Escalating Trade Tensions Set Tone for Capital Markets

The US took the first step in making good its threat to put a 10% tariff on $200 bln of Chinese goods in response to the PRC retaliating for the 25% tariff on $34 bln of its exports. The US provided a list of products that will get the new tariffs after the public comment period is completed at the end of next month. This time the list included numerous consumer goods, like digital cameras, baseball gloves, but have left off popular products, like cell phones, tablets, and personal computers. 

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FX Daily, July 10: May Survives to Fight Another Day, but Sterling’s Recovery Falters

The political obituary of UK’s May, who many see as an “accidental” Prime Minister, has been written many times in the past year and a half only to be withdrawn.  Again, it looked like the resignation of two ministers, and a couple of junior ministers was going to spur a leadership challenge. While this still may come to pass, the hard Brexit camp, which has huffed and puffed, simply does not appear to represent a majority of the Tory Party, and possibly the broader electorate. 

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Central Bank Investment Strategies

A survey of central banks and sovereign wealth funds by Invesco sheds light on their investment plans. The traditional separation of markets and the state may be helpful for ideological arguments, but the real situation is more complicated.  Central banks and their investment vehicles (sovereign wealth funds) are market participants.  In some activities, such as custodian, central banks compete with the private sector.

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FX Daily, July 09: Possibility of a Soft Brexit Excites Sterling (too Early?)

After a little wobble, sterling has responded favorably to the resignation of the UK Brexit team led by David Davis. The idea is that a path to a softer Brexit is good for sterling.  In fairness, it is a bit early to reach this conclusion, and the softer dollar tone puts wind in sterling’s sale. There is a GBP244 mln sterling option at $1.3375 that expires today. The June highs were set in the $1.3450-$1.3470 area.  

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FX Weekly Preview: Macro Considerations for the Capital Markets

The triumphalism that followed the fall of the Berlin Wall nearly three decades ago has evaporated.  The Great Financial Crisis and inexorable widening of income and wealth inequalities within countries undermined claims of moral and economic superiority.  Liberal democracies are fighting a rearguard action and the rise of illiberal regimes. 

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FX Daily, July 06: Dollar Slips After Tariffs and Before Jobs Data

The first set of US tariffs aims specifically at China were implemented, and the retaliatory actions were also launched. The tariffs cover hundreds of goods, though the initial amount of trade covered is relatively small at $34 bln. Tariffs on another $16 bln are in the pipeline and could be put into effect in a few weeks. The US is threatening to ramp up its response by imposing a tariff on another $200 bln of Chinese goods, though the details have not been announced.

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FX Daily, July 05: Dollar is Mixed on Eve of US Jobs and Tariffs

The US dollar is softer against most of the major currencies and mixed against the emerging market currencies.  European currencies firmer, with the continued recovery of the Swedish krona on the back of a more hawkish central bank, and the euro poking through $1.17 for the first time in over a week with the help of strong factory orders report from Germany.  Central and East European currencies are leading among emerging markets.  Asian equities continued to move south while European bourses are moving higher. 

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FX Daily, July 03: Markets Trying to Stabilize

The global capital markets are trying to stabilize. US equities recovered from early losses yesterday but this was not enough to stop Asian equities from extending recent losses. The MSCI Asia Pacific Index slipped 0.2% for the sixth decline in the past seven sessions, However, several local markets, including China, Australia, and Korea advanced.

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FX Daily, July 02: Third Quarter Begins With a Thump

The window dressing ahead of the end of Q2 failed to signal a turn in sentiment. Equity markets have taken back those gains and more. The US dollar is broadly firmer, though it was coming off its best levels near midday in Europe, and the three-basis-point slippage puts the US 10-year yield at 2.83%, its lowest in more than a month.

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FX Weekly Preview: Trade and Data Driving Markets

US President Trump is intent on disrupting the post-WWII arrangement that prioritized and ideological conflict over economic rivalries. Last week, it was reported that Trump told his counterparts at the G7 summit that NATO was as bad as NAFTA. NATO’s annual meeting is July 12.

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FX Weekly Preview: Trade Tensions and EU Summit Highlight Q2’s Last Week

We argue there are three major disruptive forces that are shaping the investment climate: the US policy mix in relative and absolute terms, the escalation of trade tensions, and immigration. In the week ahead, trade issues may eclipse the US policy mix, and immigration will compete with the economic and financial agenda at the European heads of state summit at the end of the week.

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FX Daily, June 22: BOE Spurs Dollar Pullback

The Bank of England’s hawkish hold yesterday, spurred by three dissents in favor of an immediate hike, changed the near-term dynamics in the foreign exchange market.  Both the euro and sterling fell to new lows for the year before reversing higher.  Yesterday’s gains are being extended today. 

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FX Daily, June 21: Dollar Driven Higher

The half-hearted and shallow attempts by the currencies to recover appear to be emboldening the dollar bulls today,  The greenback is higher against all major and emerging market currencies today.  Demand for dollars is strong enough to offset the broader risk-off environment that is pulling stocks and core yields lower that is usually supportive of the yen. 

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FX Daily, June 20: Fragile Stability

The day began out with equity losses in Asia before a sharp recovery, perhaps initiated in China. The MSCI Asia Pacific Index was up a little more than 0.5%. The Shanghai Composite fell more than 1% before closing 0.25% better.

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FX Daily, June 19: America First Clashes With Made in China 2025

The escalation of trade tensions between the world’s two largest economies is scaring investors, who are liquidating equities and buying core bonds.  The dollar and yen are the strongest of the major currencies.  The Swiss franc is mostly steady as it too is benefiting from the unwinding of risk trades.

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FX Daily, June 15: Dollar Slips While Escalating Trade Tensions may Roil Markets

The Dollar Index edged higher to its best level this year before turning down as market attention shifts from central banks to trade tensions. Reports confirm that the US will go ahead with the 25% tariff on $50 bln of Chinese goods and provide some specificity today. The final list is expected to be similar to the goods that had been identified in the preliminary list, with an emphasis on electronic goods, apparently on ideas that they may have the largest multiplier effect and the US can challenge some of the areas China has targeted under Made in China 2025.  

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FX Daily, June 14: Dollar Punished Ahead of ECB

The US dollar is slumping against all the major currencies in the aftermath of the hawkish Federal Reserve. In fact, the inability of the greenback to hold on to the gains scored in the initial reaction to the Fed’s hike, optimism on the economy, and the signal of hikes in September and December, foretold today’s push lower.

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FX Weekly Preview: Busy Week Ahead

The week ahead is eventful. The Federal Reserve, the European Central Bank, and the Bank of Japan hold policy meetings. This would make for a busy week by themselves, but there is more. Trade tensions are likely to escalate further, if the US, as scheduled provides a list of $50 bln of Chinese goods that will face another 25% tariff for intellectual property violations.

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Dollar and Yen Rise Amid Heightened Anxiety

With what promises to be an acrimonious G7 meeting, from which the isolated US President will depart early, and a broadening pressure in emerging markets, the US dollar turned better bid late yesterday and is recovering further today.

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Europe’s Woes Multiply

The Markit group that provides many of the PMI surveys noted with today’s reports that the eurozone outlook has “darkened dramatically.” This makes for a poor backdrop for the ECB, which meets next week. However, with price pressures recovering from the Easter-related distortions, the ECB is still on track to finish its asset purchases at the end of the year. This seems largely taken for granted.

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Greenback Corrects Lower

The consensus narrative is that with rising inflation it is understandable that next week’s meeting is live and that the confirmation of such has lifted the euro to ten-day highs, dragging the dollar broadly.  However, to accept this is to accept the debasement of language.  Until now, we dubbed central bank meeting that could result in action as “live.”  For example, given that the Fed has not changed interest rates since the hiking cycle began in December 2015 outside of a meeting with a pre-scheduled press conference. 

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More Color on Japanese Capital Flows and the Euro

The euro put in a low on May 29 a little above $1.15. That is nearly a 10.5 cent decline since the three-year high was set in mid-February. The thing that is difficult for investors and analysts to get their head around is that the speculators in the futures market, who as seen as proxies for trend-followers and momentum traders, continue to carry large euro exposure.

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FX Daily, June 5: Sterling Jumps Ahead, While US Equities Have Small Coattails

The British pound is benefiting from the stronger than expected service and composite PMI readings, which among other things are serving as a distraction from the government’s seemingly tortured approach to Brexit and the sales of part of its stake in RBS for a GBP2 bln loss.  Financials are a drag on the FTSE 100 today (~-0.5% while other major bourses are higher).

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FX Weekly Preview: Macro Matters Now, Just Not the Data

The main concerns of investors do not arise from the high-frequency data that are due in the coming days. Last week, the somewhat firmer than expected preliminary May CPI for the EMU failed to bolster the euro. The stronger than expected US jobs data, even if tipped by the President of the United States, and the pendulum of market sentiment swinging back in favor of two more Fed rate hikes this year did not trigger new dollar gains.

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FX Daily, May 30: Italian Reprieve, Euro Bounces, Trade Tensions Rise

After what could be described as a 15-sigma event yesterday in the Italian bond market, a reprieve today has seen the euro recover a cent from yesterday’s lows. While the political situation in Italy is worrisome, many observers suspect that the new banking rules exacerbated the illiquidity that explains outsized moves.

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What Happened Monday?

Italian politics dominated Monday’s activity. Initially, the euro reacted positively in Asia to news that the Italian President had blocked the proposed finance minister. A technocrat government would be appointed to prepare for new elections.

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FX Daily, May 25: US Dollar Loses Momentum Ahead of the Weekend

The euro and sterling were sold through yesterday’s lows in Asia, but rebounded in Europe, with the help of mildly constructive data in the form of the German IFO and details of UK Q1 GDP. The IFO climate measure matched the April reading and thereby snapped a five-month slide. The expectations component slipped, but the current assessment improved.

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FX Daily, May 24: Greenback Pushes Lower

The US dollar is pulling back after recording new highs for the year against the euro and sterling. The greenback is lower against nearly all the major currencies, but the Canadian dollar. It is also softer against most of the emerging market currencies. The chief exception is the Turkish lira. Yesterday’s 300 bp rate hike could only stem the rot momentarily and the lira’s 2.3% decline today, wipes out 2/3 of the annual rate increase.

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Great Graphic: Euro-Swiss Shows Elevated Systemic Risk

The Swiss National Bank’s decision in January 2015 to remove the cap on the Swiss franc (floor on the euro) that it has set at CHF1.20 is seared into the memory of a generation of foreign exchange participants. It is not exactly clear where the euro bottomed in the frenzied activity that followed the SNB’s surprise move. Bloomberg records the euro’s low near CHF0.8520.

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Italy Defies Gravity and Risk to Fiscal Rectitude

Italian asset markets continue to fare better than many expected. The political uncertainty following the March election has been followed by confidence that the Five Star Movement and the (Northern) League will be able to put together a government in the coming days. If so, Italy would have taken half the time Germany did to cobble a government together after inconclusive elections.

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FX Weekly Preview: Dollar Power

There are several trends in the capital markets at a high-level. The euro and yen’s decline has coincided with sustained rallies in European and Japanese equity benchmarks. Emerging market equities and currencies have been trending lower.

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FX Daily, May 18: EUR/CHF Continues the Collapse

The US dollar is mostly firmer. US yields have stabilized. Asian equities were mostly higher, while European bourses are struggling. Oil prices are steady. There have been a number of sustained trends in the markets that we have been monitoring. The euro, for example, has fallen each day this week. It recorded its low for the year on Wednesday near $1.1765.

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FX Daily, May 17: US Rates Edge Higher, while Dollar Turns Mixed

The Britsh pound was a cent from yesterday’s lows on a press report that claimed the UK cabinet had agreed on seeking to stay in the customs union with the EU beyond the two-year transition period. The report suggested that the UK wanted to still negotiate other trade deals, which would seem to be a Trojan Horse.

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FX Daily, May 16: US Yields Soften After Yesterday’s Surge

The US dollar is mixed today after the Dollar Index rose to new 2018 highs yesterday.  It is being driven by rising US rates, which also punishes short dollar positions. The US 10-year yield rose seven basis points yesterday to nearly 3.10%.  It is consolidating near 3.06% now.  Many see the yield rising toward 3.20%, which would match the mid-2011 high.

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FX Daily, May 15: Firm US Rates Underpin Greenback

US 10-year rates are again probing the air above 3%, and this is encouraging a push back toward JPY110, with the euro slipping toward $1.19.  Asian equities fell, with the MSCI Asia Pacific shedding 0.8%, the most in nearly a month, snapping a three-day advance. China and India were able to buck the regional move. China’s economic data was mostly softer than expected and is consistent with a gradual turn in the cycle as the Lunar New effect fades.

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FX Daily, May 14: US Dollar Slips in Quiet Turnover

The US dollar is sporting a softer profile against most of the major and emerging market currencies to start the new week. It already seemed to be tiring in the second half of last week. With today’s mild losses, Dollar Index is off for a fourth consecutive session, the longest losing streak in over a month. The US and China appear to have taken measure to diffuse the trade tensions between the world’s two largest economies.

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FX Daily, May 11: Dollar Momentum Sapped, Near-Term Pullback Likely

The US dollar pulled back following yesterday’s slightly softer than expected CPI report and this likely marks the beginning of a new phase, with the dollar moving lower. Investors have learned over the past two weeks that neither wages nor consumer prices are accelerating. There is little reason in the recent string of data or official comments to suggest a more hawkish path for monetary policy (e.g., four rate hikes this year).

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FX Daily, May 10: Kiwi Tumbles on Dovish RBNZ, While Sterling Goes Nowhere Ahead of BOE

The US dollar is consolidating in narrow trading against most of the major currencies as participants digest several developments ahead of what was expected to be the highlight today, the BOE meeting and US April CPI. The greenback’s consolidation is giving it a heavier bias against most of the major currencies. The recently strong upside momentum has stalled, but the losses are modest and the euro and sterling are inside yesterday’s ranges.

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FX Daily, May 09: Oil Prices Surge and Dollar Gains Extended Post Withdrawal Announcement

The US dollar is broadly higher as the 10-year yield probes above 3.0%. Disappointing French industrial production and manufacturing data for March provided additional incentive, as if it were needed, to extend the euro’s losses. The euro dipped below $1.1825. The single currency is off a cent this week after falling nearly two last week. A 38.2% retracement of the euro’s gains since the beginning of last year is found a little above $1.1700 and represents the next important target.

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FX Daily, May 08: Dollar Races Ahead

The US dollar’s surge continues. The Dollar Index is testing the space above 93.00. A month ago it was below 90. It does not appear to require fresh developments. The market continues to trade as if there are short dollar positions that are trapped at higher levels and the briefest and shallow pullbacks are new opportunities to adjust positions.

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FX Daily, May 07: Greenback Starts Week on Firm Note

The US dollar recovered from a softer tone in early Asia and is higher against nearly all the major and emerging market currencies as North American market prepare to start the new week. The news stream is light and investors remain on edge geopolitical concerns remain elevated. Oil prices are extending gains, and WTI is above $70 a barrel for the first time since November 2014. Alongside an inverse yield curve, a jump in oil prices typically proceeds economic downturns.

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FX Weekly Preview: Geopolitics Becomes More Salient as Monetary Policy Plays for Time

Say what one will, US President Trump is vigorously projecting what he believes are American interests. There is virtually no sign of the isolationism that many observers had anticipated. Indeed, as we have argued, the America First rejection of the League of Nations that Trump harkens back to was not isolationist as much as unilateralist. And the same is true of the Trump Administration.

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Look Past Disappointing Jobs Data, Luke

The US jobs report was broadly disappointing. However, the Federal Reserve will look through it and investors should too. A June hike is still by far the most likely scenario. The US created 164k net new jobs in April, and when coupled with the 32k upward revision in March, it was near expectations.

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FX Daily, May 04: US Jobs-Not the Driver it Once Was

The US dollar fell last month in response to the disappointing non-farm payroll report. However, in general, the jobs report is not the market mover that it was in the past. With unemployment is at cyclical lows of 4.1% and poised to fall further. Weekly jobless claims and continuing claims at or near lows in a generation, though over qualification is more difficult than previously.

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FX Daily, May 03: Respite to Dollar Short Squeeze

The Australian dollar is higher for a second session. It has been helped today by stronger than expected data in the form of a larger than expected March trade surplus (A$1.57 bln vs. expectations for A$865 mln) and building permits up more than twice as expected (2.6% vs. 1.0%). Today is the first session since April 19 that the Australian dollar has risen above the previous day’s high. Initial resistance is seen near $0.7550 and then $0.7580.

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FX Daily, May 02: Confident Fed Key to New Found Respect for the Dollar

There is a brief respite in the powerful short squeeze that has fueled the dollar’s dramatic recovery. The greenback which was nearly friendless a month ago now has many suitors. It is higher on the year against all the major currencies but the yen (~2.6%), the Norwegian krone (~1.6%) and sterling ~0.9%). It is virtually flat against the euro.

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FX Daily, May 01: Little Help on May Day

Most of the world’s financial centers are closed for the May Day holiday, but the lack of participation has not prevented the extension of the US dollar’s recovery. The Dollar Index has traded above its 200-day moving average for the first time in a year.

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FX Daily, April 30: Merger Monday

Three large corporate deals were announced. T-Mobile appears to have finally figured a way to secure Sprint. It is a $26.5 bln equity tie-up. Marathon Petroleum is reportedly taking Andeavor for $20 bln in cash and stock. Sainsbury is reportedly in advanced talks to buy Walmart’s Asda chain for GBP7.3 bln (~$10 bln) in an equity and cash transaction.

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FX Weekly Preview: Next Week in Context

A year ago, the Dutch and French elections signaled that UK referendum to leave the EU and the US election of Trump did not usher in a populist-nationalist epoch, such as the one that proceeded the last great financial crisis. The euro gapped higher and did not look back.

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FX Daily, April 27: Dollar Puts Finishing Touches on Best Week Since November 2016

The US dollar’s recent gains have been extended, and it is having one of its best weeks since November 2016. The Dollar Index is up 1.7% for the week, as US session is about to start. Though it took this week’s gains to change market’s narrative, the fact of the matter, as we have pointed out is that April is the third consecutive month in which the Dollar Index fell in only one week. That translates into rising 10 of the past 13 weeks.

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FX Daily, April 26: Euro Remains Soft Ahead of Draghi

The euro made a marginal new low early in European turnover and held barely above the spike low on March 1 to $1.2155. So far, today is the first session since January 11 that the euro has not traded above $1.22. The euro stabilized as the European morning progressed, but there seems to be little real buying interest it ahead of Draghi’s press conference following the ECB decision.

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Oil: Supply and Demand Drivers

Oil prices have recovered more than 50% of the decline since the mid-September peak. The next retracement objectives are found near $82 a barrel for Brent and $76.5 for WTI basis the continuation futures contract. The immediate consideration is that supplies have tightened.

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FX Daily, April 24: Stalled US Rates Steal Greenback’s Thunder

The US dollar looked set to launch a new leg higher, but rates stalled, which in turn is unleashing some mild corrective pressures. The US two-year yield has been unable to extend its increase beyond 2.50%, while the 10-year rate has stalled within a whisker of the 3% psychological threshold. The greenback’s momentum did indeed carry it, but by late morning on the Continent, a consolidative tone was evident.

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Great Graphic: Aussie Tests Trendline

It is not that the Australian dollar is the weakest currency this month. Its 0.4% decline puts it among the better performers against the US dollar. However, it has fallen to a new low for the year today. The losses have carried to a trendline drawn off of the early 2016 low near $0.6800.

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FX Daily, April 23: Rising Rates Help Extend Dollar Gains

The new week has begun much like last week ended, with rising rates helping to extend the dollar’s recent gains. The US 10-year yield is flirting with the 3.0% threshold. The two-year yield is firmer, and, like in the second half of last week, the US curve is becoming a little less flat. The market, as we had anticipated, was not so impressed with North Korea’s measures, and Korea’s Kospi edged lowed, and the region-leading KOSDAQ fell a little more than 1% (still up 10% year-to-date).

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FX Weekly Preview: Markets and Macro

Worries about a trade war appear to have eased, at least for the moment, but that does not make investors worry-free. The concerns have shifted toward rising US interest rates, perhaps more than anything else, but general anxiety seems elevated.

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FX Daily, April 20: The Greenback is Alive

The US dollar is set to finish the week on a firm note. It reflects rising US yields, where the 10-year is above 2.90% for the first time since February and the widening two-year different between the US and Germany, which is holding just below 300 bp. It is the fourth consecutive advancing session for the Dollar Index, which is near a two-week high.

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FX Daily, April 19: Markets Calm But Lack Immediate Focus

A light news stream and less trade rhetoric lend the equity markets a positive impulse amid a strong US earnings season while leaving the dollar narrowly mixed. The MSCI Asia Pacific Index rose 0.5% and is up 1% for the week with one session left. It would be the second consecutive weekly advance. The Dow Jones Stoxx 600 has edged higher for a third consecutive session. It is up about 0.7% for the week, and if sustained, would extend the advance for a fourth consecutive session.

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FX Daily, April 17: Dollar Recovers from Further Selling as Turnaround Tuesday Unfolds

After the retreating in the North American session yesterday, despite a rebound in retail sales after three-months of declines, the greenback has been sold further in Europe and Asia. The euro edged through last week’s high near $1.24, and sterling rose through the January high to reach its best level since the mid-2016 referendum. Sterling rose through $1.4375 before the easing after the employment report.

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FX Daily,April 16: Market Struggles for Direction

The Syrian strike over the weekend, and the official indication that “mission accomplished” and that was a limited one-off strike has spurred little market reaction. There is one more loose end, as it were, and that is that the US has indicated it will announce additional sanctions on Russia for its involvement in Syria’s chemical weapon use. The ruble is volatile but slightly firmer to start the week, and while dollar-bond yields are firmer, the ruble benchmark is steady.

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FX Weekly Preview: Still Looking for Terra Firma

The weekend strike by the US, British and French forces against Syria appear to have been conducted in ways that minimize the risks of escalation by Russia. The limited nature of the strike and objectives suggest that the impact on the constellation of forces in Syria will be minimal. There is unlikely to be much of an impact in the global capital markets, though thin markets in early Asia could see a knee-jerk effect.

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Great Graphic: Loonie Takes Big Step toward Technical Objective

For a little more than two weeks, we have been monitoring the formation of a possible head and shoulders top in the US dollar against the Canadian dollar. The neckline broke a week ago. It is not uncommon for the neckline to be retested after the break. That was what happened yesterday. The US dollar recorded an outside down day yesterday.

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FX Daily, April 13: Markets Struggle to Find Footing while News Stream Improves

It had looked to many investors that world was headed for a trade war and an escalating risk war in Syria. But now it seems less clear. US President Trump’s rhetoric on trade took a more constructive tone, and a divided Administration leaves Syria in a bit of a limbo. US equities rallied yesterday, and Asia and European bourses are advancing today, but the conviction may not be particularly strong.

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Great Graphic: Aussie-Kiwi Approaches Trendline

Today is the fifth consecutive session that the Australian dollar has weakened against the New Zealand dollar. It has now fallen to test a three-year old trendline that we show on the Great Graphic, composed on Bloomberg. The last leg down in the Aussie actually began last October, and through today’s low, it is off by a little more than 7%.

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FX Daily, April 11: Mr Market Waits for Other Shoe to Drop

Between Syria, trade tensions, and the US special investigator into Russia’s attempt to influence the US election, market participants are cautious as they wait for another shoe to drop. The US equity market recovery yesterday has short coattails as markets in Asia and Europe struggle. Bond yields are mostly softer, and the US 10-year note yield is dipping back below 1.80%.

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Understanding the Latest International Reserve Figures

At the end of every quarter, the IMF publishes the most authoritative reserve data with a three-month lag. On Good Friday, the IMF published Q4 17 reserve holdings. A recent article on Bloomberg played up an economist’s forecast that euro reserves would increase by $500 bln over the next couple of years. A review of the reserve data may help us evaluate such a claim, which if true, could have important implications for international investors.

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FX Daily, April 10: XI’s Day, but Not So Good for Putin

It did not look so good. The S&P 500 fell about 1.65% in the last couple hours of trading yesterday paring its gains. Press reports indicated that President Trump’s lawyer’s office, house and hotel were the subject of search warrants. A Bloomberg report citing people who knew said that China would consider devaluing the yuan.

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US Jobs Data Optics Disappoint, but Signal Unchanged

The US jobs growth slowed in March more than expected, but the details of the report suggest investors and policymakers will look through it. The poor weather seemed to have played a role. Construction jobs fell (15k) for the first time since last July, and the hours worked by production employees and non-supervisory worker slipped.

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FX Daily, April 09: Asian and European Equities Shrug Off US Decline

US shares slumped before the weekend amid concern that Trump Administration was prepared to escalate the trade tensions with China. However, cooler heads are prevailing, and there is a recognition that the conflict is still in the posturing phase. No sanctions have gone to into effect. As the Economist points out, nearly 100 of the Chinese products the US proposed slap a tariff on are not currently being exported to the US. The US has a 60-day public comment period, and China has not given a date for implementations, but will take its cues from the US.

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Great Graphic: Has the Dollar Bottomed Against the Yen?

The US dollar appears to be carving a low against the yen. After a significant fall, investor ought to be sensitive to bottoming patterns. The first tell was the key reversal on March 26. In this case, the key reversal was when the dollar made a new low for the move (~JPY104.55) and then rallied to close above the previous session high.

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FX Daily, April 06: Trade Trumps Jobs

Trade and equity market volatility, which are not completely separate, continue to dominate investors’ interest. Many had come around to accept that while trade tensions were running high, it was likely to be mostly posturing. This conclusion may have helped lift the S&P 500 around 3% over the past three sessions.

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FX Daily, April 05: Investors Find Comfort in Brinkmanship Blinks

Global equity markets are higher, following the stunning recovery in the US yesterday, where the S&P 500 rallied 76 points or 3% from its lows to it highs, near where it finished. The outside up day is seeing following through today. Without China and Hong Kong, which are on holiday, the MSCI Asia Pacific Index snapped a three-day down draft and closed 0.55% higher.

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FX Daily, April 04: Trade Specificities Rattle Markets

Late yesterday, the US announced that specific tariffs and goods that would be targeted for intellectual property violations. China had warned of a commensurate response and earlier today made its announcement. This sent reverberations through the capital markets, driving down equities, corn and soybean prices (subject to Chinese tariffs). The US dollar was sold, especially against the yen, euro, and sterling.

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FX Daily, April 03: Markets in Search of Footing

The sell-off in US tech shares dragged the market lower. The S&P 500 fell for the sixth session of the past eight and closed below the 200-day moving average for the first time in a couple of years. The sell-off in Asia and Europe is more muted. The MSCI Asia Pacific Index slipped less than 0.1%. The Hang Seng, an index of H-shares, and Korea’s KOSDAQ managed post gains.

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Cool Video: Bloomberg Double Feature

BBG Video

Many are still celebrating the Easter holiday today, but not Tom Keene and Lisa Abramowicz and the Bloomberg team. They hosted me on Bloomberg TV today. As is often the case, the discussion was broad, covering the pressing economic and financial issues.

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FX Daily, April 02: Monday Blues

The US dollar drifted a little lower in Asia to start the week while equities had a slightly heavier bias. The MSCI Asia Pacific Index slipped 0.1%. European bourses are mostly closed for the extended Easter holiday, while the S&P is set to start the new quarter about 0.3% lower. Although the subdued price action may not reflect it, there have been several new economic reports and developments.

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FX Weekly Preview: The Start of Q2

The chief uncertainty has shifted from monetary policy and macroeconomics to the increase of volatility in the stock markets and the prospects of a trade war. Some of the major benchmarks, including the S&P 500, the MSCI Asia Pacific Index, the MSCI Emerging Markets Index, and Shanghai Composite held above the February lows in the retreat during the second half of March.

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Great Graphic: EMU Inflation Not Making it Easy for ECB

Germany, Italy, Fance and Spain HICP, March 2012 - 2018

The Reserve Bank of New Zealand is credited with being the first central bank to adopt a formal inflation target. Following last year’s election, the central bank’s mandate has been modified to include full employment. To be sure this was a political decision, and one that initially saw the New Zealand dollar retreat.

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FX Daily, March 28: Three Developments Shaping Month-End

Today may be the last day of full liquidity until next Tuesday, after the Easter holidays. We identify three developments that are characterizing the end of the month, quarter, and for some countries and companies, the fiscal year. Equity market sell-off, bond market rally, and the continued rise in LIBOR.

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FX Daily, March 27: Global Equities Follow US Lead, Dollar Steadies

We argued that the talk of trade war was exaggerated. The confrontation, strong demands and a climb down is the Art of the Deal, and is part of the way the Trump Administration negotiates. We see striking parallels between the policymakers and tactics with the Reagan Administration’s attempt to pry open Japanese markets.

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FX Daily, March 26: Equity Meltdown Aborted, Dollar Eases

After a poor start in Asia, equities recovered. The MSCI Asia Pacific initially extended last week’s losses and fell to its lowest level since February 12 before recovering to finish near its highs, 0.4% above last week’s close. European markets followed suit. They did not have to take out last week’s lows. The Dow Jones Stoxx 600 is up about 0.4% in late morning turnover.

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FX Weekly Preview: The Investment Climate

The investment meme of a synchronized global upturn has been undermined by the recent string of US and European economic data. The flash March eurozone composite reading fell to 55.3, the lowest reading since January 2017. Although Q4 17 US GDP may be revised higher (toward 2.8% from 2.5%) mostly due to greater inventory accumulation, the curse of weak Q1 GDP appears to be showing its hand again, with forecasts now coming in below 2%.

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Cool Video: Let’s Not Declare Trade War Yet

Trade tensions have risen. No doubt about it, but to consider this a trade war is premature. We should not pretend that this is the first time that the US adopted protectionist measures that ensnarled are military allies. We have been to this dance before.

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FX Daily, March 22: Dollar Trades Off

The US dollar has not recovered from the judgment that yesterday’s that Fed was not as hawkish as many had anticipated. There was no indication that officials thought they were behind the curve or prepared to accelerate the pace of hikes. Powell is comfortable with the broad policy framework that has been established but seemed to have little time for the summing up of the individual forecasts (dot plot).

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FX Weekly Preview: The Fed and More

The most significant event in the coming week is the first FOMC meeting under the Chair Powell. At ECB President Draghi’s first meeting he cut interest rates. He cuts rates at his second meeting as well, underwinding the two hikes the ECB approved under Trichet. At BOJ Governor Kuroda’s first meeting, an aggressive monetary policy was announced that was notable not only in its size, but also in the range of assets to be purchased under the Qualitative and Quantitative Easing (QQE).

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Great Graphic: Potential Topping Pattern for Euro

EUR/BGN Currency Oct 2017 - Apr 2018

The euro appears to be potentially carving out a topping pattern. Recall that after correcting lower last September and October, the euro rallied for three months through January before weakening 1.75% in February. That was its biggest decline since February 2017. The euro’s high print was actually on February 16 near $1.2555, when it posted a key reversal, which is when it makes a new high for the move and then closes below the previous day’s low.

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FX Daily, March 13: Non-Economic Developments Dominate Ahead of US CPI

Many see the eruption of the scandal that threatens senior government officials as yen positive because it weakens those that ostensibly want to depreciate the yen through monetary policy. The scandal involves falsifying documents to conceal a sweetheart deal. The government sold of state-owned land to a school-operator, reportedly with connections to Prime Minister Abe’s wife at an incredibly low price.

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FX Weekly Preview: Another Goldilocks Moment

Spring is around the corner in the Northern Hemisphere, and with it, a sense of a Goldilocks moment. Growth is sufficiently strong to see employment grow and absorb the economic slack. In the US, the participation rate of the key 25-54 aged demographic group has risen and now stands at 89.3%, the highest since 2010.

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FX Daily, March 09: Today is about Jobs, but Not Really

The US Administration has softened its initial hardline position of no exemptions for the new steel and aluminum tariffs. There is little doubt that the actions will be challenged at the World Trade Organization and the idea that national security includes the protection of jobs for trade purposes will be tested. At the same time, US President Trump has agreed to meet North Korea’s Kim Jong Un.

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FX Daily, March 08: Euro Slips Ahead of the ECB Meeting

Expectations that the European Central Bank would change its forward guidance in a substantive way had been one of the factors behind the euro’s appreciation. However, more recently, the anticipation has slackened. The last meeting took place around the same time that many perceived US Treasury Secretary Mnuchin as having abandoned the strong dollar policy.

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FX Daily, March 07: Renewed Threat of Trade War Makes Investors Angry

In response to the resignation of one of the few “globalist” advisers in the US Administration, the resignation Cohn has sent ripples through the capital markets. Stocks have been marked down across the world. The prospects of a trade war are also not good for growth and it may be adding to the pressure on yields.

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FX Daily, March 06: Resiliency Demonstrated

The resiliency of the status quo is again on display. After much chin wagging and finger pointing after the Italian elections and the modest decline in Italian assets, they have bounced back today. Italian bonds and stocks are participating in today’s advance. Italian equities were off 0.5% yesterday and are up a 1.1% near midday in Milan. Italy’s 10-year yield rose three basis points yesterday is off five today.

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Great Graphic: Is the Canadian Dollar a Buy Soon against the Mexican Peso?

This Great Graphic composed on Bloomberg shows the Canadian dollar against the Mexican peso since the start of last year. There have been three big moves. The Canadian dollar trended lower against the peso as it corrected from the sharp sell-off induced in great measure to the candidate Trump’s rhetoric against Mexico. However, shortly before the inauguration, the peso began recovering continued through H1 17.

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FX Daily, March 05: Italian Election Weighs on Italian Assets, but Little Systemic Risk Seen

The US dollar is narrowly mixed. The Japanese yen remains firm. The dollar appears stuck in a narrow range. Near JPY105.20 the seems to be some short-covering pressure in front of JPY105. On the top side, the greenback is encountering offers in front of JPY105.80. Sterling is firm against the dollar as it recovers against the euro. Before the weekend, the euro reached GBP0.8950, its best levels since last November. The euro is testing GBP0.8900 that was previously resistance. The dollar-bloc currencies continue to trade heavily.

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FX Weekly Preview: Thumbnail Sketch Four Central Bank Meetings and US Jobs Data

The German Social Democrats have endorsed the Grand Coalition, ending the period of political uncertainty and paralysis in Germany since the last September’s election. The polls have suggested nearly 60% of the SPD would support joining the government and the actual outcome looks to be closer to 66%. In 2013, when the SPD had a similar vote, three-quarters favored a Grand Coalition. Among the differences is that the SPD public support has waned, and now, according to some polls, is at risk of slipping into third place behind the AfD.

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FX Daily, March 02: Markets Unanchored?

The announcement of the US intention to impose tariffs on imported steel and aluminum on national security grounds has sent ripples through the capital markets. Yet there is certainly more going on here than that. The tariffs, justification, and magnitude have indicated and expected. After reversing lower on Tuesday and selling off on Wednesday, equity investors hardly needed a fresh reason to sell on Thursday.

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FX Daily, March 01: USD Snaps 3-Month Slide, Firm Ahead of Powell Part II

The US dollar rebounded last September and October before the downtrend resumed in November, and lasted through January. The dollar gained broadly last month, except against the yen, which rose almost 2.4% in February. This pattern is evident today, the first trading day of March. The dollar is extending its gains against most currencies but is only managing to consolidate in a narrow range against the yen.

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FX Daily, February 27: Markets Tread Water; Powell is Awaited

The capital markets seem unusually subdued. The US dollar is mostly slightly firmer, except against the euro and Swiss franc among the majors. The MSCI Asia Pacific Index managed to eke out a small gain (0.2%), for a third advancing session, without the help of China, Taiwan, Korea or India. It was really a Japanese story. The Nikkei rallied 1.1%, while excluding Japan the MSCI benchmark was off 0.25%.

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FX Daily, February 26: Dollar Slides as Equities Extend Recovery

The US dollar has begun the new week on heavy footing. It is being sold against virtually all the currencies, major and emerging market currencies. There is one exception, and although the local market is not open, the Mexican peso is under some pressure that could be linked to a dispute between the President of Mexico and the US that prompted the former to cancel a visit to the latter.

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FX Weekly Preview: Three Drivers in the Week Ahead: Data, Speeches, Politics

There are three distinct classes of drivers in the week ahead. The first is high frequency data. The most important of the economic reports include the preliminary estimate of the February inflation in the euro area, the US January income, and consumption data alongside the Fed’s preferred inflation measure, the core PCE deflator, and Japanese retail sales and industrial production figures.

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FX Daily, February 23: Dollar Firms; VIX Set to Close Lower for Second Week

A light economic schedule in North America may help the markets close the week on a quiet note. Perhaps if there is one number that captures this sense, it may be the VIX. It is soft and barring a new disruption today, it is poised to close lower for the second consecutive week, for the first time this year. The US dollar is steady to higher today and barring a reversal, will close stronger on the week against the major currencies.

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FX Daily, February 22: All Eyes on Equities

The dramatic reversal of US shares yesterday in the last hour of trading has once again pulled the proverbial rug beneath the feet of investors. The turn down, moreover, occurred near important technical levels, seemingly adding to the significance. Global equities have followed suit.

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FX Daily, February 21: Markets Mark Time

The economic data stream is picking up, but there is an uneasy calm in the markets. It is almost as if the dramatic drop in stocks has left many with a sense of incompleteness, like waiting for another shoe to drop. The price action has not clarified the situation very much. The equity markets are stalling in front of important chart points as are yields and the dollar.

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Great Graphic: S&P 500 vs Euro Stoxx 600 and Exchange Rates

SPX Index, Nov 2016 - Feb 2018

Today is an important day for equities. After a sharp sell-off earlier this month, stocks staged a recovery last week. The recovery has stalled near retracement objectives, which could be a potential turning point in the market. The Dow Jones Stoxx 600 peaked on January 23 and dropped about 9% through February 9. Through yesterday, it recovered 38.2% of its decline, poking a little above 381.00.

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Cool Video: Bloomberg Interview-Rates, Dollar, and Equites

Bloomberg Tv

In large gatherings of people, from airplanes to theater to conferences, we are often told to know the closest exit. The same is true for investing. No matter one’s confidence when they buy a security, someone is just as convinced on the other side who is selling the security. Well into this 4.5-minute interview (click here for the link) on Bloomberg’s “What’d You Miss” show, Lisa Abramowicz asks the always important question. How will I know I am wrong?

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FX Daily, February 20: Dollar Trades Higher, but Stocks Challenged at Key Chart Point

The dollar is finding better traction today, building on the upside reversal seen before the weekend. The news stream has been light and it seems like primarily an issue of positioning rather than a change in sentiment or the consensus narrative. The focus has shifted from monetary policy and idea that the ECB and BOJ are exiting their extraordinary monetary policy to return of the twin deficit problem in the US.

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FX Daily, February 19: Monday Market Update

The US dollar is narrowly mixed in uneventful turnover. Of note, the dollar selling seen in Asia last week slacken today and the greenback moved above the pre-weekend highs seen in the US. It is the first time in eight sessions, the dollar has risen above the previous day’s high against the yen. Europe seems to be losing interest though, with the dollar near JPY106.60.

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FX Weekly Preview: Four Key Numbers in the Week Ahead

The US markets are closed on Monday, and many parts of Asia will continue to celebrate the Lunar New Year. The economic schedule is fairly light, and market psychology appears fragile after the dramatic activity in equities and what appears to be shifting macro-relationships. To help navigate the challenging investment climate, we identify four “numbers” that can illuminate the path ahead.

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FX Daily, February 16: Worst Week for the Dollar since 2015-2016, While Stocks Continue to Recover

Nearly all the major currencies have risen at least two percent against the US dollar this week. The Canadian dollar is an exception. It has risen one percent this week ahead of today’s local session. Sterling is becoming another exception after disappointing retail sales. It is up just shy of two percent. The Dollar Index is off 2.3% on the week, which would be the biggest weekly loss since 2015.

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Great Graphic: Bears Very Short US 10-Year Ahead of CPI

The US reports January CPI figures tomorrow. The market seems especially sensitive to it. The main narrative is that it is an inflation scare spurred by the jump in January average hourly earnings that pushed yields higher and unhinged the stock market. This Great Graphic comes from Bloomberg and is derived from data issued by the Commodity Futures Trading Commission (CFTC).

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FX Daily, February 15: Stocks Jump, Bonds Dump, and the Dollar Slumps

The significant development this week has been the recovery of equities after last week’s neck-breaking drop, while yields have continued to rise. The dollar has taken is cues from the risk-on impulse from the equity market and the sales of US bonds more than the resulting higher yields. Asia followed US equities higher.

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FX Daily, February 14: Investors Remain Uneasy even as Equities Stabilize

There is an unease that continues to hang over the market. It is as if a shoe fell last week, and most investors seem to be waiting for the other shoe to drop. It is hard to imagine the kind of body blow that the equities took last week without some kind of follow through and knock-on effects. Moreover, the focus today on US CPI may prove for nought.

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Great Graphic: Stocks and Bonds

The relationship between stocks and bonds does not appear to have changed much. It is difficult to eyeball correlations. Question the meaning of a chart that has two time series and two scales and.

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FX Daily, February 13: Tuesday’s Two Developments

There are two important developments today. First, the recovery in the global equity markets is being challenged. Second, the yen has strengthened across the board, and is now at its best levels against the dollar since last September’s low. The MSCI Asia Pacific Index extended Monday’s recovery with another 0.5% gain. However, looking closer, the momentum faltered.

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FX Daily, February 12: Equity Markets Find Firmer Footing, Dollar Softens

The most important development today has been the stability in the equity markets after last week’s meltdown. The recovery from new lows in the US before the weekend set the tone for today’s moves. Tokyo markets were on holiday, and the MSCI Asia Pacific Index excluding Japan snapped a seven-day slide with a nearly 0.6% gain.

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FX Weekly Preview: Recovering from Too Much of a Good Thing?

Too much of a good thing is bad. That, in a nutshell, is an important insight that Hyman Minsky offered about the financial sector, but has broader application. The low volatility that has been a characteristic of the capital markets for the past few years spurred financial innovation to profit from it.

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FX Daily, February 09: Equity Sell-Off Extends to Asia, but More Muted in Europe

The 100-point slide in the S&P 500 and the 1000-point drop in the Dow Jones Industrials yesterday spurred more bloodletting in Asia. The 1.8% drop in the MSCI Asia Pacific Index (for a 6.7% loss for the week) may conceal the magnitude of the regional losses. At one point the CSI 300 of the large Chinese mainland shares was off more than 6% before closing off 4.3% (and 10% for the week). The H-shares index was down 3.9% and 12% for the week.

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Great Graphic: FX Vol Elevated, but Still Modest

With the substantial swings in the volatility of equities that have captured the imagination of journalists and punished investors who bought financial derivatives that profited from the low vol environment, we thought it would be helped to look at the implied volatility of the leading currencies against the US dollar. The Great Graphic looks at the three-month implied volatility for the euro (white line), the yen (yellow line), and sterling (green line) over the past year.

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FX Daily, February 08: Dollar Firms, While Equities Search for Stability

The swings in the equity markets are subsiding, bond yields are firm and the US dollar is extending its recovery. Although US equities closed lower, the MSCI Asia Pacific Index snapped a four-day drop by posting a 0.25% gain. However, the MSCI Emerging Markets Index is off nearly as much, though the range was modest. European markets are also lower, and the range for the Dow Jones Stoxx 600 is the smallest in more than a week.

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Great Graphic: Major Currencies Year-to-Date

This Great Graphic was created on Bloomberg. It shows five major currencies against the US dollar this year. To avoid giving a misleading impression, the currencies are index to start this year at 100 and all the currencies are quoted in the European style of how many dollars the currency purchases. These kinds of charts are not so much for trading, but they help illustrate the relative moves that can be masked by nominal price changes.

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FX Daily, February 07: Guns and Butter May Resolve US Legislative Logjam

After a volatile session in North America, the major equity indices closed higher. In fact, the 1.75% rise in the S&P 500 was the best since November 2016. Asian equities stabilized, and the MSCI Asia Pacific Index was able to eke out a small gain. The European markets are moving higher is also posting early gains and the Dow Jones Stoxx 600 is about 0.45%, which threatens to snap the seven-day slide. However, the main challenge now is that the S&P 500 are trading nearly 1% lower.

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Cool Video: Bloomberg Double Feature–BOE Meeting and the Yield Curve

Chandler

The Bank of England meets tomorrow. Although no one expects a move, it has little to do with the recent market volatility. The FTSE 100 is poised to snap a six-day 7%+ slide. The FTSE 250 fell for seven consecutive sessions through yesterday, shedding 5.75% in the process. The UK’s 2-year yield slipped about seven basis points from last week’s close to58 bp before recovering to 63 bp today, around the middle of this week’s range.

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US Trade Balance is Deteriorating, Despite Record Exports

The US trade deficit swelled in December, and the $53.1 bln shortfall was a bit larger than expected. It was the largest deficit since October 2008. For the 2017, the US recorded a trade deficit of goods and services of $566 bln, the largest since 2008. The deterioration of the trade balance may be worse than it appears. There has been significant improvement in the oil trade balance. In 2017, the real petroleum balance was just shy of $96 bln, the smallest in 14 years.

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FX Daily, February 06: Recovering US Equities Puts Floor Under Europe after Asia Tanks

After the dramatic fall in US equities, Asian equities followed suit. The MSCI Asia Pacific Index fell 3.4% following Monday’s slide of 1.7%. European bourses gapped lower and spent most of the morning moving higher, though large gaps remain. At its worst, the Dow Jones Stoxx 600 was off about 3.3%, and at the time of this writing, it is half as much. US equities initially extended yesterday’s losses, but the S&P 500 has turned higher in the European morning in very volatile activity.

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FX Daily, February 05: Dollar Consolidates while Equity Rout may be Ebbing

Asian equity markets were weighed down by losses in the US markets ahead of the weekend. The MSCI Asia Pacific Index was off 1.4% after the 1.0% pre-weekend loss. The Nikkei gapped lower and shed 2.5% and has fallen in eight of the past nine sessions. The notable exception in Asia was the Shanghai Composite. The 0.75% was led by the financial sector amid talk that a report later this week will show a strong jump in yuan lending from banks, which are pushing in as the shadow banking is squeezed out.

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FX Daily, February 02: A Note Ahead of US Jobs Report

The US dollar is sporting a firmer profile against all the major currencies after weakening yesterday. Frequently, it seems the Australian dollar leads the other currencies, and we note that it is making a new low for the week today. Briefly, in Europe, it slipped below its 20-day moving (~$0.7985) average for the first time since December 13.

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FX Daily, February 01: Fed’s Hawkish Hold Keeps Dollar Consolidation Intact

The Yellen Fed ended on a high note. She took over the reins the of Federal Reserve an implemented a strategic normalization process monetary policy, and helped engineer not only the first post-crisis rate hikes but also the beginning of unwinding its balance sheet. Most reckon she has done an admirable job at the Federal Reserve, not only in terms of the economic performance on her watch but also the nimble execution policy.

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FX Daily, January 30: Dollar and Bonds Stabilize; Equities not Yet

The US dollar is paring yesterday’s gains, and the 10-year Treasury yield has slipped back below the 2.70% level after pushing 2.73% briefly. European bonds have also eased, with yields one-two basis points lower. It is thus far a mild Turn Around Tuesday but suggests that the market psychology that has driven the dollar lower and yields higher persistently since mid-December have not been broken.

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FX Daily, January 29: A Brief Word

The US dollar is modestly firmer, but nothing to suggest a outright correction rather than consolidation. However, have a dramatic drop over the past month, much more than we think is justified by macroeconomic developments and interest rates, we think the dollar may have overshot.

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FX Weekly Preview: Market Confusion and New Inputs

Many investors are confused, and the official communication only fanned the confusion. Before turning to next week’s key events and data, let’s first spend some time, working through some of the confusion. There was no change in policy last week. The US did not suddenly become protectionist. It did put tariffs on solar panels and washing machines.

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Initial Thoughts on Draghi

ECB President Draghi was unable to arrest the US dollar’s slide and euro’s surge. But he did not try particularly hard. While many investors are a bit stumped by the pace and magnitude of the dollar’s slump, Draghi seemed to imply that it was perfectly understandable given the recovery of the eurozone economy.

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Did Mnuchin Signal a Policy Shift Today?

Did US Treasury Secretary Mnuchin signal a change in the US dollar policy? Probably not. As Mnuchin and President Trump have done before, a distinction was drawn between short- and longer-term perspectives. In the short-term, a weaker dollar says Mnuchin, is good for US trade and “other opportunities”. In the longer-term, Mnuchin explicitly acknowledged, “the strength of the dollar is a reflection of the strength of the US economy.”

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FX Daily, January 26: Trump-Inspired Dollar Short Squeeze Fades Quickly

It was dramatic. Following the BOJ and ECB’s rather mild rebuke of dollar’s depreciation, US President Trump cautioned that his Treasury Secretary comments were taken out of context, and in ant event, he, the President ultimately favored a strong dollar. The dollar, which had continued fall after Draghi’s post-ECB meeting comments, shot higher in the US afternoon in response to Trump’s comments.

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FX Daily, January 25: And Now, a Word from Draghi

With a backdrop of concern about US protectionism and a possible abandonment of the 23-year old strong dollar policy, and among the weakest sentiment toward the dollar in at least a decade, the ECB takes center stage. What a turn of events for Mr. Draghi, the President of the European Central Bank.

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FX Daily, January 24: Dollar Takes Another Leg Lower

North American session sold into the dollar’s upticks and Asia followed suit, taking the greenback to new multi-year lows against the euro and sterling while pushing it below the JPY110 level for the first time since last September. US trade action has become latest element of the narrative the seeks to explain the dollar’s slide and the decoupling of the greenback from interest rates.

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Great Graphic: Is Aussie Cracking?

AUD BGN Currency, Jul 2017 - Jan 2018

The Australian dollar bottomed in early December $0.7500 after having tested $0.8100 a couple of times in September. Since early December, however, the Australian dollar appreciated by nearly 6.5%. As it tested the $0.8000 area, the momentum faded.

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FX Daily, January 23: Dollar Stabilizes Near Recent Lows

The US dollar has come back better bid in late Asian activity. The session highlight was the BOJ meeting. BOJ maintained forecasts and policy. There was a small tweak to the inflation assessment, noting that prices were skewed to the downside, and said there was no change in inflation expectations. Last time it has said expectations were weakening. It also reiterated that there was no policy implication to the bond operations.

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FX Daily, January 22: Dollar Remains Heavy

The US dollar closed last week on a firm note, but it has been unable to build on its gains to start the new week. News that Germany’s SPD agreed to enter formal negotiations with Merkel’s CDU/CSU alliance saw the euro open in Asia around a half a cent higher. However, sellers emerged near $1.2275 but seemed to lose their nerve as the pre-weekend low near $1.2215 was approached.

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FX Weekly Preview: ECB and BOJ Meetings Could be Key to Dollar Direction

The US dollar has been marked lower since the middle of last month. It flies in the face strong growth, rising inflation expectations, and greater conviction that the Fed will continue to raise interest rates this year. Moreover, an oft-cited knock on the dollar, the widening current account, may be offset this year by the impact from US corporations repatriating earnings that have been kept offshore.

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FX Daily, January 19: Dollar Crushed as Government Shutdown Looms

The US dollar is broadly lower as the momentum feeds on itself. Asia is leading the way. The Japanese yen, Taiwanese dollar, Malaysian Ringgit, and South Korean won are all around 0.45% higher. Asian shares also managed to shrug off the weakness seen in the US yesterday. The MSCI Asia Pacific Index advanced 0.7%. It is the sixth consecutive weekly gain. The dollar’s drop comes as US yields reach levels now seen in year. The 10-year yield is at its highest level seen 2014, while yields from bills to three-year paper are at their highest level since 2008.

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FX Daily, January 18: Currencies Consolidate After Chop Fest

The US dollar rallied in the North American afternoon yesterday and the timing coincided with the release of the Fed’s Beige Book that saw several districts report wage and price pressures. The US 10-year yield moved toward toward 2.60%, and helped by speculation that as US companies repatriate earnings kept abroad that they may have to liquidate the investments, some of which are thought to be in Treasuries.

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China and US Treasuries

The US Treasury market was consolidating yesterday’s 7.5 basis point jump in 10-year yields when Bloomberg’s headline hit. The claim was that Chinese officials are “wary of Treasuries”. Yields rose quickly to test 2.60% and the dollar moved lower. It is difficult to determine the significance of the claim as the Bloomberg story does not quote anyone.

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FX Daily, January 17: Dollar Stabilizes After Marginal New Lows

After a shallow bounce in Asia and Europe yesterday, the dollar slipped lower in North American yesterday. Asia was happy to extend those dollar losses, and the greenback was pushed to marginal new lower in Asia, but has come back in the European session. The next result is a choppy but flattish consolidation compared with last week’s closing prices.

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Great Graphic: Treasury Holdings

Treasury Holdings

The combination of a falling dollar and rising US interest rates has sparked a concern never far from the surface about the foreign demand for US Treasuries. Moreover, as the Fed’s balance sheet shrinks, investors will have to step up their purchases.

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FX Daily, January 16: Dollar Given a Reprieve

After extending its recent slide yesterday, which the US markets were on holiday, the dollar is firmer against all the major currencies and most of the emerging market currencies. There does not seem to be macroeconomic developments behind the dollar’s stabilization, and the gains are quite minor, suggesting a pause in the downtrend rather than a reversal at this juncture.

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FX Weekly Preview: Drivers and Views

It is not easy to recall another week in which there were so many potential changes to the broad investment climate. The relatively light economic calendar in the week ahead may allow investors to continue to ruminate about some of those developments. Here we provide thumbnail assessments of the main drivers.

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Great Graphic: Euro Monthly

EUR/BGN Currency, 2002 - 2018

The euro peaked in July 2008 near $1.6040. It was a record. The euro has trended choppily lower through the end of 2016 as this Great Graphic, created on Bloomberg, illustrates. We drew in the downtrend line on the month bar chart. The trend line comes in a little below $1.27 now and is falling at about a quarter cent a week, and comes in near $1.26 at the end of February.

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FX Daily, January 12: Euro Jumps Higher

There is one main story today and it is the euro’s surge. The euro began the week consolidating it recent gains a heavier bias, but the record of last month’s ECB meeting surprised the market with its seeming willingness to change the forward guidance early this year in a more hawkish direction. This spurred a 0.7% gain in the euro back above $1.20. The euro stayed bid in Asia, but took another leg up (~0.75%) in response to reports that a preliminary deal was struck between the CDU/CSU and the SPD in Germany to begin negotiations on another grand coalition.

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Is the BOJ Tapering?

The G3 central banks are in flux. The Federal Reserve is gradually raising rates and allowing the balance sheet to shrink by not fully reinvesting the maturing proceeds. The ECB will purchase half as many bonds in the first nine months of 2018 as it did in the last nine months of 2017.

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FX Daily, January 11: Capital Markets Calmer, Greenback Consolidates

As market participants were just getting their sea legs back after the start of the year, it was hit by a one-two punch of ideas that BOJ policy was turning less accommodative and that Chinese officials were wary of adding to their Treasury holdings. Then late yesterday, a news wire reported that Canada suspected the US was going to withdraw from NAFTA.

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