Category Archive: Global Macro

Emerging Markets: What has Changed

Chinese President Xi visited Hong Kong for the first time. The US has proposed $1.3 bln of arms sales to Taiwan. The Egyptian government raised fuel and cooking gas prices. significantly as part of the IMF program. South Africa’s parliament has scheduled the no confidence vote on President Zuma. Brazil’s central bank lowered its inflation target. Brazil after President Temer was charged with corruption.

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Basic China Money Math Still Doesn’t Add Up To A Solution

There are four basic categories to the PBOC’s balance sheet, two each on the asset and liability sides of the ledger. The latter is the money side, composed mainly of actual, physical currency and the ledger balances of bank reserves. Opposing them is forex assets in possession of the central bank and everything else denominated in RMB.

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Automation’s Destruction of Jobs: You Ain’t Seen Nothing Yet

Automation--networked robotics, software and processes--has already had a major impact on jobs. As this chart from my colleague Gordon T. Long illustrates, the rise of Internet technologies is reflected in the steady, long-term decline of the labor force participation rate-- the percentage of the populace that is actively in the labor market.

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Fading Further and Further Back Toward 2016

Earlier this month, the BEA estimated that Disposable Personal Income in the US was $14.4 trillion (SAAR) for April 2017. If the unemployment rate were truly 4.3% as the BLS says, there is no way DPI would be anywhere near to that low level. It would instead total closer to the pre-crisis baseline which in April would have been $19.0 trillion. Even if we factor retiring Baby Boomers in a realistic manner, say $18 trillion instead, what does the...

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Now China’s Curve

Suddenly central banks are mesmerized by yield curves. One of the jokes around this place is that economists just don’t get the bond market. If it was only a joke. Alan Greenspan’s “conundrum” more than a decade ago wasn’t the end of the matter but merely the beginning. After spending almost the entire time in between then and now on monetary “stimulus” of the traditional variety, only now are authorities paying close attention.

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More Pieces of Impossible

On his company’s earnings conference call back on Valentine’s Day, T-Mobile CEO John Legere was unusually feisty. Never known for shyness, Legere had reason behind his bluster. T-Mobile had practically built itself up on price, being left the bottom tier of the wireless space practically to itself. That all changed, however, as both Verizon and Sprint were set to escalate the wireless price war.

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Chinese Basis For Anti-Reflation?

Yesterday was something of a data deluge. In the US, we had the predictable CPI dropping again, lackluster US Retail Sales, and then the FOMC’s embarrassing performance. Across the Pacific, the Chinese also reported Retail Sales as well as Industrial Production and growth of investments in Fixed Assets (FAI). When deciding which topics to cover yesterday, it was easy to leave off the Chinese portion simply because much of it didn’t change.

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Emerging Markets: Week Ahead Preview

EM FX ended last week on a firm note, though most were still down for the week as a whole. Commodity prices stabilized, but the balance remains fragile, in our view. We remain cautious, especially with regards to the high beta currencies such as BRL, MXN, TRY, and ZAR.

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Can We See a Bubble If We’re Inside the Bubble?

If you visit San Francisco, you will find it difficult to walk more than a few blocks in central S.F. without encountering a major construction project. It seems that every decrepit low-rise building in the city has been razed and is being replaced with a gleaming new residential tower.

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Defying Labels

Last month US Industrial Production rose rather quickly. Gaining more than 1.1% month-over-month, it might have appeared that the US economy once dragged into downturn by manufacturing and industry was finally about to experience its belated upturn. But frustration is how it has always gone, not just in this latest phase but for all phases since around 2011. Each good month is followed immediately by a disappointing one. What should be...

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Global Asset Allocation Update:

There is no change to the risk budget this month. For the moderate risk investor, the allocation between risk assets and bonds is unchanged at 50/50. There are no changes to the portfolio this month.

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Emerging Markets: What’s Changed

MSCI announced it will include 222 China Large Cap A-shares in its Emerging Markets Index. Czech central bank is pushing out rate hike expectations. Hungary central bank eased again using unconventional measures. MSCI announced that it has launched a consultation on reclassification of Saudi Arabia from Standalone to Emerging Market status.

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Repeat 2015; An Embarrassing Day For The Fed

Today started out very badly for the FOMC. At 8:30am the Commerce Department reported “unexpectedly” weak retail sales while at the very same time the BLS published CPI statistics that were thoroughly predictable. Markets, at least credit and money markets, have gained a clearer idea what the Fed is actually doing and why. It’s not at all what the media suggests.

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Retail Sales Weren’t All That Bad, Meaning They Were The Worst

Taken in comparison to the last few years, today’s retail sales report wasn’t that bad. Total sales for May 2017, including autos, grew by 5.17% year-over-year (NSA). That was the highest growth rate since last February. The 6-month average is now just shy of 4%, the best since early 2015. It is clear the US economy has shrugged off the effects of last year’s downturn.

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Repeat 2014: Praying Again To The God of ‘Global Growth’

One of the more troubling aspects of mainstream commentary in 2014 was its blandness. Statements were made with a purpose but also purposefully avoiding specifics. It was common to hear or read “the economy is improving” without being shown why or how in convincing fashion. After suffering a second bout of weakness in 2012 and 2013, unexpected of course, everyone simply believed those words because why not.

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The ‘Dollar’ Devil Shows Itself Again In China

Some economic and financial conditions leave a yield curve as a more complex affair.Then there are others that are incredibly simple.The UST yield curve is the former, while right now the Chinese Treasury curve is the latter.

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American Expectations, Chinese Prices

The Federal Reserve Bank of New York has for the past almost four years conducted its own assessment of consumer expectations.Though there are several other well-known consumer surveys, FRBNY adding another could be helpful for corroborating them. Unfortunately for the Fed, it has.

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Bi-Weekly Economic Review: Has The Fed Heard Of Amazon?

The economic surprises keep piling up on the negative side of the ledger as the Fed persists in tightening policy or at least pretending that they are. If a rate changes in the wilderness can the market hear it? Outside of the stock market one would be hard pressed to find evidence of the effectiveness of all the Fed’s extraordinary policies of the last decade.

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Emerging Markets: Preview of the Week Ahead

EM FX was mixed Friday to cap off a mostly lower week. Obviously, we're seeing a bit of a washout in EM after the hawkish FOMC. Market was overly complacent and very long EM going into the FOMC meeting. The big question is how deep this selloff gets. For the better part of this year, EM dips have been met with renewed buying. We remain cautious on EM and think that investors should avoid the high beta currencies like ZAR, TRY, BRL, MXN.

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Deciphering Curves

What is the yield curve supposed to look like? It’s a simple question that doesn’t actually have an answer. And because it doesn’t, there is a whole lot of confusion about bond yields.

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