Tag Archive: macro
Week Ahead: How Hard Will Officials Push Against the Easing of Financial Conditions?
The combination of
soft US price data and mostly weaker economic data lends credence to a new
economic convergence. The economic news stream from Europe, Japan, and China is
not particular inspiring. Rather the convergence is driven by the materialism
of the long-anticipated slowdown of the world's largest economy. This new
convergence is negative for the dollar. Our conservative working hypothesis
continues to be that the US dollar's gains from...
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Week Ahead: Will Softer US Price Pressures and Weakness in Retail Sales Weigh on the US Dollar and Rates?
The
recent dollar gyrations seem tightly linked to US rates. The FOMC meeting and
October jobs report saw the two-year Treasury yield drop 17 bp and the dollar
was taken broadly lower. Indeed, against several currency pairs, it approached
three standard deviations below its 20-day moving average. What seemed like a
mild adjustment to the over-extended technical development turned into a rout
after a weak reception to the US 30-year bond auction to...
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Week Ahead: Have the Markets Turned?
An inflection point may have been reached last week. Despite,
Chair Powell's insistence that the Fed did not adopt an easing bias and
confirmed that there is still no talk of a cut, the market knows better. The
implied yield of December 2024 Fed funds futures contract is about 4.45%, which
is to say, the market is discounting not only the two cuts in the Fed's
September projections, but a third cut, and the risk again (~60%),
of a fourth cut. The...
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November 2023 Monthly
November may be an in-between month. It will be a month of
limited monetary policy actions and a period of heightened geopolitical
tensions. Fiscal policy may be more interesting, with a Japanese supplemental
budget, more measures expected from China, and a debate in Europe over the
re-implementation of the Stability and Growth Agreement. In the US, the drama that played out in the House of Representatives could still leave the federal
government...
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Week Ahead: Q3 US GDP to Underscore Divergence, while ECB and Bank of Canada Stand Pat
The US dollar was mixed last week.
One would have thought, based on the geopolitical tensions, the stronger than
expected US economic data that resulted in upward revisions to Q3 GDP
forecasts and a more than 30 bp surge in US 10-year yields, the greenback
would have performed better. The Dollar Index fell by almomst 0.5% last week, its biggest weekly loss in three months. It is down so far this month. On the other hand, gold rallied 2.5% to
extend...
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Week Ahead: Softness in US Real Sector, Key UK and Canadian Data, and China’s Q3 GDP
The markets absorbed two shocks last week. The
war in Israel that seems to know of no restraint underpinned oil prices and
appeared to help boost gold and the Swiss franc, the only G10 currency to
appreciate against the dollar. The other was the continued deluge of US
Treasury supply, the coupon auctions that tailed and higher than expected PPI
and CPI. Nevertheless, the US 10- and 30-year yields fell nearly 20 bp last
week, snapping a six-week...
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Week Ahead: King Dollar Stalls
The US reports September CPI on
October 12 and the first decline in three months in the year-over-year rate is
expected. However, the price action itself may overshadow not only the CPI but
other high-frequency data in the week ahead. US grew more than twice the number
of jobs in September as economists expected. US interest rates and the dollar
jumped initially, and stocks were dumped. And then they reversed. Many
narratives will be spun to...
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October 2023 Monthly
There are four large
macro forces shape the investment and business climate here at the start of the
last quarter of the year. First, the US economic outperformance has been stark.
This has helped underpin US rates and bolsters the dollar. The divergence is
likely to narrow in coming months as US growth slows rather than stronger
growth prospects in other high-income countries. Second, Beijing has taken
numerous measures, which although stopping...
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Week Ahead: Digesting Implications of the FOMC, EMU and Tokyo August CPI, and China’s PMI
The
most important outcome of the last week's flurry of central bank meetings was
the median forecast of Fed officials for 50 bp less in cuts next year than it
had anticipated in June as it revised up its growth forecasts for this year and
next. The prospect for higher rates for pushed equities lower. Sterling
and the Swiss franc were the weakest currencies in the G10 last week, falling
by a little more than 1.1%. Both central banks did not hike...
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Week Ahead: US CPI to Make the Doves Cry even if Core Eases, and Euro Vulnerable to ECB Regardless of Decision
The
diverging economic performance between the US and Europe, Japan, and China on
the other hand is stark. Yet, a greater divergence may be between widespread
discussion of de-dollarization and its incredible strength in the foreign
exchange market. The eight-week rally in the Dollar Index is the longest in
nine years. According to SWIFT, which is not comprehensive but remains by far
the largest platform, the dollar's role in international payments...
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September 2023 Monthly
There is a sense of new
divergence. Most economists, including the staff at the Federal Reserve, no
longer think the US is recession-bound. Unprecedented in modern times,
inflation has fallen sharply, and unemployment has not risen, and the economy
appears to be enjoying its third consecutive quarter, and the fourth in the
past five, above what the Federal Reserve regards as the non-inflationary pace
(1.8%). At the same time, and despite being...
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Week Ahead: Slowing US Jobs and Softening EMU Inflation
The
Jackson Hole symposium marks the end of summer just as much as the autumn
equinox next month. It has been a tough few months for bond markets as yields
have soared. For the US economy, which has proven more resilient than many,
including Fed officials thought, and a sharp increase in anticipated supply of
Treasuries, the rise in yields may be understandable. The rise in Japanese
government bond yields may also make sense given the rise in...
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Week Ahead: Yen’s Recovery Ahead of the Weekend may Give the Yuan a Reprieve or Be Ready for BRICS to Disappoint High Hopes for a Dollar Alternative
There seem to be three large
forces shaping the investment climate. First is the resilience of the US
economy, with four consecutive quarters of above trend growth. It appears that the US economy may be expanding faster than the 2.4% annualized pace seen in Q2. Many of the
largest naysayers have capitulated. Second, the monetary tightening cycle is
widely seen as almost over, and many are beginning to fine tune forecasts for
the first cut by the...
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Week Ahead: Anniversary of the End of Bretton Woods Sees Resilient Dollar and Firmer US Rates: Can it Persist?
Tuesday
marks the 52nd anniversary of the end of Bretton Woods currency arrangement,
which pegged the dollar to gold and other currencies to the dollar. Some
economists have tried framing their views in terms of Bretton Woods II and
there have even been proponents of Bretton Woods III, but these are informal
arrangements at best, no reciprocity, or mutual obligations. The point of the
matter is that the end of Bretton Woods ushered in the modern...
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Week Ahead: Is the Dollar’s Run since Mid-July Over?
The US
and China report July CPI figures in the coming days and they are likely moving
in opposite directions. Headline US CPI is likely to rise for the first time
since peaking in June 2022. China's CPI has been slowing and is likely to go negative
on a year-over-year basis. It finished last year at 1.8% and in June was
unchanged year-over-year. The divergence of policy is what is driving force of
the exchange rate, and the question is not...
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August 2023 Monthly
Prices
pressures are abating, albeit gradually, while economic momentum is faltering.
The data in the coming weeks will help shape expectations for rate decisions
for September. As the market pushed back against the Federal Reserve's forward
guidance that anticipated two hikes in the second half, the US dollar fell
against the G10 currencies, but found support beginning around the middle of
the July as the market was reluctant to return to pricing...
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Week Ahead: For the Millionth Time, Markets Exaggerate
After experiencing one of its worst weeks of the year, the US
dollar is stretched from a technical point of view while the short-term
interest rate adjustment has gone as far as it can without resurrecting ideas
of a Fed rate cut this year. Given the lighter economic calendar in the coming
days, we suspect that the greenback may consolidate ahead of the FOMC meeting
that concludes on July 26. The derivatives market shows that a quarter-point
hike...
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Week Ahead: Is the Dollar’s Downtrend Resuming?
The dollar appears at an inflection point. Its
failure to draw much traction even as US rates rose may be an important tell. The
US 2-year yield rose to a new multiyear high near 5.12%, while the 10-year
yield set a new high for the year around 4.09% after the
employment report. The dollar's broad gains in the second half of last month
looks corrective. The underlying downtrend, which we argue began last September
and October, looks set to resume....
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July 2023 Monthly
Price pressures
remain elevated but economic momentum slowed as Q2 wound down. Many market
participants think this poses a dilemma for policymakers and are skeptical that
the hikes signaled will be delivered because of economic weakness or financial
strains. These developments are thought to limit the tightening cycle before
the inflation genie can be stuffed back into the bottle.Yet, this may underestimate the resolve of most of the
major central...
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After Disappointing PMIs, Attention will Turn Back to Inflation in the Week Ahead
As the month and quarter wind down, inflation readings are
featured. The US May PCE deflator, which is the targeted measure is reported.
Canada and Australia report May CPI. The eurozone reports the preliminary June
CPI, and Japan see Tokyo's June CPI, which serves a similar function. Leaving
aside Japan, the others, including the UK have signaled that the monetary
tightening cycle will be extended into H2. That said, the poor preliminary PMI...
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