Tag Archive: macro

Week Ahead: Digesting Implications of the FOMC, EMU and Tokyo August CPI, and China’s PMI

2023-09-23

by

2023-09-23

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...

Read More »

Week Ahead: US CPI to Make the Doves Cry even if Core Eases, and Euro Vulnerable to ECB Regardless of Decision

2023-09-09

by

2023-09-09

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...

Read More »

September 2023 Monthly

2023-09-02

by

2023-09-02

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...

Read More »

Week Ahead: Slowing US Jobs and Softening EMU Inflation

2023-08-26

by

2023-08-26

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...

Read More »

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

2023-08-19

by

2023-08-19

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...

Read More »

Week Ahead: Anniversary of the End of Bretton Woods Sees Resilient Dollar and Firmer US Rates: Can it Persist?

2023-08-12

by

2023-08-12

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...

Read More »

Week Ahead: Is the Dollar’s Run since Mid-July Over?

2023-08-05

by

2023-08-05

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...

Read More »

August 2023 Monthly

2023-07-29

by

2023-07-29

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...

Read More »

Week Ahead: For the Millionth Time, Markets Exaggerate

2023-07-15

by

2023-07-15

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...

Read More »

Week Ahead: Is the Dollar’s Downtrend Resuming?

2023-07-08

by

2023-07-08

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....

Read More »

July 2023 Monthly

2023-07-01

by

2023-07-01

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...

Read More »

After Disappointing PMIs, Attention will Turn Back to Inflation in the Week Ahead

2023-06-24

by

2023-06-24

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...

Read More »

Week Ahead: Greenback Looks Set to Bounce after the Recent Drubbing

2023-06-17

by

2023-06-17

The week ahead is less eventful than the week that just passed, which saw the anticipated hike by the ECB and the small cut by the PBOC. The Fed delivered the widely tipped hawkish hold and the US CPI continued to decelerate. The dollar fell against the G10 currencies last week but the yen.  Sterling, and the Canadian dollar rose to new highs for the year,  Momentum indicators are stretched.  This coupled with risk-reward considerations suggest...

Read More »

US CPI, Fed, ECB, BOJ and the Week Ahead

2023-06-10

by

2023-06-10

Of the three G3 central banks that meet in the days ahead, the market is the most confident of a rate hike by the European Central Bank. The market sees a hawkish hold from the Federal Reserve. However, the idea of a skip, a topic which even Fed officials have broached, would seem to pre-commit to another hike, and this is not typically the central bank's modus operandi. Moreover, it may be difficult for the Fed to resume hikes in July if inflation...

Read More »

Week Ahead: Australia and Canada–Hawkish Hold? US Bill Issuance Jumps

2023-06-03

by

2023-06-03

True to the historic pattern, the US debt ceiling was used by the party not in control of the executive branch to exact spending concessions. Despite the extreme partisanship, the brinkmanship tactics, and fears that this time would be different, there was no default. As Bismarck once quipped, "Laws are like sausages and it is best not seen them being made." Still, as a consequence, the rebuilding of the Treasury's account and bill...

Read More »

June 2023 Monthly

2023-05-27

by

2023-05-27

June is a pivotal month. The US debt-ceiling political drama cast a pall over sentiment even if it did not prevent the dollar from rallying or the S&P 500 and NASDAQ from setting new highs for the year. It is as if the two political parties in the US are playing a game of chicken and daring the other side to capitulate. Both sides are incentivized to take to the brink to convince their constituents that they secured the best deal possible. No...

Read More »

Week Ahead: US Debt Ceiling Drama Continues and the Dollar’s Two-Week Rally Stalls

2023-05-20

by

2023-05-20

Mostly stronger than expected economic data, hawkish rhetoric by several Fed officials, some signs of progress on the perverse drama over the debt ceiling, and a solid week for bank shares helped the dollar extend its recent recovery. The greenback rose to new highs for the year against the Japanese yen and Chinese yuan. The euro took out April's low (~$1.0790) and sterling traded briefly below $1.24. The US two-year note yield takes a six-session...

Read More »

Week Ahead: Does the Dollar have Legs?

2023-05-13

by

2023-05-13

There are different ways to measure it, but the dollar just put in its best week of the year. The greenback rose against all the G10 currencies, and the Dollar Index rose by the most since last September. It also appreciated against most emerging market currencies, with the notable exceptions of a handful of Latam currencies. It seems to be an overdue technical correction. Few genuinely believe that the US will default given the ominous...

Read More »

Week Ahead: Hawkish BOE, US and China CPI, but is the Fed Really Going to Cut Rates by 75-100 bp This Year?

2023-05-06

by

2023-05-06

The combination of the US bank stress, the approaching debt ceiling, and the Fed's opening the door to a pause in rates weighed on risk sentiment and dragged the greenback lower. KBW's indices for large and regional bank shares bled 7.4%-8.0% lower last week to cut through March's lows like a hot knife through butter. Still the price action was constructive ahead of the weekend. US Treasury Secretary Yellen warned that the X-date when the...

Read More »

May 2023 Monthly

2023-04-29

by

2023-04-29

May will feature likely rate hikes by the Federal Reserve, the European Central Bank, and the Bank of England. The banking stress that erupted in March appears contained, though one regional bank's dramatic loss of deposits saw it rekindle at the end of April. What makes the May rate hikes important is that the derivatives markets are confident (again) this is the last hike for the Fed. The swaps market anticipates two more hikes from the BOE and...

Read More »