Tag Archive: macro

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

2023-08-05

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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...

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August 2023 Monthly

2023-07-29

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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...

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Week Ahead: For the Millionth Time, Markets Exaggerate

2023-07-15

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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...

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Week Ahead: Is the Dollar’s Downtrend Resuming?

2023-07-08

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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....

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July 2023 Monthly

2023-07-01

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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...

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

2023-06-24

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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...

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

2023-06-17

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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...

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

2023-06-10

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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...

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

2023-06-03

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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...

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June 2023 Monthly

2023-05-27

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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...

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

2023-05-20

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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...

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Week Ahead: Does the Dollar have Legs?

2023-05-13

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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...

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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

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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...

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May 2023 Monthly

2023-04-29

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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...

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Ueda Chairs First BOJ Meeting, and US and EMU Provide First Estimate of Q1 GDP: The Week Ahead

2023-04-22

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2023-04-22

As April draws to a close, the systemic stress in the banking sector continues to subside, and the market is turning its attention to likely rate hikes by Federal Reserve and European Central Bank in early May. Although, as in March, the market sees the May hike to 5.25% to be the last Fed hike. Before the bank stress, the swap market had been leaning to a 5.75% terminal rate. It is still early to fully appreciate the magnitude and duration of the...

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The Dollar Bounces but is it Sustainable? The Week Ahead

2023-04-15

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2023-04-15

Investors and businesses are wrestling with conflicting impulses. On the one hand, economic growth seems sufficiently strong to allow the Federal Reserve, European Central Bank, and the Bank of England to continue to counter elevated price pressures. They are set to hike rates next month. On the other hand, last month's banking stress is seen translating to a lower and sooner peak in policy rates. Before the bank stress emerged, the market had...

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US and Chinese Inflation Highlight the Week Ahead, While the Bank of Canada Stands Pat

2023-04-08

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2023-04-08

Bank shares rose in Japan and Europe for the second consecutive week, but the KBW US bank index fell nearly 2% after increasing 4.6% in the last week of March. Emergency borrowing from the Fed remains elevated ($149 bln vs. $153 bln). Bank lending has fallen sharply (~$105 bln) in the two weeks through March 29. This appears to be a record two-week decline. Commercial and industrial loans had fallen a little in the first two months of the year...

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April 2023 Monthly

2023-04-01

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2023-04-01

There were three ways the monetary cycle was going to turn. First, unemployment could have reached unacceptable levels. This did not happen. Labor markets have proven thus far to be resilient among most G10 countries. Second, a significant and sustained drop in price pressures could end the tightening cycle. This has yet to materialize in a meaningful way. In some countries, governments have energy subsidies, and these measures only offer temporary...

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Banking Crisis Roils Capital Markets, Overshadowing High-Frequency Data

2023-03-25

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2023-03-25

The banking crisis is the newest shock to roil the capital markets. Pragmatic action by central banks, governments, and the private sector has thus far been insufficient to allow investors to be confident that the problem is ring-fenced. Credit Suisse was a pre-existing problem that flared up to the breaking point. The government's offer to take the first CHF9 bln in losses and the controversial triggering of clauses allowing AT1 bondholders to be...

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FOMC and BOE Meet As Investors are Not Persuaded that Efforts to Contain the Financial Crisis are Sufficient

2023-03-18

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2023-03-18

It was widely understood that the Federal Reserve would raise rates until one of three things took place: inflation was clearly on course to return to the target, the labor market would weaken precipitously, or systemic stress threatened. At the same time, the shocks we have had to cope with, Covid, supply chains, and Russia's invasion of Ukraine were commonly cited, and the. The re-pricing of assets as interest rates began normalizing may have...

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