SNB & CHF

(from my colleagues Dr. Win Thin and Ilan Solot) EM starts the week on an uncertain footing. Commodity prices were off sharply until comments by Saudi Arabia lifted them, reversing the trend in commodity-sensitive assets. The dollar is also back on the rise, pressuring EM FX even as a December FED hike is now just about fully priced in. In South America, the victory of the market-friendly candidate in Argentina and better political winds in Brazil have also given the region some hope for...

The dollar-bloc currencies and the Norwegian krone were the strongest major currencies last week but are leading the downside today.  The slump in commodity prices is taking a toll.  WTI is off by nearly 3%.  Copper is off about half as much, and gold is off about half as much as copper.   More broadly, the US dollar is firm across the board.   Large euro bids had been rumored to have been stacked near $1.06.  The euro got as near it as possible without going through (according to...

Surveys show that around 90% of primary dealers and economists expect the Fed to raise interest rates in the middle of December. Over the past month, the two-year US note yield has risen by nearly 37 bp to 91 bp.   The implied yield of the December Fed funds futures contract has risen by 4.5 bp to 21.5 bp at the close before the weekend. It is the highest yielding close in more than a month.  It fully discounts a 25 bp rate hike, IF one assumes that the effective Fed funds rate will...

The price of gold dropped six bucks, and silver seven cents. Without much price action, let’s look a few other angles to gain some perspective. First, here’s the chart of both silver and the decidedly not-monetary metal copper. The Prices of Silver and Copper in Gold There’s a good correlation, with the biggest divergence being late 2014 through early this year. For copper, not being money, to hold out at a high price before dropping looks like hope in the recovery. Or if not that, then at...

(Correction: The analysis first presented here was based on voting at the August discount rate meeting, not the September meeting.  Here is the link to the Fed statement following the August and September.   At the September meeting, eight of the 12 Federal Reserve banks advocated a hike in the discount rate.  Note that despite the advocacy of a hike in the discount rate, the Fed's record stated: "No sentiment was expressed for changing the primary credit rate before the Committee's...

1.  The continued build of short currency futures positions characterizes the changes in the speculative positioning.  All the currency futures we track saw an increase in gross short positions. This is what drove the large net short positions.  One thing this means is that late shorts are in weak hands, and as we have seen in the Australian dollar, vulnerable to a squeeze.   2.  There were five significant (10k+ contracts) gross currency adjustments in the CFTC reporting week ending...

The US dollar tended to broadly consolidate its recent gains over the past week.  Data and officials mostly confirmed what most investors had already anticipated.  The Federal Reserve is most likely to hike rates in the middle of December. The ECB will most likely ease policy further just shy of two weeks before the Fed meets.  The Bank of Japan is in no hurry to step up its already aggressive asset purchase program. The Chinese yuan will most likely be included in the next SDR basket...

The US dollar is firm against the major currencies and nearly all the emerging market currencies as well to close out the week (and month) Participants are clearly focused on next week's events, and in particular, the prospect of additional easing measures by the ECB.  Also, next week's speeches by Yellen and the monthly jobs report is expected to underpin expectations for the Fed's lift-off in the middle of December.   However, before those events, China is very much center stage.  The...

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SWAP spreads recently took a nosedive and are once again trading at negative levels, even for shorter maturities. As can be seen from the chart below, treasury yields, here represented by the 10 year maturity, rose during QE policies programs contradicting the very raison d’être spouted by the central bankers. Interestingly enough we also see the same pattern in SWAP spreads. As QE programs were enacted SWAP spreads started to move upwards, just to rollover as the central bank program...