Tag Archives: currencies

For every action there is a reaction. Not only is that Sir Isaac Newton’s third law, it’s also a statement about human nature. Unlike physics where causes and effects are near simultaneous, there is a time component to how we interact. In official capacities, even more so. Bureaucratic inertia means a lot more than just resistance to change, it also means, at times and in certain capacities, all sorts of biases. When the bureaucracy predicts one set of circumstance,...

Give stimulus a chance, that’s the theme being set up for this week. After relentless buying across global bond markets distorting curves, upsetting politicians and the public alike, central bankers have responded en masse. There were more rate cuts around the world in August than there had been at any point since 2009. And there’s more to come. As Bloomberg reported late last week: Over the next 12 months, interest-rate swap markets have priced in around 58 more...

Federal Reserve policymakers appear to have grown more confident in their more optimistic assessment of the domestic situation. Since cutting the benchmark federal funds range by 25 bps on July 31, in speeches and in other ways Chairman Jay Powell and his group have taken on a more “hawkish” tilt. This isn’t all the way back to last year’s rate hikes, still a pronounced difference from a few months ago. The common forecast relies entirely on the subjective...

Bond yields have tumbled this morning, bringing the 10-year US Treasury rate within sight of its record low level. The catalyst appears to have been the ISM’s Manufacturing PMI. Falling below 50, this widely followed economic indicator continues its rapid unwinding. Back in November 2018, at just about 59 the overall index had still been close to its multi-decade high. Over the next nine months through the latest update for August 2019, it has shed almost 10 points....

Copper prices behave more deliberately than perhaps prices in other commodity markets. Like gold, it is still set by a mix of economic (meaning physical) and financial (meaning collateral and financing). Unlike gold, there doesn’t seem to be any rush to get to wherever the commodity market is going. Over the last several years, it has been more long periods of sideways. That’s what makes any potential breakout noteworthy. Dr. Copper’s place in the hierarchy is...

It isn’t inflation which is driving gold higher, at least not the current levels of inflation. According to the latest update from the Bureau of Economic Analysis, the Federal Reserve’s preferred inflation calculation, the PCE Deflator, continues to significantly undershoot. Monetary policy explicitly calls for that rate to be consistent around 2%, an outcome policymakers keep saying they expect but one that never happens. For the month of July 2019, the index...

Revisions to second quarter GDP were exceedingly small. The BEA reduced the estimate by a little less than $800 million out of nearly $20 trillion (seasonally-adjusted annual rate). The growth rate therefore declined from 2.03502% (continuously compounded annual rate) to 2.01824%. The release also gave us the first look at second quarter corporate profits. Like the headline GDP revisions, there wasn’t really much to them. At least not when viewed in isolation....

This is a companion piece to last week’s Monthly Macro report found here. The Treasury market continues to price in lower nominal and real growth. The stress, the urgency, I see in some of these markets is certainly concerning and consistent with what we have seen in the past at the onset of recession. The move in Treasuries is by some measures, as extreme as the fall of 2008 when we were in a full blown panic. That to me, is evidence that this move is overly...

After trading overnight in Asia, Japan’s government bond market is within a hair’s breadth of setting new record lows. The 10-year JGB is within a basis point and a fraction of one while the 5-year JGB has only 2 bps to reach. It otherwise seems at odds with the mainstream narrative at least where Japan’s economy is concerned. Japan JGB, Jan 2014 - Jul 2019 - Click to enlarge Record lows in Germany, those seem to make sense. By every account, the German...

The Chicago Fed’s National Activity Index (NAI) fell to -0.36 in July. That’s down from a +0.10 in June. By itself, the change from positive to negative tells us very little, as does the absolute level below zero. What’s interesting to note about this one measure is the average but more so its rate of change. The index itself is a product of econometric research. Economists had been searching for an alternative to the unemployment rate in order to increase the...