When looking at the current state of the Chinese economy it is important to note what happened leading up the ongoing predicament. By managing the USD/CNY exchange rate the Chinese factory worker was essentially funding excess consumption in the United States. One of the many perks enjoyed by global reserve issuer. The factory worker obviously did not do this out of his own volition; on the contrary, he was duped into it by swallowing the propaganda spewed out by party apparatchiks in...
Read More »Emerging Markets: What has Changed
1) China relaxed some rules on foreign capital flows 2) Malaysian Prime Minister Najib is tightening his grip on power 3) The Czech National Bank (CNB) has tilted more dovish 4) Ukrainian Economy Minister Abromavicius resigned abruptly, throwing the ruling coalition into turmoil 5) Argentina unexpectedly settled with holdout Italian investors 6) Press reports suggest Brazil’s central bank is considering rate cuts later this year.In the EM equity space, UAE (+6.2%), Indonesia (+4.0%),...
Read More »Employment Details Better than the Headlines
The US created fewer jobs than anticipated and the December gain was revised lower. However, the other details were favorable--better than expected. The unemployment rate ticked down to 4.9%, a new cyclical low, despite the rise in the participation rate (62.7% from 62.6%). Average hourly earnings were stronger than expected at 2.5%. The consensus expected a 2.2% year-over-year pace. The December pace was revised to 2.7% from 2.5%. The average weekly hours also ticked up to 34.6...
Read More »Great Graphic: Gold after its Trough?
Keynes and others may have referred to gold as a barbarous relic, but many investors continue to track it. In early January, we warned that gold appeared to be breaking out of a short-term bottoming pattern.It had taken out a three-month downtrend line, which we suggested was part of a triangle pattern. Gold also traced out a double bottom pattern. The triangle pattern pointed to a move toward $1110 and the double bottom projected to around $1135. The yellow metal poked through $1157...
Read More »Pessimistic BOE Shakes but Doesn’t Break Sterling
Sterling has neared the 50% retracement of the 11.5 cent decline since mid-December. It is found near $1.4660. After easing ahead of the BOE announcement, sterling was sold to $1.4530 on the initial headlines that showed the BOE was cutting its growth, inflation, and wage forecasts. However, the short-sterling futures had already largely discounted the rates being low for longer, and UK debt instruments also sold off, and after the initial flurry, sterling stabilized and recovered...
Read More »Dollar Retreat Extends
The US dollar remains under broad pressure after yesterday's sharp decline. Neither dovish comments by ECB President Draghi, nor the Reserve Bank of New Zealand have managed to reverse the gains of their respective currencies. Similar, the rise in US yields and firm equities have failed to push the yen lower. Investors and policymakers are trying to link news developments to the price action, but it seems to be a bit of a stretch. It is true that NY Fed President Dudley, who had...
Read More »3.4. More Thoughts on Negative Rates
The Bank of Japan surprised investors by introducing negative rates last week. Leave aside the fact that the negative rates do not go into effect for more than another week, and even when in effect, will apply to a relatively small amount of deposits at the central bank. The important point is that it is another central bank to introduce negative rates. Moreover, the yields of Japanese bonds through eight-year maturities have turned negative. In comparison, German yields are...
Read More »Dollar Edges Lower, Markets Trying to Stabilize
The US dollar is sporting a softer profile today as the global capital markets are trying to stabilize. Oil prices have steadied, with WTI back above $30. Bond markets are narrowly mixed though the 10-year US Treasury is steady near 1.85%. Asian and European equities followed US markets lower, but American equities have stabilized, and ahead of the ADP employment estimate and the ISM for non-manufacturing, S&P 500 is set to open slightly higher. The dollar continued to shed the...
Read More »Great Graphic: Falling Equities and US Treasuries Blunt Impact of BOJ’s Surprise
The yen is the strongest currency today. Many are still referring to it as a safe haven. However, this strikes us as a misuse of the concept. Investors are not flocking to the yen to find quiet place to ride out the storm. Rather the yen's strength is a reflection of the turmoil. As we have explained the yen and euro have been used to finance the purchases of other assets. As those assets are liquidated, the funding currency is bought back. The dollar, euro and yen are the most...
Read More »Cameron vs Brexit: Mission Accomplished
The EC draft proposals in response to the UK’s demands have been enthusiastically embraced by Prime Minister Cameron. The wires quote Cameron as saying "I would opt in to EU membership on these good terms." The proposals presented by European Council President Tusk are weak on details that are still to be decided, though Cameron quickly seized upon them to claim: I have delivered commitments in my election manifesto." It has yet to be seen if it is sufficient to convince several of...
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