Many financial centers in Asia and Europe are on holiday today, and those that are open, are experiencing a minimum of activity. Turnover may pick up briefly in the North American morning, but conditions will remain thin and only those who need to transact will. The US reports weekly jobless claims and the Chicago PMI. The holiday-shortened week may limit the changes in the weekly jobless claims though we note that the four-week moving average finished 2014 near 287k, and now it...
Read More »Yen is Lower for Fourth Year, Euro for Second
The US dollar will finish 2015 higher against both the euro and yen. Sometimes those of us who follow the economic and financial news closely can get caught up with the short-term fluctuations. As traders that is what we do. . Investors, however, can take a longer look at developments. Taking a step back, we note that this is the fourth consecutive year that the yen has fallen against the dollar. The greenback closed 2011 near JPY77. It will likely finish this year near JPY120....
Read More »Quiet but Choppy Markets as Activity Winds Down
The foreign exchange market is becalmed, leaving the US dollar narrowly mixed in uneventful and light turnover. The euro has been confined to less than a third of a cent range. Yesterday it briefly dipped below its 20-day moving average for the first time since the ECB met earlier this month. It remains in the upper half of the two-range ($1.08-$1.10) that has confined prices most of this month. There was only one close outside of this range (December 9) since that ECB meeting. The...
Read More »US-European Threat Perceptions Diverge
The trajectories of the monetary policy at the Federal Reserve and the European Central Bank are diverging. It is the keystone of our anticipation of further euro weakness in the year ahead. In addition to this monetary divergence, there is a geopolitical divergence that will be of growing significance. At the heart of the geopolitical divergence lies asymmetrical threat perceptions. Simply, if crudely put, the US perceives a greater threat from Russia's actions than many in...
Read More »Cool Video: Big Picture Dollar View and Comparative Inflation
I had the privilege of talking with Scarlet Fu and Joe Weisenthal on Bloomberg TV. They gave me an opportunity to discuss my big picture view of the dollar and the Obama dollar rally. While the Reagan dollar rally was driven by the policy mix, and the Clinton dollar rally was driven by the tech bubble, the Obama dollar rally is being driven by monetary policy divergence. Divergence itself has a bit of a history. The first phase was about what other countries were doing, namely easing...
Read More »Stocks and Commodities Higher, Bonds and Dollar Mostly Lower
The US dollar is narrowly mixed. The euro and yen remain within yesterday's ranges, while sterling continues to trade heavily. The stabilization of oil prices has not lifted the Canadian dollar, while the other Antipodean currencies turn higher. Emerging market currencies are mostly lower, though the South African rand is slightly firmer. The Russian ruble's decline has been extended into the fourth sessions and brings its loss this month to 8.5%, the worst performing emerging market...
Read More »What Is Money Printing?
There is a populist idea of money printing. The idea is that banks can just print what they want, enriching themselves in a massive fraud. But, does it really work this way? Let’s start with a simple case, which is clearly not money printing. We will build a series of examples by adding one element at a time, working our way up to banks, and the central bank. Then we can examine this idea of printing. Henry Homeowner finds the perfect house, goes to a bank and gets a mortgage. He is...
Read More »What Is Money Printing?
There is a populist idea of money printing. The idea is that banks can just print what they want, enriching themselves in a massive fraud. But, does it really work this way? Let’s start with a simple case, which is clearly not money printing. We will build a series of examples by adding one element at a time, working our way up to banks, and the central bank. Then we can examine this idea of printing. Henry Homeowner finds the perfect house, goes to a bank and gets a mortgage. He is...
Read More »Three Rate Differentials to Note
During this holiday period, participation is light and order-driven activity can push prices more than usual. Investors should not let the noise and gyrations obscure the bigger picture. We continue to place the divergence of monetary policy at the center of our narrative. Barring a significant negative surprise from the labor market, we expect the Fed to hike rates again, with March as the most likely timeframe. We are cognizant that the recent US data has disappointed, and that...
Read More »Weaker Commodities and Stocks, Firm Bonds, Mixed Dollar
Australia, New Zealand, UK markets closed for Boxing Day. After rallying last week, oil prices are off 2%, base and precious metals lower. European core and peripheral bond markets are highs, with yields slipping mostly 2-3 bp. No end to the political uncertainty in Spain, but Spanish 10-year bonds are matching regional performance. Equities have a heavier bias. Asian shares were mixed. The Nikkei rose 0.6% while the Shanghai Composite fell 2.6%. Reports suggest that the...
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