Tag Archives: Featured

The broad interpretative framework we developed since late 2014, one that centers the dy-synchronization of the major economies, will retain its usefulness into the New Year and beyond.  The first phase of divergence was characterized by the Federal Reserve standing pat after winding down their open-ended asset purchase operations (QE3+) while many central banks from high income countries, including the eurozone, Japan, China, Canada, Australia, New Zealand, Sweden, and Norway eased...

Speculative position adjustments in the currency futures were minimal in the immediate aftermath of the ECB's December 3 meeting and US employment data the following day. However, activity dramatically increased in the days ahead of the FOMC meeting on December 16.   In most Commitment of Traders reports the gross position adjustment of 10k or more contracts is seen in three or four of the 16 gross currency positions we track.  In the latest report, which covers the five sessions before...

The dollar rose against all the major currencies over the past week.  The divergence meme we have emphasized has continued to unfold.  The ECB eased policy at the start of the month.  Less than 48 hours after the Fed hiked rates, the BOJ tweaked its asset purchase program to sustain it.  Holiday-thin markets make for more treacherous conditions than usual.   The news stream lightens, and participation will fall off until January 4.     The key question for many short-term participants...

1) Argentina eliminated capital controls and allowed the peso to float2) Argentina also eliminated export taxes on agricultural goods that include beef, wheat, and corn3) Fitch joined S&P in cutting Brazil to sub-investment grade BB+ with a negative outlook4) Brazil’s Supreme Court ruled that impeachment proceedings can move forward5) Banco de Mexico hiked rates for the first time since 20086) Under strong pressure from the financial markets, South African President Zuma reinstated...

The Greek crisis that dominated the European discussion in the first half of the year was barely ending when attention turned to the refugee problem.   While it often seemed that all of Europe was united against Greece, the refugee problem is significantly more divisive, though southern Europe, especially Italy and Greece are the front lines.   In the financial crisis, we emphasized the linkage between solvency and sovereignty.  The less solvent a country was, the more sovereignty was...

The Bank of Japan was the fourth major central bank to meet this week.  Sweden and Norway kept policy unchanged.  The Fed hiked.  The BOJ was not expected to do anything.  Governor Kuroda surprised the market with largely operational tweaks to what Japan calls Qualitative and Quantitative Easing.  Initially, and perhaps with the help of headline reading algos, the yen sold off and Japanese shares rallied.  As cooler, or perhaps human, heads prevailed, the markets reversed.   There are...

We will not spend much time discussing what the FOMC did as tons of ink have been spilled on that already. We will rather spend more time on what the FOMC did not do. A short recap will suffice; the FOMC did raise the interest rate band by 25 basis points to 0.25 – 0.5 per cent from the seven yearlong band of 0 – 0.25 per cent. No surprise there as this move was well communicated weeks in advance. As discussed in Unintended Consequences of Liftoff the recent move to secure a floor in the...

For five years, governance reforms at the IMF have been stymied by the refusal of the US Congress to accept a new and higher quota (money) to the IMF.  This has frustrated efforts to integrate the developing countries, especially the large ones, like China, better into the global economy.  It may have also helped spur China to develop parallel organizations, like  the Asian Infrastructure Investment Bank. The omnibus spending and tax bill that looks likely to be approved by Congress and...

Asia extended the US dollar's post-Fed gains while Europe has seemed content to consolidate the move, perhaps waiting for US leadership.  Much of the commentary about the Fed's action have noted that the FOMC statement used the word "gradual" not once but twice evidence of its dovishness.     The Fed's dot plots continued to signal that the majority of officials see a 1.375% Fed funds rate at the end of 2016 as appropriate.   The Fed may call this gradual, but the December 2016 Fed funds...

The Federal Reserve delivered a hawkish hike.  The dot plot reflects expectations for four rate hikes in 2016.   There were no dissents.  This is important. It underscores the decisiveness of the decision.  There have been three voting Fed members that were thought to be likely dissents.    The Fed will also continue to reinvest maturing securities until the normalization process is well underway.  We think it may be an issue near mid-year at the earliest.  We recognize that some think...