Tag Archives: macro

Two of the most tumultuous weeks of the year are behind us. The sweeping GOP victory in the US cannot be considered anything but a mandate. The shock experienced in 2016 is not being repeated, but there is limited visibility  Perhaps, the stance articulated at the press conference by Fed Chair Powell that the central bank does not "guess, speculate, or assume" about the policies of the next administration and the impact on efforts to achieve the dual mandate of full...

The US dollar extended its dramatic recovery against the major currencies for the fourth consecutive week. The dollar's rally seems to stand on two-legs. The first shift in the expected trajectory of Fed policy, which has been partly encouraged by relatively firm economic data, both surveys and real sector reports. The derivatives market has from discounting 75 bp of cuts before the end of the year to not be quite sure that 50 bp will be delivered. This leg may be...

The combination of the stronger-than-expected US September jobs report and the slightly firmer inflation readings lifted US interest rates and the dollar. Several Fed officials spoke, and it did not appear that the employment or price reports changed views as much as it had impacted the capital markets. The September Summary of Economic Projections found a median projection (and 10 officials) that 50 bp of cuts in Q4 would be appropriate, but seven thought only one...

There were several developments last week that shape the investment climate. First, the September US employment report was stronger than expected and this reinforces the message from Fed Chair Powell. After initiating the easing cycle with 50 bp cut, the central bank is not in a rush and two quarter-point cuts in Q4 is most likely scenario. Once again, the market has converged to the Fed rather than the other way around. Second, the new Japanese government and the...

With the Federal Reserve's 50 bp rate cut, seven of the G10 central banks have begun an easing cycle that will extend, broaden, and may accelerate going forward. Australia and Norway will likely join the party next year, while some, like Canada and Sweden may increase the pace of its cuts in Q4. Beijing jumped into the mix, with rate cuts, reserve requirement reductions, and a flood of liquidity aimed at supporting the housing and property markets, and industry...

After the US jobs report and Fed speak, the market scaled back the odds of a 50 bp cut at the September 17-18 FOMC meeting. It settled last week slightly below a 30% chance. The odds were shaved for the second consecutive week. Fed officials have indicated that the full employment mandate is now of greater significance given its growing confidence that inflation is heading back toward its 2% target. Next week's August CPI and PPI are likely to be consistent with...

As the summer in the Northern Hemisphere gives way to the fall, monetary policy and politics will shape the investment and business climate. Even if history does not repeat itself, there are still insights to be gleaned. In the last few months of 2023, the market expected aggressive interest rate cuts this year. Although global rates fell, the dollar fell. In Q1 24, the markets moved more into line with the signals from the central banks. Global rates rose and the...

In the middle of last week, the Fed funds futures discounted 103 bp of cuts this year. There was some movement but after Fed Chair Powell’s, but the market finished the week with 104 bp of cuts priced into the Fed funds futures curve. The two-year note yield settled at a three-week low and the dollar slumped. The Dollar Index's 1.7% lost last week, its fifth consecutive drop and the largest weekly decline of the year. Although the euro rose to $1.12, its best level...

There is no need to debate whether it was tightening by the Bank of Japan or the fourth consecutive rise in the US unemployment rate that spurred the dramatic market reaction at the start of last week. It seems reasonable that both played a role. And the dramatic unwinding of short yen positions, which appeared to help fuel a recovery of the Swiss franc, Chinese yuan began before the Bank of Japan meeting and the US employment report. Moreover, on the eve of the...

A dollar-centric narrative would note that the greenback rose against most of the G10 currencies last week. Yet, the dollar, the most actively traded currency, was arguably not the prime mover in recent days. Rather, the unwinding of carry trades seems to be the driver of much of the price action. The low yielding yen and Swiss franc were the only G10 currencies to rise against the US dollar. The Australian and New Zealand dollars were the worst performers, losing...