Tag Archives: newsletter

Due to the holidays, the CFTC has been releasing its Commitment of Traders report late.  With this week's  report, the normal Friday release schedule resumes.   The latest report covers the shortened week through January 5.  It is not surprising to find that speculative position adjustments were minor.  There was only one gross position adjustment of more than 8k contracts, and that was the long yen. Speculators increased their holdings by half to 67.5k contracts from 45k.   What is...

A tumultuous start of the year saw the US dollar turn in a mixed performance.   Emerging market currencies and the dollar-bloc softened.  Sterling was in this camp, losing about 1.2% against the dollar.  On the other hand, the euro, Swiss franc, and the yen were firmer. Market positioning, the unwinding of short funding currencies and long risk assets, seemed to account for the disparate price action.   The pace of the slide in Chinese stocks and yuan, and the continued fall in oil prices...

1) Chinese policymakers introduced circuit-breakers for its equity markets on Monday, but then suspended them on Thursday2) PBOC finally fixed USD/CNY lower (albeit marginally) Friday after eight straight days of higher fixings3) Tensions have risen on the Korea peninsula after the North detonated some sort of nuclear weapon4) The State Bank of Vietnam has moved to a more market-based exchange rate5) Brazil’s former President Lula has been ordered to testify as a witness for a case...

The euro appears to be carving out a bottom against sterling.  This Great Graphic, created on Bloomberg, is a weekly bar chart of the cross.  We drew in the trendline off the high in H2 13.  It catches a few highs in 2014 and is testing it this week.   Last year,  the euro traded mostly between GBP0.7000 and GBP0.7500.   A triple bottom near GBP0.7000 appears to have been recorded.  This is a derivative of a head and shoulders pattern.   Although the trendline may be violated, we advise...

US grew nearly 300k jobs in December.  The October and November jobs growth were revised up by 50k.  The unemployment rate was unchanged at 5.0%, even though the participation rate ticked up.   If there was  a disappointment it was that hourly earnings did not rise as much as expected.  The 2.5% year-over-year growth from 2.3% in November.  The market had expected a 2.7% pace.  Still it is the upper end of the cycle.  Some other details were constructive.  Manufacturing gained 8k jobs. ...

For the first time this week, the PBOC set higher central reference rate for the yuan and Chinese shares rallied, with the apparent assistance of officials, after the circuit breakers were abandoned.    This, coupled with somewhat firmer oil prices, is helping to facilitate some semblance of stability in the global capital markets.   Global equities are retracing part of yesterday's losses.   In the Asia-Pacific region, Japan and Australia were exceptions.  The Nikkei slipped 0.4%,...

Chinese equities continued their precipitous decline, interrupted by the new circuit breakers, which reportedly will be suspended.  Global equity markets are also in a dramatic decline.   However, do not be misled.  Knowing the direction of China's blue chips (CSI 300) does not really help predict the direction of the US equity market, even though it may have felt like that in recent days.    The correlation between China's CSI 300 and the S&P 500 may not be what you think.  Over the...

The dollar has broken down against the yen.    Although many talk about safe haven role for the yen, this seems to be a misconception.  Investors are not buying the yen to escape the turmoil of the markets.   The yen's strength itself is the turmoil.  The yen was used as a funding currency to purchase risk assets, like equities, emerging markets, etc.  As those risk assets are being liquidated, the funding currency is bought back.  Earlier today, the Ministry of Finance reported the...

One might be forgiven for believing that nail-baiting start to the year is all China's fault.  It has repeatedly for eight sessions fixed the yuan lower, including earlier today, at a seemingly accelerating pace.  The new circuit breakers, introduced on Monday, appear to be adding to the volatility.  Chinese share trading was stopped today after the first hour with the CSI 300 off 7%.  It appears that the central bank through its agents intervened in the offshore (CNH) market.  The...

Chart 1 This Great Graphic is a favorite of mine.   Created on Bloomberg, it depicts the 2-year spread between Germany and the US on two-year money (white line) and the euro-dollar exchange rate (yellow line).  The chart covers the past five years. The scales of the two time series are different so it makes little sense to claim that euro gravitates toward the rate differential.  And there have been some significant misalignment, like in 2013 and into 2014.  However those periods seem...