Tag Archives: newsletter

We argue that the dollar is in its third significant rally since the end of Bretton Woods in 1971.  The Reagan dollar rally was driven by the policy mix of tight monetary policy and loose fiscal policy.  The G7 effort to stop the dollar's appreciation at the Plaza Hotel in September 1985 marked the end of the Reagan dollar rally.  After a nearly ten-year bear market for the dollar, that included the collapse of the Soviet Union, the fall of the Berlin Wall and the ERM crisis, there was a...

The key economic note this week was that non-farm payrolls for February was 242,000 versus Wall Street’s expectation of only 190,000; 27% above the consensus target. Wages however fell back by 0.1% from February’s gain of 0.5%. The workforce participation rate moved up to 62.9%. The excellent news on Friday was however received mutely by the market. Excellent news received muted by the market The reason was the likelihood that it will increase the probability of further interest rate rises...

So the price of silver rocketed up 80 cents, while the price of gold jumped $37. Silver is now more expensive than it was two weeks ago; the price decline of last week was more than overcompensated. This pushed the gold-silver ratio down about two whole points, with virtually the whole move on Friday. Last week, we said this: Monetary Metals has been predicting a ratio well over 80 for a long time. And for two months, we have been calling for it to go much higher still. Could there be a...

Risk sentiment ended last week on a strong note, and that should carry over into this week.  The global liquidity backdrop remains positive for EM, with the ECB widely expected to add more stimulus on Thursday.  In a similar vein, the Fed is widely expected to remain on hold until June.   China is doing its part to prevent negative market impact from developments there, including reports of intervening to support the equity markets last week.  Lastly, commodities remain bid and WTI oil made...

Sometimes the news stream drives prices, and sometimes the price action drives the narratives.  We argued that the sharp decline in equities at the start of the year was fanned the doom and gloom in the media and market commentary.  Many had been taking about a new financial crisis and parallels were drawn between the price action now and the 2007-2008 period. Perhaps it was the green shoot of spring flowers in the Northern Hemisphere.  Perhaps it was the realization that the sell-off was...

It is common knowledge by now that Federal Reserve Chairman Alan Greenspan oversaw, enabled and approved of, a major transition in the US economy. His infamous “Greenspan-put” in which his actions at the central bank would be driven, if not dictated, by the whims of financial markets, clearly led to higher asset prices. Investors obviously picked up on the strong bias in the Greenspan-Fed’s conduct of monetary policy as they slashed rates at the tiniest hiccup in financial markets, and...

The US dollar fell against all the major and most of the emerging market currencies last week.   Risk appetites have been rekindled, and the yen has gone from the best performer in recent weeks to the worst over the past week.   Major equity markets advanced for the third week.  The MSCI Emerging Market equity index has rallied more than 15% since the January 21 low, and nearly 12% since the February 11 low.  The index finished the week at its best level since January 4.  Oil prices are...

Speculators in the currency futures made mostly small adjustments to their gross foreign currency exposure.  There were only three position adjustments of more than 5k contacts.   Since the markets turned on 11 February, the Canadian dollar has been the strongest of the major currencies, appreciating a little more than 4.5% against the US dollar.    Gross shorts have been nearly halved since then.  They were cut by 6.9k contracts or about 10% to reach 61.5k contracts during the recent...

(from my colleague Dr. Win Thin) 1) China’s central bank announced a 0.5% cut in the required reserve ratio2) Moody's cut the outlook on China's Aa3 rating to negative from stable3) Argentina and the main holdouts agreed to a debt restructuring deal4) Brazilian press reported that a senator implicated both Rousseff and Lula in the corruption probe as part of a plea bargain5) Chile is cutting back government spending this year in response to low copper prices In the EM equity space,...

The optics of the US jobs report was better than the details, which is the exact opposite of the January employment report.  The US dollar strengthened on the news.  The US created 242k jobs in February.  The consensus was for around 195k.  The January gain of 151k was revised up to 172k The household survey showed a 530k increase.  The market expected a 175k.  In January the household survey showed an increase of 615k.  Combined the household survey has showed over a million new jobs. ...