Tag Archives: newsletter

(co-authored with my colleague Sam Waters) Inflation or indeed its opposite has driven monetary policy among the largest high income economies. With nominal rates thought to be bounded by zero, the US, UK, and Japan engaged in operations to increase the size of the central bank’s balance sheets as an unorthodox channel of easing monetary conditions. European central banks demonstrated interest rates can fall below zero.  Countries have adopted different measures of consumer inflation. ...

The prices of the metals were sagging. Silver was trading around $13.80. On Wednesday, Janet “Good News” Yellen said the magic words. The Federal Reserve hiked the federal funds rate by 25 basis points. The price of silver was surging in anticipation of the news (we assume). Within an hour or so of the announcement, it had spiked to $14.32, up 3.8% in a few hours. Despite our note on 8 November, this week we have seen more than one article claiming that a rising interest rate is good for...

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...