Tag Archives: newsletter

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...

(from my colleague Dr. Win Thin) Today’s Fitch downgrade is a stark reminder that Brazil continues to suffer from a toxic mix of high inflation, recession, low commodity prices, and heightened political uncertainty.  Because we see no end in sight for these negative factors, we believe Brazil assets will continue to underperform.POLITICAL OUTLOOK The impeachment process has begun, but it is not yet clear whether it can gain enough traction to actually topple President Rousseff.  We have...

There are many investors and observers who do not think the Fed ought to raise interest rates today.   The Fed's targeted inflation measure, the core PCE deflator, stood at 1.3%, well below the 2% target.   They see the fresh sell-off in oil prices and are more concerned disinflation than inflation.  Over the past week or so, more concern has been expressed about the sell-off in the high yield bond market.   Others are concerned about the strength of the dollar and the weakness abroad. ...

The much awaited Fed meeting is here.  A 25 bp increase in the Fed funds range to 25-50 bp is widely expected.  The near certainty of this contrasts to the high uncertainty of the immediate impact stocks, bonds, and the dollar.   There are five components of the Fed's decision that will command attention.  First, is the rate move itself.  This is the most straightforward for the components.   Second is the FOMC statement.  The economic assessment is unlikely to change much.   Part of the...

This Great Graphic shows how different measures of US equities perform in December by day for the past 20 years.  I got it as a tweet from Urban Carmel, who got it from the Stock Almanac.   Today is eleventh session of the month.  Equities typically rallied starting now in December.   Since 1994, the S&P 500 has fallen in the month of December five times (1996, 2002, 2005, 2007, and 2014).  Since 1994, seasonally, December is one of the best months for S&P 500 in terms of number...

The focus of most investors is the rate decision by the Federal Reserve tomorrow.  Since the central bank completed its asset purchase program at the end of last year, a rate hike has been understood as a matter of time.   Expectations for a June lift-off were dashed by the disappointing economic activity at the start of the year.  Officials correctly anticipated the headwinds to be temporary, but expectations for a September hiked were dashed by the heightened volatility seen in August. ...

The euro made marginal news highs near $1.1060 while sterling and the yen have been confined to yesterday's ranges.  European equities are bouncing off ten-week lows.   The dollar-bloc is firm; the upbeat RBA meetings provided only a short-lived fillip higher.  Oil prices are steady to firmer after yesterday's recovery.   Sweden's Riksbank is the first of four major central banks to meet this week.  As widely expected, it left its repo rate at minus 35 bp.  Less anticipated, it refrained...

Following the mini-devaluation in August, the yuan appreciated in September and October.  It began depreciating again in November and this has continued through the first half of December.   The dollar finished the local session at new multi-year highs against the yuan.  Many observers see in the pre-weekend announcement about monitoring the yuan against a basket an indication of the intentions of officials to push their currency down further against the dollar.  We suggest that China...

(from my colleague Dr. Win Thin) EM starts the FOMC week off on a soft footing.  Besides the prospects of Fed liftoff Wednesday, oil prices are making new cycle lows.  Uncertainty about China’s FX policy is also making markets nervous, though we think this concern is misplaced.  Overall, the global backdrop for EM remains very negative and we do not see much chance for a rebound after Fed lift-off is seen.  In recent days, USD has made new all-time highs against COP, MXN, and ZAR. ...