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Tag Archives: newsletter

Week Ahead: What Will It Take to Stabilize the Capital Markets?

Two weeks into the year and most investors are nursing sizable drawdowns.  The recovery in the US equities on January 14 looked like a potential turning point. However, the coattails proved non-existent, and the bull trap was sprung with new downside momentum established before the weekend. The obvious takeaway is that the current driver is not to be found in New York.   And to be sure, we are not just talking about equities, but during this market meltdown, correlations between various...

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Speculators Boosted Long Yen Positions, but Mostly Continued Trimming Exposures

Speculative activity in the CME currency futures picked up in the latest reporting period. There were six significant gross position adjustments, which in our work is more than 10k contracts.   The gross short speculative euro position was reduced by 17.9k contracts, leaving 209.6k. Since early December, 53k gross short euro contracts were covered.  During the same time, about 17k gross long contracts were added.   Speculators stayed long the yen for the second consecutive week, and...

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Outlook for the Dollar: Dissecting the Bull

The US dollar remains strong against most currencies.  The exceptions are the Japanese yen, Swiss franc and euro though the franc and euro pulled back in the US afternoon before the weekend.  The greenback is still appreciating on a trade-weighted basis, which is the metric that counts in assessing its impact on the overall economy.   The euro, yen and franc strength is not as is often portrayed as some kind of safe haven that is flocked to in turbulent times.  Rather those currencies...

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The Market’s Bad Omens mount as the Black Swan population grows!

Last week’s market action confirmed clearly its corrective trend. I cannot say more than that, because when systematic risk kicks in the good, the bad, and the ugly all suffer the same slippery fate. Clearly it prophecies a healthy renewal once this bear trend is over, but first this downward phase has to be over-done before there is a capitulation that would signal a key reversal. For now, there is not much to expect. As the market is in the grip of a profit recession on the one side, and...

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The Path to the Digital Gold Standard

Several Republican presidential candidates are floating the idea of returning to some form of a gold standard in the U.S., although none have gone into any great detail. So, how might a modern gold standard work? It’s a question that requires us to do more than just look to the past with an eye toward “restoring,” “bringing back,” or “returning to” gold-backed money. Sound money advocates need to also think creatively about how to adapt hard money principles to the current and future needs...

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Emerging Markets: What has Changed

1) The Hong Kong dollar posted its biggest two-day decline since 1992 2) Bank Indonesia restarted its easing cycle, cutting rates for the first time since February 2015 3) Poland’s current Monetary Policy Council (RPP) held its last policy meeting 4) Poland’s president proposed a draft bill on FX loan conversion 5) Russia will reportedly cut budgetary expenditures by 10% due to low oil prices 6) Russia’s central bank has turned more hawkish 7) Argentina officials and debt holdouts met...

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When it Rains, It Pours

There are three developments today, which while not driving the market, are important for many investors.  The first are comments from German Finance Minister Schaeuble and EC President Juncker.  The second is an important development in Poland.   The third are growing problems in Greece. Schaeuble is formally acknowledging what investors have known for some time. The Schengen Agreement, which opens the internal borders in Europe, is at risk.  This agreement pre-dates EMU itself.  So how...

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A Bloody Friday

The recovery of US shares and oil yesterday provided short-lived.  Asian shares were dragged lower with the help of Chinese equities.  The 3.5% fall in the Shanghai Composite today brings the year-to-date decline to a little more than 18%. Taiwan, which goes to the polls this weekend ( the opposition that has been critical of the government's pro-China policy is ahead) bucked the trend to post minor gains. European shares are also moving lower, with the Dow Jones Stoxx 600 off more than...

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Great Graphic: S&P and Oil–Conjoined Twins or Distant Cousins that Sometimes Look Alike?

The US stock market and the oil market appear joined at the hip. The Great Graphic here, created on Bloomberg, shows the correlation of the two markets.  It is near 0.77, which is the highest since September 2013.   The correlation was conducted on the level of the S&P 500 and the level of the front-month light sweet crude oil futures contract.  It tells us that the two markets have been moving in the same direction nearly eight of ten sessions over the past 60 sessions.   As the...

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When Loons Cry: Will the Bank of Canada Cut Rates Next Week?

Speculation is mounting that the Bank of Canada will be the first major central bank to cut rates this year.  It meets on January 20.  The combination of the drop in oil prices (40% since mid-October) and the erosion of the business outlook has boosted the risk of a cut next week.   The bitumen from Canada's oil sands, which is a type of crude oil, reached a low of nearly $8 earlier this week, which is a tenth of its from two years ago. Indicative pricing in the derivatives markets...

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