Economic Conditions

  • Peering into the future for clues about Fed action.

    Looking Further Out for Fed Action Clues

    After reversing lower yesterday after the FOMC statement, the US dollar has continued to move lower against the major currencies, save sterling.  While the market is not fully confident of a rate cut by the Reserve Bank of Australia, indicative pricing in the derivative markets suggest a UK rate cut has been fully discounted (and a new asset purchase plan may be announced).

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  • Anticipation of a stimulus package had investors buying yen.

    How did the Yen Become So Attractive?

    The strength of the Japanese yen is the main development in the foreign exchange market today.  It has gained nearly 1.5%, as short-term participants grow skeptical of the kind of stimulus that had driven the yen around 7.5% lower between July 8 and July 21's six-week high.  The pendulum of market sentiment has swung wildly.

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  • The dollar and S&P are doing great...too great?

    Is there Additional Upside for the Dollar and S&P?

    The US dollar gained against all the major currencies over the past week.  It also rose against many emerging market currencies.  A notable exception was the Chinese yuan.  The yuan rose before the weekend, extended its advancing streak to four consecutive sessions, and in so doing, it snapped a six-week slide.

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  • Flash readings from the Europe and UK show a localized effect.

    The Brexit in a Flash (PMI)

    As the week draws to a close, there are three main developments in the capital markets.  First, the profit taking seen in US equities yesterday has continued in Asia and Europe today.  The MSCI Asia Pacific Index and the Dow Jones Stoxx 600 in Europe are both off around 0.5%.  

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  • The Brexit will be costly, but may also be isolated.

    Post-referendum Fear of Contagion Lessens

    It is a bizarre turn of events.  Just as the Game of Throne's Westeros is a map of the UK put on top of an inverted Ireland, so too do UK events seem to be a strange permutation of the pre-referendum views. 

    Although sterling and interest rates have not fully recovered from the Brexit decision, equity markets have, and fear of contagion has died down.  Indeed, it appears the UK may not be in the back of the queue from trade deals after all, and the IMF's more pessimistic scenario about the contagious impact has been significantly revised away. 

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  • There are five macro developments to note on this Tuesday.

    Top 5 Tuesday

    The US dollar is sporting a firmer profile today, but it is not the driver.  Heightened speculation that Australia and New Zealand may cut interest rates next month is pushing those respective currencies more than 1% lower today.  The Canadian dollar is being dragged lower (~).5%0 in what looks to be primarily sympathy, but it had seemed vulnerable to us in any event.

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  • Risk assets like Emerging Markets rose in the wake of the Turkish coup.

    Turkish Coup Over, Risk Assets Rise

    The US dollar and the yen are trading heavy, while risk assets, including emerging markets, and the Turkish lira, have jumped.  Sterling is the strongest of the majors.  It is up about 0.5% (~$1.6365), helped by the opportunity of GBP23.4 bln foreign direct investment and comments from a hawkish member of the MPC suggesting not everyone is onboard necessarily for a rate cut next month. 

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  • Investors are taking sides in the Eurozone.

    The Markets' Eyes Turn Towards the EMU

    Four large dramas being played out among the major high income countries. The drama in the Eurozone moves center stage in the days ahead, with an important European Court of Justice ruling due and the ECB meeting.

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  • A new PM will help a little, but the Brexit process will actually last years.

    May Moves Into No. 10 but Uncertainty Remains

    The two main developments in the foreign exchange market this week in recent days has been the opposite of what has transpired over the past several weeks.  Sterling moved higher quickly.  The yen moved down just as fast.  Over the past five sessions through late-morning levels, sterling has gained 2.5% while the yen has shed 2.8%.

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  • The BOE had a thought-out risk scenario in the event of a Brexit.

    UK Politics Settling Down while the BOE Sticks to its Plan

    Sterling is leading the new appetite for risk as one element of political uncertainty has been lifted.  It is moving higher for the third consecutive session today; advancing by more than 1.5 cents to reach $1.3180. It staged an impressive recovery yesterday after trading down to $1.2850, nearly a retest on last week's 30-year+ low just below $1.28.  Recall last week's high was set near $1.3340. 

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