Economic Conditions

  • The dollar and yen are firmer.

    Equities and Oil Move Lower while the Dollar and Yen Move Up

    The US dollar is steady to firmer against most of the major and emerging market currencies.  Equity markets are heavier, and oil continues to surrender some of its recent gains.  Profit taking is weighing on Eurozone bonds and JGBs while US Treasuries and UK gilts are firmer. 

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  • The dollar, though range-bound, is firm ahead of the Fed meeting.

    Ahead of the Fed, the Dollar is Still Solid

    The US dollar is firmer but largely confined to the ranges seen before the weekend against most of the major currencies.  The yen is also firmer as dollar sellers reemerged near JPY114.00.  The dollar is gaining against most emerging market currencies, though Asian currencies, notably the Korean Won, are firmer.

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  • Monetary policy alone is no longer cutting it for some governments.

    One Cannot Rely on Monetary Policy Alone

    Fixed exchange rates limit the degrees of freedom for policymakers.  The breakdown of Bretton Woods in 1971 removed this constraint on official action, and the results were larger budget deficits and higher inflation.  The zero bound on interest rates also posed a constraint on behavior. Until this year, despite the long struggle against deflation, the Bank of Japan never instituted a negative policy rate.

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  • The risks and challenges remain high for the ECB.

    The ECB Likely had Hoped for a Better Economic Backdrop

    Fasten your seat belts.  The ride is going to get bumpy.   Economists may differ on what the ECB will do.   Investors may differ on the market response.  This uncertainty ensures a strong market reaction.

    The euro is off about 0.25% after recovering in the North American session yesterday.  The euro has spent this week thus far mostly within last Friday's trading range.  It has finished the North American session in the last four sessions between $1.0999 and $1.1014 according to Bloomberg. 

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  • The euro slumps slightly ahead of the ECB meeting.

    There is News, but Market Participants Await the ECB Meeting

    The euro has peeled off a cent from yesterday's high near $1.1060 as some short-term players move to the sidelines ahead of the ECB meeting.  Recall that after peaking near $1.1375 on February 11 when the New Year's market angst peaked, the euro fell back to the lower end of its old range near $1.0825 in the middle of last week.  It then recovered by about 2.5 cents into yesterday's high, which saw it test the 20-day moving average for the first time since February 22.   

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  • There are a confluence of global economic headlines to keep investors busy.

    Commodities, China, Brazil, Greece and other Headlines

    A few weeks ago, investors were bemoaning a new bear market for equities, and there was much ink spilled drawing parallels between now in 2008-2009.  Falling commodities, weakening growth, and prospects of Fed tightening saw the MSCI Emerging Market equity index fall 21.5% from early-November through the third week in January.  Since then it has rallied more than 16%, and both yesterday and earlier today traded above where it finished 2015. 

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  • Trends in equities, oil, euro, bonds and dollar-bloc currencies are reversing.

    A Tuesday Turn Around of Recent Trends

    Recent trends, which include firmer equities and oil, weaker euro and bonds, and stronger dollar-bloc currencies, are reversing today, a turn-around Tuesday of sorts. MSCI's Emerging Market equity index is snapping a seven-day advancing streak, giving back yesterday's gains and a little more.  However, Chinese shares managed to post small gains. 

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  • The news stream is light to start the week as equities, oil creep higher.

    Dollar and Oil Gains Begin a Week Light on News

    The US dollar is retracing part of its pre-weekend losses against the European currencies and dollar-bloc today while falling equity prices are underpinning the yen. 

    Brent is nearing $40 a barrel, and WTI is pushing through $36.  Iron ore prices were limit up in China.  US 10-year Treasury yield is three bp higher to poke through 1.90% level for the first time since February 4.  European bond yields are mostly 2-3 bp lower, with notable exceptions of Portugal and Greece. 

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  • The ECB meeting is the center of attention this week.

    The Spotlight Shines on the ECB This Week

    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.

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  • The jobs report may not be a key market driver today.

    The Jobs Report: Details or Headline?

    The US dollar is mixed ahead of the US employment data.  The Antipodeans and Scandis are doing best while sterling and the Canadian dollar are under-performing.

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