Economic Conditions

  • The week begins with a sliding dollar, oil support and Japanese data.

    The Dollar Slips and Data from Japan Starts the Week

    Many markets are closed in Asia, and although Tokyo managed posted equity gain, most other markets in the region that were open fell.  In addition, the selling pace picked up in Europe.  The Dow Jones Stoxx 600 is off 2.3%, led by information technology, industrials, and consumer discretionary.  It is trading at new lows since late 2014.   It is the sixth consecutive losing session, which is the longest such streak in seven months. 

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  • The U.S. economy is not contracting yet, but there is anxiety.

    Maybe not Recession-bound, but the Energy Sector is not Helping

    With many equity markets having fallen 20% from their peaks, meeting a common definition of a bear market, investors, analysts, and journalists understandably seek a narrative that gives it meaning.  At the very start of the year, the culprit singled out was drop in Chinese shares and the yuan.  However, the yuan has stabilized as the PBOC drew down another $100 bln of reserves in January to help ease the pressure what appears to at least in part be a speculative attack by hedge funds (who conclude the yuan is overvalued). 

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  • The dollar is sliding a bit and didn't get any help from the ISM or ADP.

    Under Pressure: The Greenback Gets No Love

    The US dollar remains under broad pressure after yesterday's sharp decline.  Neither dovish comments by ECB President Draghi, nor the Reserve Bank of New Zealand have managed to reverse the gains of their respective currencies.  Similar, the rise in US yields and firm equities have failed to push the yen lower.

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  • Ahead of some important data, global markets are trying to stabilize.

    Finding Your Footing

    The US dollar is sporting a softer profile today as the global capital markets are trying to stabilize.  Oil prices have steadied, with WTI back above $30.  Bond markets are narrowly mixed though the 10-year US Treasury is steady near 1.85%.  Asian and European equities followed US markets lower, but American equities have stabilized, and ahead of the ADP employment estimate and the ISM for non-manufacturing, S&P 500 is set to open slightly higher.

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  • Data are mixed and that's making a difficult market more challenging.

    Searching for Solid Ground

    Investors continue wrestling with the implications of last week's surprise rate cut by the Bank of Japan.  The yen is little changed against the dollar, near its 200-day moving average (~JPY121.50).  The euro moved from the upper end of its two-cent range last Thursday to the lower end on before the week.  The absence of follow through selling appears to have prompted some short-covering.   The $1.0880-$1.09 area may stymie the upside.

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  • Investors are glad January is over, but will February be any less turbulent?

    Mostly Unchanged Market Factors Could Mean More Turbulence

    On the very first trading day of the year, the Nikkei, DAX, and S&P 500 gapped lower, setting the tone to a particularly challenging month for investors.  The last week and a half has been better, and this will likely carry over into the start of the new month.  Before January could slip into the history books, the Bank of Japan sprung a last-minute surprise by adopting a tiered system that includes a minus 10 bp charge to new excess reserves.

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  • The divergent monetary policy theme is intact and the dollar remains solid.

    Through the Noise, the Dollar Remains Strong

    The US dollar turned in a mixed performance last week.  Firmer oil and commodity prices more generally helped lift the Australian and Canadian dollars, and many emerging market currencies.  These currencies initially extended their gains ahead of the weekend in response to the Bank of Japan's surprise 20 bp cut on some excess reserves (to -10 bp).

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  • Market participants heading for the exits are at least in an orderly line.

    Please Exit Calmly and in an Orderly Fashion

    With equities sliding and oil pushing back below $30, it may feel like the resumption of moves in the first two and half weeks of the year, but it is different.  It is considerably more orderly.  The contagion from the equity and oil slide is more limited than previously, and even oil is recovering in the European morning to trade back above $30.  European equities opened lower but spent the morning recovering, even if not fully. 

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  • The AIIB and divergent Central Bank monetary policies helped define 2015.

    Prominent Global Financial Drivers' Carryover into the New Year

    Last year in the Asia Pacific will be remembered for shambolic shifts towards a more multipolar economic and political order. The United States alone can no longer shape global destiny but will have to share power with allies and rivals, even as regional powers find themselves threatened by their own challenges.

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