Tag Archive: macro
Week Ahead: Greenback Looks Set to Bounce after the Recent Drubbing
The week ahead is less eventful
than the week that just passed, which saw the anticipated hike by the ECB and the small cut by the PBOC. The
Fed delivered the widely tipped hawkish hold and the US CPI continued to decelerate. The dollar fell against the G10 currencies last week but the yen. Sterling, and the Canadian dollar rose to new highs for the year, Momentum indicators are stretched. This coupled with risk-reward considerations suggest...
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US CPI, Fed, ECB, BOJ and the Week Ahead
Of the three G3 central banks
that meet in the days ahead, the market is the most confident of a rate hike by
the European Central Bank. The market sees a hawkish hold from the Federal
Reserve. However, the idea of a skip, a topic which even Fed officials have
broached, would seem to pre-commit to another hike, and this is not typically
the central bank's modus operandi. Moreover, it may be difficult for the Fed to
resume hikes in July if inflation...
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Week Ahead: Australia and Canada–Hawkish Hold? US Bill Issuance Jumps
True
to the historic pattern, the US debt ceiling was used by the party not in
control of the executive branch to exact spending concessions. Despite the
extreme partisanship, the brinkmanship tactics, and fears that this time would
be different, there was no default. As Bismarck once quipped, "Laws are
like sausages and it is best not seen them being made." Still, as a
consequence, the rebuilding of the Treasury's account and bill...
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June 2023 Monthly
June is a pivotal month. The US debt-ceiling
political drama cast a pall over sentiment even if it did not prevent the
dollar from rallying or the S&P 500 and NASDAQ from setting new highs for
the year. It is as if the two political parties in the US are playing a game of chicken
and daring the other side to capitulate. Both sides are incentivized to take to
the brink to convince their constituents that they secured the best deal
possible. No...
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Week Ahead: US Debt Ceiling Drama Continues and the Dollar’s Two-Week Rally Stalls
Mostly
stronger than expected economic data, hawkish rhetoric by several Fed
officials, some signs of progress on the perverse drama over the debt ceiling,
and a solid week for bank shares helped the dollar extend its recent
recovery. The greenback rose to new highs for the year against the Japanese yen
and Chinese yuan. The euro took out April's low (~$1.0790) and sterling traded
briefly below $1.24. The US two-year note yield takes a six-session...
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Week Ahead: Does the Dollar have Legs?
There are different ways to
measure it, but the dollar just put in its best week of the year. The greenback
rose against all the G10 currencies, and the Dollar Index rose by the most
since last September. It also appreciated against most emerging market
currencies, with the notable exceptions of a handful of Latam currencies. It
seems to be an overdue technical correction. Few genuinely believe that the US
will default given the ominous...
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Week Ahead: Hawkish BOE, US and China CPI, but is the Fed Really Going to Cut Rates by 75-100 bp This Year?
The combination of the US bank stress, the approaching debt
ceiling, and the Fed's opening the door to a pause in rates weighed on risk
sentiment and dragged the greenback lower. KBW's indices for large and regional
bank shares bled 7.4%-8.0% lower last week to cut through March's lows like a hot
knife through butter. Still the price action was constructive ahead of the
weekend. US Treasury Secretary Yellen warned that the X-date when the...
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May 2023 Monthly
May will feature likely rate hikes by the Federal Reserve, the
European Central Bank, and the Bank of England. The banking stress that erupted
in March appears contained, though one regional bank's dramatic loss of deposits saw it rekindle at the end of April. What makes the May rate hikes
important is that the derivatives markets are confident (again) this is the last hike
for the Fed. The swaps market anticipates two more hikes from the BOE and...
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Ueda Chairs First BOJ Meeting, and US and EMU Provide First Estimate of Q1 GDP: The Week Ahead
As
April draws to a close, the systemic stress in the banking sector continues to
subside, and the market is turning its attention to likely rate hikes by
Federal Reserve and European Central Bank in early May. Although, as in March,
the market sees the May hike to 5.25% to be the last Fed hike. Before the bank
stress, the swap market had been leaning to a 5.75% terminal rate. It is still
early to fully appreciate the magnitude and duration of the...
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The Dollar Bounces but is it Sustainable? The Week Ahead
Investors and businesses are
wrestling with conflicting impulses. On the one hand, economic growth seems
sufficiently strong to allow the Federal Reserve, European Central Bank, and
the Bank of England to continue to counter elevated price pressures. They are
set to hike rates next month. On the other hand, last month's banking stress is
seen translating to a lower and sooner peak in policy rates.
Before the bank stress emerged, the
market had...
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US and Chinese Inflation Highlight the Week Ahead, While the Bank of Canada Stands Pat
Bank
shares rose in Japan and Europe for the second consecutive week, but the KBW US
bank index fell nearly 2% after increasing 4.6% in the last week of March. Emergency borrowing from the Fed remains elevated ($149 bln vs. $153 bln). Bank lending has fallen sharply (~$105 bln) in the two weeks through March 29. This appears to be a record two-week decline. Commercial and industrial loans had fallen a little in the first two months of the year...
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April 2023 Monthly
There were three
ways the monetary cycle was going to turn. First, unemployment could have
reached unacceptable levels. This did not happen. Labor markets have proven thus far to be resilient among most G10 countries. Second, a significant and
sustained drop in price pressures could end the tightening cycle. This has yet
to materialize in a meaningful way. In some countries, governments have
energy subsidies, and these measures only offer temporary...
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Banking Crisis Roils Capital Markets, Overshadowing High-Frequency Data
The
banking crisis is the newest shock to roil the capital markets. Pragmatic
action by central banks, governments, and the private sector has thus far been
insufficient to allow investors to be confident that the problem is ring-fenced.
Credit Suisse was a pre-existing problem that flared up to the breaking point.
The government's offer to take the first CHF9 bln in losses and the
controversial triggering of clauses allowing AT1 bondholders to be...
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FOMC and BOE Meet As Investors are Not Persuaded that Efforts to Contain the Financial Crisis are Sufficient
It was widely understood that the
Federal Reserve would raise rates until one of three things took place:
inflation was clearly on course to return to the target, the labor market would
weaken precipitously, or systemic stress threatened. At the same time, the
shocks we have had to cope with, Covid, supply chains, and Russia's invasion of
Ukraine were commonly cited, and the. The re-pricing of assets as interest rates began
normalizing may have...
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Market Prices in a Fed Cut in Q4 Ahead of CPI, While ECB to may Deliver a 50 bp Hawkish Hike
Three macro events
highlight the week ahead. The US February CPI will be reported on March 14. The
UK's Chancellor of the Exchequer Hunt will deliver the spring budget on March
15. The ECB meets the following day. A 50 bp hike is discounted not only for this
meeting, but that is the bias for the May meeting as well. It seems that
US interest rate adjustment that began early February (jobs data and strong
gains in the service ISM) and helped fuel...
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US Jobs, Kuroda’s Last BOJ Meeting, and Powell’s Congressional Testimony Highlight the Week Ahead
The
dollar peaked last September/October and trended lower until the January jobs
report and strong service ISM on February 3. These reports and firm inflation
readings, owing, at least in part, to benchmark and methodological changes,
helped spur the greenback's recovery. However, we learned last week that auto sales
and the service ISM prices paid decelerated in February, and this week, we will
learn that job growth has slowed considerably. If...
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March 2023
Price pressures remain elevated, and labor
markets are strong, giving most policymakers in the G10 the incentive to continue
raising interest interests. There are two exceptions: Japan, the only
country still with a negative policy rate (-0.10%), and Canada, where the
central bank has indicated it would pause. While half-point hikes or larger
were common in the second half of last year, the major central banks have
slowed or will slow the pace to...
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Week Ahead: February ISM Services and Auto Sales to Show January US Data were Exaggerated
A key issue facing
businesses and investors is whether the US January data reflects a
reacceleration of the world's largest economy or whether it was mostly a
payback for extremely poor November and December 2022 data and seasonal
adjustments and methodological distortions. Given the centrality of the US
economy and rates, it is not simply a question for America, the Federal
Reserve, and investors, but the implications are much broader. The issue...
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Week Ahead: Market Seeks Proper Balance after Exaggerating in Both Directions
The pendulum of market sentiment swung from
fear of a synchronized recession in the US and Europe to optimism that a
recession can be avoid. The perceived reduction of downside risks had driven
the upside performance of equities and bonds. Just as the data seems to confirm
it, the rally in in stocks and bonds faltered. The MSCI Emerging Markets equity
index gained 7.8% last month but is off almost 3.8% this month, and has fallen for three...
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Week Ahead: US CPI to Begin Sharper Deacceleration through H1 23
After selling off sharply in the past four months, the dollar rebounded. Since the FOMC meeting on February 1, it has enjoyed one of the strongest bounces since it topped out in late September/early October. The incredible US jobs data, sharp bounce in the January services ISM, speculation of BOJ Governor Kuroda's successor, and some easing of the euphoria over China's re-opening have been notable drivers.
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