This piece discusses dollar propsects in light of it’s 2017 retracement and the impossible trinity of fiscal expansion, independent US monetary policy and dollar jawboning which the Trump adminstration seems to be pursuing (alongside prospects for US and foreign monetary policy). If Trump eventually delivers a substantial fiscal expansion the impossible trinity seems most likely … More Trump’s impossible trinity likely resolved by dollar strength but potential bumpy ride
This post summarises my views on Wednesday’s much-anticipated US Federal Reserve meeting and potential 2017 trends. The main points are: A 25bp Fed rate rate hike is fully priced by Fed Funds futures – given the improved US macro situation, Trump’s prospective (but uncertain) fiscal stimulus and strong signals from Fed Governors. So the market … More FOMC Preview: Cautious Yellen likely aiming to limit market impact of rate hike, but watch term premia
This post previews Wednesday’s highly-uncertain but very important Bank of Japan policy meeting, featuring the Comprehensive Assessment of monetary policy. Overall, there’s a strong risk of BoJ disappointing dovish market expectations thereby generating Yen upside and a bond market sell-off (although the FOMC decision will also impact) and smaller market moves are likely should the BoJ try to … More Yen strength likely with further BoJ ill communication, asymmetric risks
This post previews Janet Yellen’s 26 August Jackson Hole appearance, and the likely market implications. The main points are: Recent FOMC mixed messages – Dudley’s/Fisher’s recent small hawkish drift versus Williamson’s/Bullard’s dovishness, reflecting the difficult issues confronting the Fed – underpin market confusion about Fed policy. Neverthless, markets remain sceptical about the likelihood of further US … More Yellen at Jackson Hole: Don’t Rock the Boat?
Margaret Thatcher’s 1979 election victory speech famously quoted St Francis of Assisi: “Where there is discord may we bring harmony, where there is error may we bring truth, where there is doubt may we bring faith, and where there is despair may we bring hope.” The decision to hold a UK EU membership referendum has … More Brexit vote: where there is harmony may we bring discord (global concerns, UK recession, MPC rate cuts and further £ falls)
This post discusses the increasingly global financial market “safe haven” impacts of rising Brexit uncertainties, and previews this week’s BoE, Fed and BoJ policy meetings (which will impact market tone). The main points are: Previous financial market complacency about Brexit risks (see here) has been replaced by more generalised “safe haven” asset prices impacts, as … More Brexit safe haven impacts turn global: Fed and BoJ to take note
Financial markets remain sceptical about further US rates rises heading into the tomorrow’s FOMC announcement. Less than one Fed rate increase in 2016 is fully priced, although the current 80% probability contrasts with only 10% a few weeks ago, whereas in December the Fed signalled four rate hikes in 2016. While a rate increase this … More Yellen to cautiously leave door open to June hike
Last night’s Fed rate hike, with more balanced that expected accompanying material, seems to have given the green light to further limited (short-end US) yield rises and consequent USD dollar strength over the next few months. The latter will likely supported by gradual increased pricing of policy divergences – the Fed seems confident in anticipating … More Confident Fed equates to further (limited) Treasury sell-off and USD upside but watch for China and risk aversion
This will be a key week for determining the strength of the ECB-Fed policy divergence theme (“divergence 2.0”) which has been increasingly occupying markets in recent weeks. While Thursday’s much-awaited ECB meeting tops the billing, it will be sandwiched by two high-profile appearances by Yellen (economic outlook speech on Wednesday, address to the congressional Joint … More Policy Divergence 2.0 increasingly priced but further limited FX action possible
The Fed today surprised financial markets by signalling clearly that were underpricing the likelihood of a December 2015 rate hike, which now seems very much on the table although we will be in a very data dependent world over the next seven weeks. This may provide a fillup for the policy divergence driven USD upside … More Fed hawkishly wakes up market but barriers remain to December hike and significant USD upside
Fed comments at Jackson Hole indicate that they are in wait and see mode about both domestic data and financial market/China stresses. But for now they’re apparently sticking to their 2015 liftoff plan and not ruling out a September rate hike. Specifically, Stanley Fischer argued “Given the apparent stability of inflation expectations, there is good … More USD and Fed Rate Hikes: More Complicated Than Simply ‘buy the rumour, sell the fact’
This week’s dovish Fed minutes, disappointing US CPI, further oil price falls, growing Chinese uncertainties (Friday’s Chinese manufacturing PMI dropping to its lowest since March 2009) and sharp falls in global equity prices seem to have tipped the balance more decisively against a September 17th Fed rate hike. Market pricing has suggested around/less than a … More The Week A September Fed Hike Died? USD Bulls on the Run
Today’s Q2 US GDP data were positively received by the market – EURUSD fell to around 1.09 in the hours after the release (although it subsequently bounced back a little). That initially sounds surprising given that the 2.3% qoq(a) outturn undershot market expectations of 2.5%. But there are positives in the details of the release, … More US Q2 GDP: market’s glass half full view bodes well for USD strength
Tomorrow’s FOMC press release is being eagerly anticipated by market participants, keen to see whether FOMC will provide more definitive guidance about whether Fed liftoff will start in September (most economists’ favoured date) or December (more consistent with market pricing). Despite such hopes, I suspect that the FOMC press release will likely contain only relatively … More FOMC likely to keep options open and acknowledge commodity weakness: limited USD downside possible
News about the Greek negotiations has steadily deteriorated, culminating in Monday’s emergency summit (although the agony could conceivably be extended until 25-26 June Heads of States of the Union meeting). Yet at the same time the euro has been flat to rising: EURUSD is up nearly 3% on the month and 0.6% last week despite … More Why has the Euro been so resilient in the face of the growing Greek crisis? Where from here?