Tuesday , April 23 2019
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Marc Chandler

Marc Chandler

He has been covering the global capital markets in one fashion or another for more than 30 years, working at economic consulting firms and global investment banks. After 14 years as the global head of currency strategy for Brown Brothers Harriman, Chandler joined Bannockburn Global Forex, as a managing partner and chief markets strategist as of October 1, 2018.

Articles by Marc Chandler

Modest Thoughts on Central Bank Independence

5 hours ago

Indications that the Trump Administration is considering nominating Moore and Cain to the Board of Governors of the Federal Reserve has stirred up an international controversy over its independence of central banks. Cain withdrew his name from consideration yesterday, though the mere floating of his name had generated much consternation.  Although President Trump has appointed the majority of the Board, including choosing Powell as Chair, and they have not been controversial,  he has used his bully pulpit to criticize the conduct of monetary policy repeatedly.  Even the usually circumspect ECB President Draghi felt it necessary to express his concern. 

Given the importance, let’s unpack this concept of central bank independence.  There seem to be four elements to consider,

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Oil Extends Gains While Markets Await Fresh Incentives

8 hours ago

Overview: Financial centers that have been closed for the extended holiday have re-opened, but the news stream is light and market participants are digesting developments and positioning for this week’s central bank meetings and the first look at Q1 US GDP. The US decision to end exemptions to the embargo against Iran led to a surge in oil prices, which are extending gains to new six-highs today.  Equities are mixed, and there is some concern that investors in China got a bit ahead of themselves.  While more equity markets rose in Asia, China was an exception.  The Shanghai Composite slipped 0.5% but was lower for the third session of the past four.  European markets are mostly lower as financials (many banks report earnings this week), materials, and industrials are offsetting the

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Cool Video: Discussion of the Deflationary Risks in Japan and Brexit

1 day ago

I joined CNBC Asia’s Amanda Drury and Sri Jegarajah via Skype earlier today as the new week was beginning in Asia.  In this three minute clip, we discuss the outlook for the BOJ and sterling.  

Most of the rise in Japan’s inflation is due to food and energy prices.  Despite an aggressive balance-sheet expansion effort, the BOJ has missed its target by a long shot.  It appears to have all but given up on achieving 2% core inflation (excludes fresh food).  After the March CPI was released at the end of last week, the BOJ surprised the markets by tapering the amount of bonds it was buying.  This does not seem like a central bank that is about to ease policy.  

Free education for young children and lower mobile phone charges will likely weigh on headline and core measures of

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Surge in Oil Punctures Holiday Markets

1 day ago

Overview: With many centers closed for the extended holiday, the calm in the global capital markets has been punctuated by reports that the US is considering ending its exemption for eight countries to have bought Iranian oil over the past six months.  The waivers were to end on May 2, but previously it was thought that a couple of waivers, like for China and India, would be extended.  Oil prices have surged to new six-month highs.  Asian equities were mixed, with losses in China, India, and Indonesia and gains in Japan, Korea, and Taiwan.  Most European centers are closed.  The S&P 500 is trading 0.3% lower after alternating last week between gains and losses.  Benchmark bond yields were higher in Asia, with China’s 10-year edging above. 3.40% for the first time since the middle of

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Be Careful of Playing for the Breakout

2 days ago

The US dollar rose against all the major currencies but the Japanese yen.  Its net loss against the yen, less than 0.1% was a fluke.  The dollar was confined to a 40 tick range against the yen for the entire week.  It appears to be the among the narrowest weekly ranges since at least 2000.  The dollar is at the upper end of its recent ranges against the euro, yen, sterling, and Canadian dollar.  The question for many participants is whether the dollar is on the verge of a breakout.  Our reading of the technical condition suggests that while the ranges may fray, they will likely hold.  

Dollar Index: Since the middle of last October, the Dollar Index has traded in a range between roughly 95.00 and 97.70. The 97.85 area corresponds to the 61.8% retracement of the decline from early

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Six Events to Watch Next Week

3 days ago

The divergence thesis that drives our constructive outlook for the dollar received more support last week than we expected.  A few hours after investors learned that Japan’s flash PMI remained below the 50 boom/bust level, Europe reported disappointing PMI data as well.  And a few hours after that the US reported that retail sales surged in March by the most in a year and a half (1.6%).  This coupled with the new cyclical low in weekly jobless claims boosted GDP forecasts, quieted the recession talk.

With some markets closed on Monday, the week not only will have a slow start but the potential to change the investment climate is low.  The US earnings season continues with some favorites like Amazon, Facebook, Twitter, and Microsoft on tap.  Boeing also reports and some economists

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Holiday Note

4 days ago

Overview:  Many financial centers are closed today.  These include Australia, India, most European markets, and the US.  In Asia, equity markets that were open moved higher.  The Nikkei, which gapped higher on Monday, rose 0.5% today for a 1.5% gain on the week.  China’s Shanghai Composite rose 0.6%, lifting the weekly increase to 2.6%.    The US dollar is confined to narrow ranges but has drifted lower against all the majors after yesterday’s gain on the back of strong retail sales, a new cyclical low in weekly jobless claims.  Among emerging market currencies, the Turkish lira and South African rand are a bit soggy, while several Asian currencies, including the Chinese yuan, have edged higher.  


Three developments are noteworthy.  First, Japan’s core measure of

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EMU Disappointment Lifts the Dollar

5 days ago

Overview: A bout of profit-taking in equities began in the US yesterday and has carried through Asia and Europe today. The MSCI Asia Pacific Index fell for the first time in five days, while the Dow Jones Stoxx 600 is snapping a six-day advance.  The Nikkei gapped higher to start the week and a gap low tomorrow would undermine the technical outlook.  Disappointing flash PMI data weighed on sentiment, but also is helping spur a bond market rally.  The US 10-year yield is pulling back after the test on the 2.60% area.  The Germany 10-year Bund yield has been halved today to four basis points.  The US dollar is mostly firmer, with the yen the notable exception among the majors.  News that Turkey has used dollar swaps to boost reserves has weighed on the lira, which is trading at new

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Veracity of Chinese Data Questioned, but Lifts Sentiment Nevertheless

6 days ago

Overview: The veracity of Chinese data will be questioned by economists, but today’s upbeat reports round out a picture that began with stronger exports and a surge in lending.  Chinese officials, we argue, had a "Draghi moment" and decided to do "whatever it takes" to strengthen the economy in the face of US tariffs and during the 70th anniversary of the Revolution.  The stronger Chinese data helped lift extend the MSCI Asia-Pacific Index for the fourth session.  Europe’s Dow Jones Stoxx 600 is struggling, and its five-day rally is at risk.  Benchmark yields are rising.  The US 10-year is near 2.60%.  It bottomed in late-March near 2.34%.  The yield on the 10-year German Bund approached minus 10 bp at the end of last month and is now near +10 bp.  The 10-year UK Gilt

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Cool Video: Trump Ahead in 2020?

7 days ago

Goldman Sachs opined that President Trump had an edge to win the 2020 presidential election and Fox Business thought it was newsworthy and invited to me join the discussion.   

First, I tried playing down the significance of Goldman’s call.  The markets have anticipated this.   redictIt.Org has shown the President to be an easy favorite since the start of the year.  Charles Payne, the host, dismissed these results because he said they reflect professional gambler.   I don’t know if that is true or even relevant (ad hominem?).  PredictIt.Org data is taken seriously.  It has partnerships with 50 universities, including Harvard, Yale, and the University of Pennsylvania.  

Second, the argument from both Goldman Sachs and Fox News Contributor Deroy Murdock anchor

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The Dollar and Stocks Catch a Bid

7 days ago

Overview: Amid light news, global equities are moving higher   In Asia, the Nikkei rose to a new high since early December, while the Shanghai Composite rose 2.3% and posted its highest close since March 2018. European equities are solid, with the Dow Jones Stoxx 600 moving higher for the fifth consecutive session.  US shares are trading higher and the S&P 500 is edging closer to the record high set last September near 2941.  Benchmark 10-year yields are mostly firmer.  In Europe, Italy is an exception, as it bonds trade like risk assets, and Antipodean bond yields also slipped.  The 10-year Germany Bund yield bottomed last month near minus 10 bp and is near seven basis points now.  The 10 bp yield mark is an important threshold.  The dollar is mostly a little firmer

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Redemption Monday

8 days ago

Overview: The holiday-shortened week is off to a slow, tentative start.  The surge of the S&P 500 before the weekend failed to inspire today.  Asia markets were mostly firmer, led by Japan, while China, Hong Kong, and Singapore moved lower.  The Nikkei gapped higher, jumping above the 22k level that had been holding it back.  It is at its best level since early last December.  The US coattails are even shorter in Europe, where the Dow Jones Stoxx 600 is little changed, with a three-day rally in tow.  US shares are a little heavier. US Treasuries are consolidating the pre-weekend drop, which weighed on Asia-Pacific bonds earlier today, and European benchmark yields are firmer, with Italy bucking the trend.  The dollar is mostly softer, with sterling and the Swedish krona

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The Dollar’s Technical Picture Turns more Nuanced and the Significance of the Gaps in the S&P 500

9 days ago

The US dollar fell against most of the major currencies over the past week. The yen and the Swiss franc were the exceptions.  The technical correction, we anticipated last week, may have some more room to run.  However, we do view it as a counter-trend move and expect the data to show the US economy picked up some momentum going into the end of Q1.  If recession fears are exaggerated so too are expectations that the Federal Reserve will cut rates.  An adjustment of such expectations can be the fuel of the next leg up for the dollar. 

Dollar Index:  The Dollar Index tried one more time to push through the 97.50 area at the start of last week and gave up and retreated to about 96.75, where the 50-day moving average is found, ahead of the weekend.  It traded below its

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Dollar Super Cycle Revisited

10 days ago

In the big picture, we argue that the dollar’s appreciation is part of the third significant dollar rally since the end of Bretton Woods. The first was the Reagan-Volcker dollar rally, spurred by a policy mix of tight monetary and loose fiscal policies. The rally ended with G7 intervention to knock it down in September 1985. After a ten-year bear market, a second dollar rally took place. It can be linked to the tech bubble and the shift to a strong dollar policy.

The carving out of the internet drew capital into the US and induced Americans to keep their savings here. It may or may not have been sufficient to fuel a multi-year dollar advance. Rubin replaced Bentsen at the helm of Treasury and nearly immediately articulated a shift in policy. No longer would the US use

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Euro Bid Above $1.13 for the First Time this Month

11 days ago

Overview:  The consolidative week in the capital markets is drawing to a close.  Equity markets are narrowly mixed.  In Asia, most indices outside of the greater China (China, Taiwan, and Hong Kong) edged higher, leaving the MSCI Asia Pacific Index slightly lower on the week.  The MSCI Emerging Markets Index snapped a ten-day rally yesterday and is little changed so far today.  Europe’s Dow Jones Stoxx 600 is off about 0.25% in late morning turnover, and about a 0.5% loss for the week.  The S&P 500 is nursing a margin loss this week coming into today’s session.  It has moved higher in 10 of the last 11 sessions but is continuing to knock on 2900.  Bank earnings are in focus today.  Bond yields in Asia were mostly higher, and China’s 10-year yield rose a couple of basis

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Market Yawns at Latest Brexit Extension

12 days ago

Overview:  The S&P 500 closed higher yesterday for the ninth session in the past ten, but the coattails are short and global equities are trading with a heavier bias today.  A firm CPI reading in China took a toll on local shares with the Shanghai Composite, shedding 1.6%, the most in more than two weeks.  European bourses are mostly in the red.  After rising about 2.4% last week, the Dow Jones Stoxx 600 is off about 0.7% this week.  It has closed on old gap on the daily bar charts (from April 3) and looks set to test the 20-day moving average, another percentage point lower.  US shares are little changed.  Bond markets are subdued. The US 10-year yield has fallen five basis points over the past two sessions and pressured Australian, and New Zealand yields lower.  The

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Be Careful What You Wish For

13 days ago

There were only a few formal disputes under NAFTA 1.0.  It says more about the adjudication process than the underlying issues.  It was not binding.  The Democrats want stronger enforcement provisions in what the NAFTA 2.0.  It is understandable.  Still, without opening up the agreement, which had been already agreed to by three heads of state, it is difficult to see how this will happen. Trump Administration officials claim that it can punish violations by using trade legislation that has been deployed against China (and possibly Airbus). 

This is naïve.  It assumes that disputes arise from Canada or Mexico’s behavior.  However, the US sometimes is in the wrong.  In fact, the last dispute under NAFTA was brought by Mexico against the US for its sugar subsidies.  The

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Is the USMCA Dead?

14 days ago

The heads of state may have agreed on the modernization of NAFTA, but the necessary legislative approval may not be forthcoming this year.  The US legislative process has been complicated by the fact that the Democrats secured a majority in the House of Representatives last year. The new trade agreement appears to be mostly updating the current one and melding with the advances of the Trans-Pacific Partnership that many Democrats supported as a signature Obama trade agreement (though not Clinton or Sanders). 

The USMCA, as NAFTA 2.0 is formally known, is both broader and deeper than its predecessor.  It has a third more chapters, and the domestic content rule is complex to include a wage metric.  The labor and environmental safeguards appear to have advanced from the

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Brexit, EU-China, and the Abandonment of the Open Door

15 days ago

(I am in Mexico at the World Trade Center General Assembly, participating on a panel about USMCA–NAFTA2.0–for which approval remains elusive.  It is possible that the US threatens to pull out of NAFTA 1.0 to force action by the US Congress.  Mexico is due to pass legislation this week that may meet demands by the some in the US and Canada for stronger labor protections. However, with the steel and aluminum tariffs still in place, and Trump’s threats to shut the southern border, the US is ensured frosty relations with its neighbors. My travel schedule makes prevents a timely delivery of the usual daily set-up over the next few days. Instead, I will focus on some thematic issues.)

Brexit has been fraught with problems from the get-go. The referendum was

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When is the Trend not Your Friend?

16 days ago

The US dollar remained firm last week.   The strongest of the majors was the Norwegian krone, and it rose less than 0.2% against the greenback.   The volatility is continuing to compress.  The one-month euro and yen implied volatility is a little below 5%, which puts it at five-year lows.   Another important characteristic of the foreign exchange market is that speculators are long dollars, which in the futures market is expressed as short the currency contracts.  Non-commercials (speculators) are net short all the major currency pairs.  The speculative net short position is the largest since 2016.  They are net short the most yen contracts in three months and the most Australian dollars contracts in five months. 

Dollar Index:  The Dollar Index posted its highest

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Important Steps Away from the Abyss

17 days ago

It seems to be well appreciated among by policymakers and investors that the system is ill-prepared to cope with another financial crisis.  It is understandable that so many are concerned that the end of the business cycle could trigger a financial crisis.  In practice, it seems like it has worked the other way around.  The financial crisis triggered the Great Recession.  The economy previously contracted when the tech bubble popped.  

Similar thinking emerged after WWII.  The fear of a return to the pre-existing depression conditions and the threat of the spread of communism shaped both the domestic and foreign policy objectives.   Stimulative policies and a stable monetary order (Bretton Woods), reduced trade barriers (GATT) and the World Bank and IMF were to assist

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Trade Talk and German Industrial Output Lift Sentiment

18 days ago

Overview:  Comments by Chinese President Xi, recognizing substantial progress in trade, helped boost sentiment after the US-China negotiators failed to set a date for the meeting between the two presidents.  Although we have argued that the German economy may be past the worst, the sharp drop in factory orders spooked investors.  However, today’s stronger than expected industrial output data, lifted by construction, lends credence to ideas that the external sector is the chief weight as the auto industry continues to work through its idiosyncratic challenges. US (and Canada’s) job reports area the highlight ahead of the weekend.   China, Taiwan, and Hong Kong markets are closed today, but most Asia-Pacific markets edged higher, though Australian stocks continued to

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Limited Price Action Does not Do Justice to Macro Developments

19 days ago

Overview: The global capital markets are subdued despite several macro developments.  The US and China may announce as early as today when the two presidents will meet to ostensibly sign a trade deal, while House of Commons effort to block a no-deal exit goes to the House of Lords today.  India cut interest rates by 25 bp, the second consecutive cut.  German factory orders slumped 4.2% in February, the most in two years.   Equities were mixed in Asia, and the Dow Jones Stoxx 600 is snapping a four-day advance.  US shares are trading softer, and the S&P 500 has a five-day rally in tow, reaching new six-month highs yesterday.  Bond yields are mostly softer, though Australia and New Zealand were outliers in the Asia Pacific, and Italy is an exception in Europe.  Yesterday

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Optimism Sweeps Through the Capital Markets

20 days ago

Overview: Japan announced the name of the new era that begins May 1 and a new emperor.  The connotation is of beautiful harmony.  And investors have taken the bit and run with it.  Optimism that the US and China near reaching an agreement on trade. China and Europe have reported better than expected PMIs today.  The US ISM manufacturing, reported Monday, was stronger than expected, led by employment and new orders.  Yesterday the US reported stronger than expected March auto sales, which bodes well for consumption after disappointing January retail sales disappointed.   With Prime Minister May reaching out to Labour, a softer and later Brexit still seem to be the most likely scenario, and this is supporting sterling while helping the overall investment climate.  Global

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Herding Cats

21 days ago

Overview:  After surging yesterday, equities are struggling to maintain the momentum that carried that S&P 500 to its best level since last October.  Most Asia Pacific equity markets advanced.  Japan’s small losses were a notable exception.  The Dow Jones Stoxx 600 has advanced in four of the last five sessions and is little changed, while US shares are trading with a heavier bias.  Yields edged up in Asia, but core yields in Europe are a little lower and the US 10-year yield, which jumped 10 basis points yesterday to 2.50% and re-inverted the 3m-10 year curve that had many observers warning of a recession is consolidating now, leaving it a couple basis points lower.  In the foreign exchange market, the dollar is firmer against the majors.  With uncertainty over Brexit

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Cool Video: Fed’s Independence Challenged and Defended

22 days ago

I was on the set Fox Business set this afternoon talking with Charles Payne and Quincy Krosby about Fed policy.  Payne suggested that both the political left and right are trying to politicize the Federal Reserve to print money for their favorite programs.  

I suggest the Fed’s independence will not so easily be encroached upon.    There is not a groundswell of support for a 50 bp cut.  It seems that there are two primary calls. One is from the new nominee to the Federal Reserve Board of Governors, and the other is from President Trump’s economic adviser.  

Some observers, including Quincy in this clip,  argues that the Fed’s decision to hike rates in December was a mistake and it by doing so it left itself open to a nominee like Moore.  However, with the

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April Monthly Currency Outlook

22 days ago

Poor economic data and soft inflation saw several central banks, including the Federal Reserve and European Central Bank, take a dovish turn in March. Contrary to expectations that interest rates would rise as the G3 central banks were no longer adding to their balance sheets on a combined basis. The sharp drop in interest rates and the flattening of curves in March is one of the key factors shaping the investment climate. The fall in yields has occurred even as oil prices have climbed, with supply disruptions more than offsetting demand concerns.

As the first quarter drew to a close, there were some preliminary signs that many of the largest economies may be stabilizing from what we suspect will be shown to be a soft patch at during a late part of the expansion

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China Reanimates the Animal Spirits, While Europe Finds New Ways to Disappoint

22 days ago

Overview:  Better than expected German retail sales ad employments reports at the end of last week has been followed by gains in China’s official PMI  and Caixin’s manufacturing reading. However, the spillover from China was limited in Asia.  Japan’s Tankan survey and outlook disappointed and South Korea’s exports and imports were weaker than expected.  Most manufacturing PMI in the region improved, but many, including Japan, Korea, Taiwan, Thailand, and Malaysia remain below the 50 boom/bust level.  Europe’s PMI mostly disappointed, but risk appetites were fanned.  Many Asian equity markets gapped higher and closed firmly, with China leading the way.  The Dow Jones Stoxx 600 rose nearly 1.0% in the European morning, with materials and consumer discretionary pointing the

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The Dollar’s Technical Condition at the Start of Q2

23 days ago

The US dollar rose against most of the major currencies in the last week of March.  The stronger than expected January GDP (0.3%) helped lift the Canadian dollar (~0.6%), which was the notable exception.  The Australian dollar’s rise ahead of the weekend and the end of Q4 allowed it to secure a small gain for the week (~0.2%). 

The risk that the UK leaves the EU without a deal seemed to many to have increased after a majority of the House of Commons failed to back any alternative, including the Withdrawal Bill for the third (and possibly not the last) time.   This saw sterling briefly trade below $1.30.  We still think a longer extension the leads to a softer and later UK exit will eventually be negotiated and that this will be seen as sterling positive.   The Reserve

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The Green Shoots of Spring

24 days ago

Investors have worked themselves into a lather. Equities crashed in Q4 last year amid on corporate earnings and concerns about growth. The Fed’s tightening decision in December was made unanimously.  The above-trend growth, the preferred inflation measure was near target, unemployment was the lowest in a generation and real rates were historically low.  

There are myths in the market, like the Plunge Protection Committee, or that the Fed targets the core rate of inflation.  One such myth that some Fed officials have helped to perpetuate is that the central bank is a murderer.  That it kills expansions.  It may have been true, but it has reformed. 

Indeed, it was the Federal Reserve under Paul Volcker, a market favorite, that was last murdered an expansion.

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