Tuesday , July 27 2021
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Tag Archives: Central Banks

ECB, Bank of Canada, and the Peak in US CPI Base Effect

The media has played up the upcoming ECB with all the Sturm und Drang that can be mustered. However, investors and other market participants seem considerably less anxious.  And for a good reason:  at the end of the day, it does not really matter that much.  Since the ECB stepped up its bond purchases, the euro, yields, and premiums over Germany have risen. But, of course, there are other drivers of the capital markets, and that is the point.  Even though the euro is often quoted to the...

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Divergence: The Only Macro

The major central banks have met.  The general message is that continued strong monetary support remains necessary, and the coming increase in price pressures is likely to be technical and transitory.  The US fiscal stimulus, on the back of which the OECD revised its global growth forecast up 1.4 percentage points to  5.6%, has been approved.  The ECB's latest targeted three-year loan operation (TLTRO) saw demand for 330.5 bln euros, the most since last June, at a rate as low as 100...

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It is the ECB’s Turn but Little New to be Said or Done

Overview:  The S&P 500 and NASDAQ gapped higher yesterday to record-levels, and the reflation theme lifted Asia Pacific shares for the third session today.  South Korea, Taiwan, and China led the advance.  Europe's Dow Jones Stoxx 600 gapped higher and is consolidating, seemingly waiting for fresh directional clues from the US, where a small higher opening is anticipated.  The US 10-year yield is steady around 1.08%, while European yields are a little softer.  The US dollar is lower...

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Darkest Before Dawn

The upcoming economic news is likely to be dreadful, and if it is not dreadful, it will be mostly ignored. This includes the release of the preliminary January PMI figures at the end of the week. Japan is extending its national emergency to another five prefectures, which collectively account for over half of the nation's GDP.  Germany's Merkel, not given to hyperbole, warns that the lockdown may last ten more weeks.  The Dutch do not appear far behind.  England is talking about tightening...

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Prospect of a Vaccine Signals a New Game is Afoot

Pfizer's extraordinary results on developing a vaccine for Covid-19 has injected a new factor into the investment climate, even as many countries around the world continue to wrestle with a new and powerful spread of the virus.  In the US equity market, a rotation, which may have been underway previously, gained ground.  It can be illustrated by the fact that the FAANG-driven NASDAQ trailed the other major benchmarks, including the Russell 2000.  European and Japanese equities extended...

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Now What?

The dollar fell hard last week.  After several failed attempts, it broke below JPY104 for the first time in eight months.  Despite Beijing's ostensible efforts to moderate the yuan's upside pressure through various administrative policy adjustments, it reached new two-year highs.  The Mexican peso, the second most actively traded emerging market currency after the yuan, returned to levels not seen since the March chaos.  The Dollar Index fell from the upper end of its range (above 94.00)...

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October Monthly

After falling in July and August, the US dollar strengthened against most of the major currencies in September.  The dramatic pullback in equities seemed to have undergirded the yen's resilience, which gained a net 0.25% against the dollar.  However, the dollar's broadly firmer tone appears corrective and consolidative in nature and coincided with the downturn in equities, especially high flying US tech shares.  Risk assets, in general, succumbed to profit-taking amid increased tensions...

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It was the Best of Times, It was the Worst of Times

After disparaging the French Revolution at the Paris G7 summit in 1989, Margaret Thatcher left a copy of Dicken's Tale of Two Cities for the French Socialist President Mitterand.  The story, as it will be recalled, contrasts the revolutionary chaos of Paris in 1789 to the peaceful London.  The French Revolution was also the subject of the seeming misunderstanding of Chinese premier Zhou Enlai who, when asked in 1972 about the political implication, said it was too soon to tell.  The...

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Macro: Inflation and Policy

August is winding down.  The market-moving data is passed.  Most of the high-income countries, with the notable exception of the UK, reported disappointing economic data in recent days. US data was decidedly mixed. On one hand, August manufacturing surveys from the NY and Philadelphia Fed showed a cooling off of activity, there was an unexpected increase in weakly jobless claims.  On the other hand, US housing activity continues to recover dramatically, and the preliminary PMI was...

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Don’t Low Rates On Junk Bonds Mean Fed-fueled Credit Bubble? No. Precisely The Opposite.

Despite what we’ve all been taught, and what gets reinforced in the media, it’s not really that difficult to get people to see the interest rate fallacy at least where it all starts. Central bankers say that low rates are stimulus when this runs contrary to every bit of historical experience as well as evidence. Yes, they are lying to you.When you begin explaining how by first using government bonds, suddenly it does make a lot of sense. Demand for the safest and most liquid instruments...

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