Last week witnessed three notable developments in the financial landscape. The greenback briefly dipped below the 200-day moving average for the first time in seven months. Despite softening inflation, a substantial contraction in Japan’s Q3 GDP, and feeble consumption in the early stages of Q4, the BOJ is under little pressure to take immediate action. A resounding 94% of economists polled by Bloomberg anticipate no policy changes until the next year, with about half of them expecting a move in …
Blog Posts
As the year draws to a close, it seems that the global economy is transitioning into a new stage. Despite assurances from North American and European central bankers about their readiness to address potential threats to price stability, the markets express skepticism. The pricing signals in the derivatives markets suggest a prevailing belief that central banks have likely concluded the monetary tightening cycle initiated in the post-Covid era. Central bankers are resisting any premature relaxation of financial conditions. The significant …
Last week, the U.S. dollar experienced a decline against all G10 currencies. The dollar-bloc currencies, along with sterling and the Scandis, took the lead in this movement. showing appreciation ranging from approximately 0.55% to 1.40% against U.S. dollar. Prior to the weekend, both the dollar bloc and sterling achieved new monthly highs. While the dollar spent a significant portion of the week consolidating against other currencies, following the extension of its recent losses at the week’s outset, our analysis of …
Industrial policy has risen to prominence on the national agenda in the U.S. and other advanced industrial economies. This marks a significant departure from recent economic trends and has reignited a longstanding debate in which we were both actively engaged over three decades ago. In the U.S., the CHIPS and Science Act, the Inflation Reduction Act (IRA), and the Bipartisan Infrastructure Act have established noteworthy national security and climate objectives. Each of these acts utilizes subsidies, tax credits, loan guarantees, …
The blend of subdued US price data and generally weaker economic indicators supports the notion of a fresh economic convergence. The economic reports from Europe, Japan, and China are not particularly encouraging. Instead, this convergence is propelled by the anticipated deceleration of the world’s largest economy. This new alignment has a negative impact on the dollar. Our cautious working assumption remains that the gains made by the US dollar since mid-July are undergoing a retracement. While we suspect more than …
Recent patterns and advancements, ranging from conflicts in Gaza and Ukraine to the competition between the United States and China, could signal a significant global geopolitical shift. The possibility of a prolonged confrontation between the Western nations and their adversaries, notably China, Russia and Islamic World, is becoming increasingly prominent. The ongoing crises, conflicts, and wars underscore the significant transformation of the geopolitical landscape in recent years, with a resurgence of great-power rivalries taking center stage in international relations. The …
The recent fluctuations in the value of the US dollar appear closely tied to changes in US interest rates. Following the FOMC meeting and the release of October jobs report, the 2Y Treasury Yield experienced a notable decline of 17 basis points, resulting in a broad decrease in the value of US dollar. This decline was particularly pronounced against various currency pairs, with the dollar approaching three standard deviations below it’s 20 day moving average. Initially perceived as a minor …
Last week may have marked are reversal point. Despite Chair Powell’s assertion that the Fed did not adopt a policy bias favoring easing and reiterated the absence of discussions regarding rate cuts, the market appears to hold a different view. The implied yield of the December 2024 Fed funds futures contract is approximately 4.45%, indicating that the market is factoring in not only the two cuts projected by the Fed in September but also the likelihood of a third cut, …
November 2023 might signify a period of moderate activity in terms of monetary policy, alongside increased global tensions. Fiscal policy, on the other hand, could be more dynamic, as Japan considers a supplementary budget, China plans additional measures, and Europe deliberates on reinstating the Stability and Growth Agreement. In the United States, the recent House of Representatives’ events may lead to potential challenges regarding the federal government’s spending capabilities. Given recent geopolitical shifts, Ray Dalio of Bridgewater was cited suggesting …
Notwithstanding these indicators, it is too early to say whether inflation has been contained. Nevertheless, the current price surge has taught us two vital lessons. Firstly, economists’ standard models – particularly the dominant one, which assumes the economy is constantly in equilibrium – were rendered virtually useless. Secondly, those who declared firmly that it would take five years of misery to drain the system of inflation have already been debunked. Inflation has dropped drastically, with the seasonally adjusted CPI for …