I have three charts for you which demonstrate that the US Federal Reserve is tightening monetary policy.Read more ›
Post Tagged with: "currencies"
Bloomberg View had a good column today on the popularity of the European single currency. The article shows how the euro has gone from being unloved in Germany at introduction in 2002 to well accepted, while the opposite has happened in Italy and France. But behind the aggregates, deep fissures lie that tell a different story. Let me start the conversation on that story here.Read more ›
The FT is reporting that US President Donald Trump sees Germany as a ‘currency manipulator’ of sorts, a view bound to have negative consequences on bilateral relations. What’s more, according to the Financial Times, Trump’s top trade advisor, Peter Navarro, has accused Germany of using a “grossly undervalued” euro to “exploit” the United States as well as Germany’s own EU monetary union partners. This makes three countries in Trump’s sights: China, Mexico and, now, Germany.Read more ›
If I could name three countries that will be particularly difficult for the US to deal with geopolitically, I would pick Russia, China and Turkey. The first two are obvious choices but the third is going to be equally tricky because of the increasingly heavy-handed way Turkish President Erdogan is cracking down on alleged Gulenists in the aftermath of last summer’s attempted Coup d’etat. It is Turkey’s unique relationship to the West via NATO and the increasingly authoritarian rule which will make the relationship tricky in 2017.Read more ›
With the Fed talking up the likelihood of three rate hikes in 2017 while other central banks are still in easing mode, the potential for a US dollar rout and a concomitant closing of the US trade deficit is pretty low. Therefore, given Donald Trump’s hawkish rhetoric on China, the potential that the US government labels China a currency manipulator for the first time since 1994 is high.Read more ›
I have heard some commentators say that the concern over a strong dollar is overblown. I don’t think it is. In the context of heightened tensions with China, the strength of the US dollar will be a key issue affecting Asia in particular. I want to flesh out a few thoughts here, especially regarding the pivot by the US toward Russia and away from China.Read more ›
With the fed having raised interest rates for the second time in ten years, in an environment in which US growth looks pretty good, we should expect more hikes to come. The question is whether the economy can withstand the hikes and what they would mean for markets. I have five asset classes to watch: Treasuries, the US Dollar, Emerging Markets, the Japanese Yen, and Gold.Read more ›
Stocks have mostly recovered since Brexit and the strong dollar and Yen have reversed much of their overvaluation in recent days. The question remains as to what the fallout from the UK’s departure from the EU will be. I continue to believe the near-term economic impact will be muted, and that Brexit will come to be seen as mostly a political event. But it is a political event with wide-reaching potential ramifications.Read more ›
At this juncture, the leading candidates for British Prime Minister are both women on either side of the referendum vote. However, both are saying they will guide the UK out of the European Union. Meanwhile Chancellor George Osborne’s fiscal stimulus looks set to concentrate on lowering corporate tax, which will continue to widen the income gulf, a major contributor to the vote to leave the EU. Markets have stabilized with the Pound taking the brunt of the post-Brexit fallout.Read more ›
The unexpected ‘Leave’ victory in the recent referendum on EU membership introduces considerable political risk by elevating tail risk scenarios to reasonable worst case status. However, in a global economy that is already slow and already lacks policy space, the referendum outcome also introduces economic and financial risk. Below I have some general thoughts on those risks, with the US dollar, Italian banks, and Japanese deflation foremost among them. At a later point, I hope to also go into some more detailed scenario handicapping.Read more ›
Germany is a member of a currency union over which it has no monetary authority. So no one can accuse the country of ‘manipulating’ its currency. Yet, Germany is displaying huge current account surpluses that are illustrative of a dangerous imbalance which when corrected will cause violent disruptions to trade and lead to populist and autarkic political rhetoric. This is what awaits us when the global economy slows further.Read more ›
The equity markets that have fallen the least so far are the U.S. and the Japanese markets. If my prediction that we are looking into a more difficult period in the U.S. (and the euro zone), U.S. equities look particularly vulnerable, so maybe Jeremy Grantham will be proven right after all. If you add to that the rather lofty earnings expectations for next year in the U.S. (chart 10), the situation only gets trickier.
Despite not exactly being dirt cheap at current valuation levels, I am therefore going to stick my neck out and suggest that long bonds could actually prove a better investment than equities – at least until we approach the bottom of this economic cycle.Read more ›