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House of Market Insights

Quick market updates and lot of ideas for your investments from a multi-asset portfolio manager working for a family office.

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Macroeconomics

<ul><li>This week has been crucial for markets. Because some of the most important central banks released their monetary policy expectations for next year</li><li>The Fed will accelerate the tapering (from $15 Bln to $30 Bln) and its officials now expect to raise interest rates three times next year and three times in 2023</li><li>The ECB has been probably the most dovish among the central banks: it left key rates unchanged and it doesn’t foresee to raise them in 2022</li></ul>

This week has been crucial for markets. Because some of the most important central banks released their monetary policy expectations for next yearThe Fed will accelerate the tapering (from $15 Bln to $30 Bln) and its officials now expect to raise interest rates three times next year and three times in 2023The ECB has been probably the most dovish among the central banks: it left key rates unchanged and it doesn’t foresee to raise them in 2022

The week of the Central Banks: expectations, surprises and reactions

Founder

Olivier Desbarres

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4X Global Research

4X Global Research was founded in 2017 to provide institutional and corporate clients with the substantive research, high-quality analysis and thoughtful insight on Emerging and G20 economies and financial markets they need to make informed and timely decisions and gain an edge in their investments.

FX & Rates

<ul>
<li>Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  </li>
<li>However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.</li>
<li>We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.</li>
</ul>


Last week's spike in US asset prices, including US Treasuries, in the wake of gangbuster US CPI-inflation data for October, has proved short-lived.  
However, EM currencies have outperformed developed currencies since 1st November thanks partly to EM central bank policy rate hikes, a lack of currency contagion and domestic macro data.
We focus on low-volatility Asian currencies, the under-pressure Norwegian Krone, Polish Zloty,  Hungarian Forint and Euro and the importance of the release of UK retail sales data on Friday.


FX Round-Up – Calm Before the Next Storm

Following key central bank policy meetings last week in Australia, the US and UK, short-end interest rate markets have turned more dovish. We had argued back on 2nd November that “hawkish interest rate markets may have got slightly ahead of themselves.”The Federal Reserve and certainly the RBA cooled market expectations of rate hikes while the Bank of England flat-footed markets by leaving its policy rate unchanged at a record-low 0.10%. This was in line with our view that the Fed would “once again put some distance between the start of the QE taper and the start of the rate hiking cycle.”Within developed economies only the RBNZ and Bank of Canada have so far ended their asset purchases and only the Norges Bank and RBNZ have hiked their policy rates (by 25bp each) since the pandemic struck 20 months ago. In comparison 10 out of 21 major EM central banks have hiked their policy rate at least once in the past six months.The spread between the EM and developed economy central bank policy rate, which had narrowed from about 413bp in March 2020 to 360bp last summer, has thus since widened to a 3-year high of 423bp. The pattern was similar following the Great Financial Crisis.Monetary policy tightening is proceeding more slowly in developed economies despite headline CPI-inflation rising to a 13-year high of 3.9% yoy in September while in EM it was stable at 3.3% yoy. EM central banks, at least as a whole, have got a handle on inflation. As a result in developed economies the central bank “real” policy rate collapsed to a multi-decade low of -4.0% at end-September, compared to +0.8% in EM. Excluding India and China the EM central bank real policy rate was still -2.0%, or twice as large as the GDP-weighted real rate in developed economies.This divergence in real policy rates partly explains why EM currencies have outperformed developed currencies since late-April, in our view.If the gap between developed and EM CPI-inflation continues to widen we think developed interest rate markets may once again find it difficult to buy into these central banks’ ultimately dovish thinking and short-end government yields may start to rise again.

Following key central bank policy meetings last week in Australia, the US and UK, short-end interest rate markets have turned more dovish. We had argued back on 2nd November that “hawkish interest rate markets may have got slightly ahead of themselves.”The Federal Reserve and certainly the RBA cooled market expectations of rate hikes while the Bank of England flat-footed markets by leaving its policy rate unchanged at a record-low 0.10%. This was in line with our view that the Fed would “once again put some distance between the start of the QE taper and the start of the rate hiking cycle.”Within developed economies only the RBNZ and Bank of Canada have so far ended their asset purchases and only the Norges Bank and RBNZ have hiked their policy rates (by 25bp each) since the pandemic struck 20 months ago. In comparison 10 out of 21 major EM central banks have hiked their policy rate at least once in the past six months.The spread between the EM and developed economy central bank policy rate, which had narrowed from about 413bp in March 2020 to 360bp last summer, has thus since widened to a 3-year high of 423bp. The pattern was similar following the Great Financial Crisis.Monetary policy tightening is proceeding more slowly in developed economies despite headline CPI-inflation rising to a 13-year high of 3.9% yoy in September while in EM it was stable at 3.3% yoy. EM central banks, at least as a whole, have got a handle on inflation. As a result in developed economies the central bank “real” policy rate collapsed to a multi-decade low of -4.0% at end-September, compared to +0.8% in EM. Excluding India and China the EM central bank real policy rate was still -2.0%, or twice as large as the GDP-weighted real rate in developed economies.This divergence in real policy rates partly explains why EM currencies have outperformed developed currencies since late-April, in our view.If the gap between developed and EM CPI-inflation continues to widen we think developed interest rate markets may once again find it difficult to buy into these central banks’ ultimately dovish thinking and short-end government yields may start to rise again.

Early EM Rate Hikes Supporting EM Currencies

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Technical Analysis

Recent price action shows USD weakness re-emergingThree main USD indices are shared below which suggest that the<ul>
<li>DXY Index should ill fall to 92.84 if not the 92 area</li>
<li>BBDXY Index to 1,148 if not 1,138.</li>
<li>ADXY Index back up towards 110 on breach of 108.38</li>
</ul>

Recent price action shows USD weakness re-emergingThree main USD indices are shared below which suggest that the
DXY Index should ill fall to 92.84 if not the 92 area
BBDXY Index to 1,148 if not 1,138.
ADXY Index back up towards 110 on breach of 108.38


Chart based progressive global trading strategies, Chart Partners

Thomas Schroeder

Chart based progressive global trading strategies

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USD domino decline gaining traction with the Euro above our 1.1610 pivot barrier. USD weakness (DXY 94.50 top call) leading a peak in the 5yr and 10yr yield. USD/JPY next line at the key 114.50 major top barrier.The Euro is the latest currency to make a move. The dollar started its descent in August/September vs commodity currencies and rolled into stronger EM FX and more recently marked tops in the USD/KRW and USD/THB.Yield peak targets outlined that will provide fuel for a weaker USD, stronger metals and a short financials pair versus sectors that benefit from a yield backfill.

USD domino decline gaining traction with the Euro above our 1.1610 pivot barrier. USD weakness (DXY 94.50 top call) leading a peak in the 5yr and 10yr yield. USD/JPY next line at the key 114.50 major top barrier.The Euro is the latest currency to make a move. The dollar started its descent in August/September vs commodity currencies and rolled into stronger EM FX and more recently marked tops in the USD/KRW and USD/THB.Yield peak targets outlined that will provide fuel for a weaker USD, stronger metals and a short financials pair versus sectors that benefit from a yield backfill. 

United States

The euro is the official currency of the European Economic & Monetary Union.  The US dollar is the official currency of the United States of America.

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The week of the Central Banks: expectations, surprises and reactions

This week has been crucial for markets. Because some of the most important central banks released their monetary policy expectations for next year

Market Radar

FX Round-Up – Calm Before the Next Storm

Interest rate and FX vol has subsided with directionality in EM and developed market currencies driven by domestic macro data and monetary...

Olivier Desbarres

Early EM Rate Hikes Supporting EM Currencies

EM central banks’ early rate hiking cycle and positive real policy rate has supported EM currencies but developed interest rate markets may have...

Olivier Desbarres

USD Trend Re-Emerging & Asia Positive

The USD is again on the back foot and looks likely to fall. The area where the trend appears strongest is likely to be in Asia

Shyam Devani

Weak Dollar Leading Yield Top

USD domino decline gaining traction with the Euro above our 1.1610 pivot barrier. USD weakness (DXY 94.50 top call) leading a peak in the 5yr and...

Thomas Schroeder

Price Gauge

52-week Range

Market Cap (USDm)

P/E

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