Founder

Olivier Desbarres

Exacting. Excellent. Exceeding. Exemplary.

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

US Treasury yields and the Dollar, perhaps unsurprisingly, have risen in the wake of today’s strong US labour market report. However, we think it would be a stretch to argue that markets have “hard-baked” in their view that the Federal Reserve will announce its tapering plans potentially as early as the Jackson Jackson Hole Symposium on 26-28 August. A case perhaps of once bitten twice shy and for good reason in our view.We have been moderately bullish the GBP/EUR cross since late-June and the cross briefly traded above 1.18 this afternoon, its strongest level since February 2020. We maintain a positive outlook in the remainder of Q3. The Kiwi Dollar has been the fourth strongest major currency since the Federal Reserve’s policy meeting on 16th June. The Kiwi Dollar NEER has so far in August appreciated about 0.9%, confounding historical patterns which on average in 2010-2019 saw the currency weaken 0.9% in the month of August. However, the currency may not fare quite as well in Q4, in our view – the theme of our next FIRMS report.Conversely, the Thai Baht has underperformed but it’s not just been a tourism issue.

US Treasury yields and the Dollar, perhaps unsurprisingly, have risen in the wake of today’s strong US labour market report. However, we think it would be a stretch to argue that markets have “hard-baked” in their view that the Federal Reserve will announce its tapering plans potentially as early as the Jackson Jackson Hole Symposium on 26-28 August. A case perhaps of once bitten twice shy and for good reason in our view.We have been moderately bullish the GBP/EUR cross since late-June and the cross briefly traded above 1.18 this afternoon, its strongest level since February 2020. We maintain a positive outlook in the remainder of Q3. The Kiwi Dollar has been the fourth strongest major currency since the Federal Reserve’s policy meeting on 16th June. The Kiwi Dollar NEER has so far in August appreciated about 0.9%, confounding historical patterns which on average in 2010-2019 saw the currency weaken 0.9% in the month of August. However, the currency may not fare quite as well in Q4, in our view – the theme of our next FIRMS report.Conversely, the Thai Baht has underperformed but it’s not just been a tourism issue.

Founder & Chief Market Strategist - SAV Markets, SAV Markets

Shyam Devani

Founder & Chief Market Strategist - SAV Markets

Cross Asset Strategy

Developments over the past 24 hours have meant that US 10Y breakeven is now at its highest for more than a month. Importantly the level highlighted yesterday at 2.38% has given way. The setup now argues for a move to 2.55% - close to the trend highs seen in MayUnless nominal yields rise by more than 15bps, real yields are either going to stay unchanged at low levels or move even lower into negative territory, as they have started to do again todayAt the same time developments in China’s equity markets remain bearish which is now beginning to feed through to the currency.With Chinese and European authorities both on the dovish side, is this the time for the Fed to stay on the fence or be hawkish? Instead, could a dovish Fed provide the trigger for a weakening USD (perhaps ex USDCNH) and ultimately a rise in Gold?

Developments over the past 24 hours have meant that US 10Y breakeven is now at its highest for more than a month. Importantly the level highlighted yesterday at 2.38% has given way. The setup now argues for a move to 2.55% - close to the trend highs seen in MayUnless nominal yields rise by more than 15bps, real yields are either going to stay unchanged at low levels or move even lower into negative territory, as they have started to do again todayAt the same time developments in China’s equity markets remain bearish which is now beginning to feed through to the currency.With Chinese and European authorities both on the dovish side, is this the time for the Fed to stay on the fence or be hawkish? Instead, could a dovish Fed provide the trigger for a weakening USD (perhaps ex USDCNH) and ultimately a rise in Gold?

In the past fortnight US Treasury yields across the maturity spectrum have oscillated in reasonably wide ranges, with the highs coinciding with the release on 13th July of US CPI-inflation data. The shape of the yield curve today is almost the same as it was on 8th July.The US rates market has tentatively found its feet, for now at least – tentatively because volatility remains reasonably high both in terms of yield levels and yield spreads. The pace of Dollar NEER appreciation has also slowed and volatility remains low while the S&amp;P 500 and Brent crude oil price have been choppy in multi-week ranges.The inverse correlation between the Dollar NEER and S&amp;P 500 has somewhat broken down so far this month. We estimate that since 28th June the S&amp;P 500 and Dollar NEER have respectively gained about 1.8% and 1.2%. In that sense the Dollar has not traded like a “safe-haven” asset, at least not in the purest sense of the term in our view.  Instead the appreciation in the Dollar NEER since 10th June has largely coincided with the flattening of the 2s-10s Treasury curve.Finally, the relative performance of major currencies does not clearly point to either “risk-on” or “risk-off” having prevailed, in our view. Since the 36-month low in the Dollar NEER on 10th June, weighted-baskets of EM currencies (excluding Renminbi) and developed market currencies have both depreciated about 3% versus the US Dollar.Our overall take is that US (and global) markets in recent weeks can neither be categorised as “risk-on” or “risk-off”. Instead it has been a case of “what is the risk?”. Specifically we think markets are still weighing whether i) they should be more concerned about a potential slowdown in US and global growth or CPI-inflation remaining sticky at high levels and ii) how central banks will adjust monetary policy, in terms of their QE programs and outlook for policy rate hikes (an arguably granular picture at present). Macro data point to rapid global economic growth having slowed in June (but remained positive) and we will elaborate on our outlook in the next FIRMS report.

In the past fortnight US Treasury yields across the maturity spectrum have oscillated in reasonably wide ranges, with the highs coinciding with the release on 13th July of US CPI-inflation data. The shape of the yield curve today is almost the same as it was on 8th July.The US rates market has tentatively found its feet, for now at least – tentatively because volatility remains reasonably high both in terms of yield levels and yield spreads. The pace of Dollar NEER appreciation has also slowed and volatility remains low while the S&amp;P 500 and Brent crude oil price have been choppy in multi-week ranges.The inverse correlation between the Dollar NEER and S&amp;P 500 has somewhat broken down so far this month. We estimate that since 28th June the S&amp;P 500 and Dollar NEER have respectively gained about 1.8% and 1.2%. In that sense the Dollar has not traded like a “safe-haven” asset, at least not in the purest sense of the term in our view.  Instead the appreciation in the Dollar NEER since 10th June has largely coincided with the flattening of the 2s-10s Treasury curve.Finally, the relative performance of major currencies does not clearly point to either “risk-on” or “risk-off” having prevailed, in our view. Since the 36-month low in the Dollar NEER on 10th June, weighted-baskets of EM currencies (excluding Renminbi) and developed market currencies have both depreciated about 3% versus the US Dollar.Our overall take is that US (and global) markets in recent weeks can neither be categorised as “risk-on” or “risk-off”. Instead it has been a case of “what is the risk?”. Specifically we think markets are still weighing whether i) they should be more concerned about a potential slowdown in US and global growth or CPI-inflation remaining sticky at high levels and ii) how central banks will adjust monetary policy, in terms of their QE programs and outlook for policy rate hikes (an arguably granular picture at present). Macro data point to rapid global economic growth having slowed in June (but remained positive) and we will elaborate on our outlook in the next FIRMS report.

Not “risk-On” or “risk-Off”, Rather What’s the Risk?

Despite buoyant domestic expectations (or at least hope) football will not be coming home after the England football team lost on penalties to Italy in Sunday’s final of the Euro Championship but Sterling is arguably coming home, albeit slowly. The GBP/EUR cross has this week traded mostly above 1.17, a level which has proven hard to break. GBP/EUR is up about 0.6% since late-June, in line with our modestly bullish view, and we expect further modest appreciation in the remainder of Q3 (see “<a href="https://www.smartkarma.com/insights/sterling-leads-euro-1-0-at-half-time-in-dull-encounter-but-could-extend-advantage" target="_blank" rel="noopener">Sterling leads Euro 1-0 at half-time in dull encounter but could extend advantage</a>”, 29th June 2021).The catalyst for Sterling’s outperformance versus the Euro has arguably been the widening differential between UK and Eurozone CPI-inflation, the Bank of England’s more hawkish rhetoric relative to a still very dovish European Central Bank and markets upping their pricing of Bank of England policy rate hikes. The recent hawkish pivots by Monetary Policy Council members Ramsden and in particular Saunders may not yet enjoy consensus support. However, it is increasingly clear, in our view, that the MPC is divided (and vocally so) as to if and when it should prematurely terminate its QE program and when it should start hiking its policy rate. The rates market, which is now pricing in 21bp of Bank of England hikes by mid-September 2022, is seemingly siding with the hawks which is in turn providing some ammunition (even if still a little blunt) to Sterling bulls. We expect reasonably robust UK GDP growth in coming months to push headline CPI-inflation above the Bank of England’s “peak forecast” of 3% yoy. We are thus sticking to our view that the gap between UK and Eurozone growth and CPI-inflation will widen further and see the Bank of England becoming increasingly hawkish, in absolute terms and relative to the ECB.Finally, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.

Despite buoyant domestic expectations (or at least hope) football will not be coming home after the England football team lost on penalties to Italy in Sunday’s final of the Euro Championship but Sterling is arguably coming home, albeit slowly. The GBP/EUR cross has this week traded mostly above 1.17, a level which has proven hard to break. GBP/EUR is up about 0.6% since late-June, in line with our modestly bullish view, and we expect further modest appreciation in the remainder of Q3 (see “Sterling leads Euro 1-0 at half-time in dull encounter but could extend advantage”, 29th June 2021).The catalyst for Sterling’s outperformance versus the Euro has arguably been the widening differential between UK and Eurozone CPI-inflation, the Bank of England’s more hawkish rhetoric relative to a still very dovish European Central Bank and markets upping their pricing of Bank of England policy rate hikes. The recent hawkish pivots by Monetary Policy Council members Ramsden and in particular Saunders may not yet enjoy consensus support. However, it is increasingly clear, in our view, that the MPC is divided (and vocally so) as to if and when it should prematurely terminate its QE program and when it should start hiking its policy rate. The rates market, which is now pricing in 21bp of Bank of England hikes by mid-September 2022, is seemingly siding with the hawks which is in turn providing some ammunition (even if still a little blunt) to Sterling bulls. We expect reasonably robust UK GDP growth in coming months to push headline CPI-inflation above the Bank of England’s “peak forecast” of 3% yoy. We are thus sticking to our view that the gap between UK and Eurozone growth and CPI-inflation will widen further and see the Bank of England becoming increasingly hawkish, in absolute terms and relative to the ECB.Finally, the typically very large UK tourism deficits, including with Eurozone countries, are likely to be far smaller than normal in July-August, which could in turn up-end Sterling’s typical seasonal weakness versus the Euro in these two months.

Technical Analysis

Platinum has progressed to post a short term bullish break. The lower yield environment with a still vulnerable looking USD is providing a good backdrop for precious metals.  Expect continued gains for platinum and the rest.

Platinum has progressed to post a short term bullish break. The lower yield environment with a still vulnerable looking USD is providing a good backdrop for precious metals.  Expect continued gains for platinum and the rest.

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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FX Focus: USD, GBP, NZD and THB

US yields and USD have risen following strong US labour mkt report but still not clear markets expect Fed to announce tapering plans in coming...

Olivier Desbarres

Bonds & FX: Here Comes Trouble

US real yields are likely to remain at trend lows or move even deeper into negative territory. With China and Europe both dovish, is the Fed going...

Shyam Devani

Not “risk-On” or “risk-Off”, Rather What’s the Risk?

Rates and equity markets have settled in broad ranges in past 2 weeks and pace of USD appreciation has slowed. Markets are rightly weighing growth...

Olivier Desbarres

Sterling’s Coming Home…albeit Slowly

GBP/EUR has inched higher, in line with our bullish view. We expect further gains. UK recording faster growth and inflation than Eurozone and Bank...

Olivier Desbarres

Platinum: Bullish Break

Precious metals continue to hold up and the recent break on Platinum only adds to the bullish stance. Further short term gains are expected on all

Shyam Devani

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