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

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case.

Time and time again in the past five weeks US Treasuries and the S&amp;P 500 have sold off and the Dollar rallied in the wake of hawkish US surprises only for markets to quickly unwind these moves. Volatility in US financial markets has ultimately remained subdued and directionality has been limited. In the month to 3rd June US Treasury yields rose only very marginally and the S&amp;P 500 was broadly unchanged. Notably the Dollar NEER weakened a further 1%, suggesting that markets’ appetite to short the Dollar was not significantly curtailed by these bouts of inflation-concerns.Moreover, quasi-dormant US financial markets have since come to life (or at least a semblance of life), with the 10-year Treasury yield down 13bp to a 3-month low of 1.49% and the until-recently stagnant S&amp;P 500 up 0.8% to a new record-high of 4,227 on 8th June.The erosion of the Dollar’s long-term real yield and rally in riskier assets have resulted in the “safe-haven” Dollar NEER depreciating a further 0.8% to its weakest level since late-April 2018. The Dollar NEER has now weakened over 2% since 19th April, to a 37-month low, in line with our bearish Dollar outlook. Our take is that markets’ belief that the current spike in year-on-year US inflation above the Federal Reserve’s medium-term target will be permanent has further eroded. As we argued a fortnight ago, markets are rightly in our view not (yet) buying into the notion that the Federal Reserve is “behind the curve” and will have no choice but to announce in the near-term a tightening of US monetary policy.The bottom line is that “wait-and-see” is still seemingly the default setting for most developed central banks, including the Federal Reserve and European Central Bank.Some analysts have argued that the release tomorrow of US CPI-inflation data for May, even if in line with consensus forecasts, could prove to be the straw that finally breaks the markets’ dovish back. Based on precedent we do not think this will the case. 

Cross-Asset Liquidity Strategist, CrossBorder Capital

Michael J. Howell

Cross-Asset Liquidity Strategist

Implementing Research Using Alt Data & AI

CrossBorder Capital

CrossBorder Capital is a London-based independent investment advisory firm. Founded in 1996, it exploits a gap in the investment arena by focusing on Central bank liquidity. 

It specialises in the monitoring and analysis of global liquidity flows - an important determinant of asset prices, from currencies through to bonds, equities and real estate.

CrossBorder Capital implements its investment strategy and currently manages over US$ 350m.


Cross Asset Strategy

<ul>
<li>US dollar is resuming its long-term downtrend</li>
<li>Net supply of international safe assets increasing. US Treasury adding more supply when needs of  ‘liquid’ private sector dropping</li>
<li>Already foreigners selling US bonds and switching into cyclical US risk assets</li>
<li>Liquidity factors are negative on the US dollar and warn of a 10-15% drop</li>
<li>Adding capital outflows, US dollar fall could exceed 20%</li>
</ul>


US dollar is resuming its long-term downtrend
Net supply of international safe assets increasing. US Treasury adding more supply when needs of  ‘liquid’ private sector dropping
Already foreigners selling US bonds and switching into cyclical US risk assets
Liquidity factors are negative on the US dollar and warn of a 10-15% drop
Adding capital outflows, US dollar fall could exceed 20%


<ul>
<li>Asia forex market volatility falls to near 40-year lows</li>
<li>Notional Asian ‘Euro’ trading within narrow band since 2016</li>
<li>Yuan positioning like Deutschmark within the Euro ‘Euro’</li>
<li>China well-served by such arrangements</li>
<li>Implies as USD devalues Asia gains liquidity and Europe loses export competitiveness</li>
</ul>


Asia forex market volatility falls to near 40-year lows
Notional Asian ‘Euro’ trading within narrow band since 2016
Yuan positioning like Deutschmark within the Euro ‘Euro’
China well-served by such arrangements
Implies as USD devalues Asia gains liquidity and Europe loses export competitiveness
 

The Asian ‘Euro’ (¥¥): Does It Already Exist?

US financial markets have had to contend with three “hawkish surprises” so far this month and on each occasion price action has been broadly the same. Initially the Dollar rallied, the S&amp;P 500 sold off and US Treasury yields rose but these (modest) moves were very quickly reversed. Volatility and directionality have thus remained limited, although the Dollar NEER has slowly weakened to within touching distance of a 3-year low – in line with our bearish Dollar outlook (see <a href="https://www.smartkarma.com/insights/dollar-and-the-three-bears" target="_blank" rel="noopener">Dollar and the three bears</a>, 19th April 2021).Price action suggests that markets are still seemingly not convinced, rightly in our view, that US inflation will remain materially above target medium-term and that the Federal Reserve will have to tighten monetary policy any time soon. The question is whether US financial markets will follow the same pattern following today’s release (at 13.30 London time) of US PCE-inflation data for April. The consensus forecast is that core PCE-inflation – the Federal Reserve’s preferred measure of inflation – rose from 1.8% yoy in March to 2.9% yoy, a 29-year high and well above the Federal Reserve’s medium-term target of 2%.Our view is that the scope for core PCE-inflation to surprise materially to the upside in April is limited, with the risk to the Dollar based on recent precedent biased to the downside in coming sessions. Medium-term we think the case for US CPI-inflation to remain well above the Fed’s target is far from water tight. Moreover, the Fed has form when it comes to keeping monetary policy very loose despite decent US GDP growth and an improving domestic labour market.Our core scenario at present is that the Federal Reserve will only start tapering its monthly asset purchases in 2022 and only start hiking its policy rate in 2023. We therefore remain bearish the US Dollar – a theme we will develop in future FIRMS reports.

US financial markets have had to contend with three “hawkish surprises” so far this month and on each occasion price action has been broadly the same. Initially the Dollar rallied, the S&amp;P 500 sold off and US Treasury yields rose but these (modest) moves were very quickly reversed. Volatility and directionality have thus remained limited, although the Dollar NEER has slowly weakened to within touching distance of a 3-year low – in line with our bearish Dollar outlook (see Dollar and the three bears, 19th April 2021).Price action suggests that markets are still seemingly not convinced, rightly in our view, that US inflation will remain materially above target medium-term and that the Federal Reserve will have to tighten monetary policy any time soon. The question is whether US financial markets will follow the same pattern following today’s release (at 13.30 London time) of US PCE-inflation data for April. The consensus forecast is that core PCE-inflation – the Federal Reserve’s preferred measure of inflation – rose from 1.8% yoy in March to 2.9% yoy, a 29-year high and well above the Federal Reserve’s medium-term target of 2%.Our view is that the scope for core PCE-inflation to surprise materially to the upside in April is limited, with the risk to the Dollar based on recent precedent biased to the downside in coming sessions. Medium-term we think the case for US CPI-inflation to remain well above the Fed’s target is far from water tight. Moreover, the Fed has form when it comes to keeping monetary policy very loose despite decent US GDP growth and an improving domestic labour market.Our core scenario at present is that the Federal Reserve will only start tapering its monthly asset purchases in 2022 and only start hiking its policy rate in 2023. We therefore remain bearish the US Dollar – a theme we will develop in future FIRMS reports.

Tantrum “lite” Won’t Help US Dollar

<ul>
<li>Latest data show large withdrawals of US Liquidity thru May by the US Fed</li>
<li>This may be technical, but it echoes concerns expressed at the last FOMC</li>
<li>A taper may be coming. This could trigger another tantrum</li>
<li>Longer-term Fed must operate a ‘put’ and expand its balance sheet at close to 10% per annum to support debt roll-overs and fiscal spending plans</li>
</ul>


Latest data show large withdrawals of US Liquidity thru May by the US Fed
This may be technical, but it echoes concerns expressed at the last FOMC
A taper may be coming. This could trigger another tantrum
Longer-term Fed must operate a ‘put’ and expand its balance sheet at close to 10% per annum to support debt roll-overs and fiscal spending plans


Global QE: Is The US Fed About to Tighten?

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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Have Hawks Finally Lost Altitude?

Recent price action - US yields and USD down - suggests markets increasingly less concerned about US inflation and risk of a hawkish Fed surprise....

Olivier Desbarres

High Odds Of A US Dollar Bear Market?

Prospective capital outflows following a 'perfect storm' and deteriorating domestic finances could overshadow the US dollar. We foresee a 10-15%...

Michael J. Howell

The Asian ‘Euro’ (¥¥): Does It Already Exist?

An Asian 'Euro' may have already formed? If correct there are huge implications for asset allocation, such as buying Asian stocks and European bonds.

Michael J. Howell

Tantrum “lite” Won’t Help US Dollar

Price action in equities, USD and Treasuries suggests markets not buying into US inflation scare or that Fed will have to tighten monetary policy...

Olivier Desbarres

Global QE: Is The US Fed About to Tighten?

Do latest liquidity data thru May and recent statements from FOMC point to a change in direction of US Federal Reserve policy towards tightness?

Michael J. Howell

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