Category

FX and Rates

Brief FX & Rates: Emerging Market Central Banks Playing Catch-Up and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Emerging Market Central Banks Playing Catch-Up
  2. Global Growth Shaken, Central Banks Stirred

1. Emerging Market Central Banks Playing Catch-Up

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Developed central banks in the past week have been falling over themselves to loosen monetary policy and secure the proper functioning of financial and credit markets.

The Fed, RBNZ, Bank of Canada, Bank of England and Norges Bank have delivered inter-meeting policy rate cuts of between 50bp and 100bp and our measure of the developed central bank policy rate has been cut 74bp so far in March, the largest monthly cut since December 2008. It is now in negative territory (-0.05%) for the first time in at least 15 years.

This has raised concerns that developed central banks are close to running out of ammunition, at least in terms of policy rate cuts, which have arguably weighed on global equities and contributed to the outperformance of the Dollar, Euro, Swiss Franc and Yen.

In contrast, major Emerging Market (EM) central banks have, with the exception of Bank of Korea and Banco Central de Chile, kept their policy rates unchanged in the past fortnight. This is broadly in line with our view that “the overall pace and magnitude of [central bank] policy rate cuts in Non-Japan Asia will be modest.”

The EM central bank policy rate – a GDP-weighted average of policy rates in 20 major EM economies – was admittedly cut a sizeable 74bp between mid-2019 and end-January 2020 but has been cut only 4bp so far in March, albeit to a new multi-decade low of about 4.3%.

We think EM central banks are concerned that further rates cuts could exacerbate capital outflows and put further downward pressure on their currencies and upward pressure on already high and/or rising headline CPI-inflation.

As a simple rule of thumb we think EM central banks with a high real policy rate and stable/appreciating currencies are more likely to cut their policy rates in coming weeks (see Figure 7). On this basis central banks in India, the Philippines and Taiwan seemingly have room to cut rates.

We also think that the South African Reserve Bank will cut rates at its policy meeting on 19th March, as long as the Rand remains broadly stable as it has been in the past week.

2. Global Growth Shaken, Central Banks Stirred

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The drastic measures which governments across the world have taken so far to mitigate the spread of the coronavirus have few precedents outside of war times and therefore quantifying their economic, financial and social impact remains challenging. 

However, there is little doubt that economic activity in China, the epicentre of the epidemic, has slowed sharply. Disruptions and delays to international supply chains are impacting global trade and production. Moreover, there is growing evidence that this supply-side shock is feeding through to the demand-side, heaping pressure on the service sector and retailers and forcing governments and corporates to postpone long-term investment plans. 

Our core scenario, based partly on developments in the global manufacturing PMI, remains that global GDP growth, which had looked set to pick-up slightly in Q1 2020 from about 3.0% yoy in H2 2019, will slow to around 2.5% yoy in Q1, its slowest pace in a decade.

This would in turn imply that quarter-on-quarter global GDP growth halved to around 0.35% in Q1 from an average of 0.7% per quarter in 2019 and that the world may, based on the IMF’s definition, be teetering on the verge of a recession.

Recent (uncoordinated) central bank policy rate cuts, including the Fed’s inter-meeting 50bp cut, likely further cuts and recently announced modest fiscal stimulus measures will near-term have only a marginally positive impact on global economic growth, in our view. They will have reduced the odds of a global recession but those odds remain significant.

However, history suggests that central bank rate cuts may well give further impetus to any global economic recovery further down the line, facilitating a V-shaped recovery.

Non-Japan Asian central banks have largely been on the sidelines in the past month, in line with our expectations, but the risk is now biased towards more rather than fewer rate cuts. China’s exchange rate policy in favour of a “strong” Renminbi is indicative.

The coronavirus has lowered the until recently high bar for a Bank of England policy rate cut and our core scenario is for a 25bp cut at its 26th March meeting. Similarly, we think the RBNZ will cut rates 25bp on 25th March while noting the RBNZ’s penchant for surprises.

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Brief FX & Rates: Global Growth Shaken, Central Banks Stirred and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Global Growth Shaken, Central Banks Stirred

1. Global Growth Shaken, Central Banks Stirred

C4

The drastic measures which governments across the world have taken so far to mitigate the spread of the coronavirus have few precedents outside of war times and therefore quantifying their economic, financial and social impact remains challenging. 

However, there is little doubt that economic activity in China, the epicentre of the epidemic, has slowed sharply. Disruptions and delays to international supply chains are impacting global trade and production. Moreover, there is growing evidence that this supply-side shock is feeding through to the demand-side, heaping pressure on the service sector and retailers and forcing governments and corporates to postpone long-term investment plans. 

Our core scenario, based partly on developments in the global manufacturing PMI, remains that global GDP growth, which had looked set to pick-up slightly in Q1 2020 from about 3.0% yoy in H2 2019, will slow to around 2.5% yoy in Q1, its slowest pace in a decade.

This would in turn imply that quarter-on-quarter global GDP growth halved to around 0.35% in Q1 from an average of 0.7% per quarter in 2019 and that the world may, based on the IMF’s definition, be teetering on the verge of a recession.

Recent (uncoordinated) central bank policy rate cuts, including the Fed’s inter-meeting 50bp cut, likely further cuts and recently announced modest fiscal stimulus measures will near-term have only a marginally positive impact on global economic growth, in our view. They will have reduced the odds of a global recession but those odds remain significant.

However, history suggests that central bank rate cuts may well give further impetus to any global economic recovery further down the line, facilitating a V-shaped recovery.

Non-Japan Asian central banks have largely been on the sidelines in the past month, in line with our expectations, but the risk is now biased towards more rather than fewer rate cuts. China’s exchange rate policy in favour of a “strong” Renminbi is indicative.

The coronavirus has lowered the until recently high bar for a Bank of England policy rate cut and our core scenario is for a 25bp cut at its 26th March meeting. Similarly, we think the RBNZ will cut rates 25bp on 25th March while noting the RBNZ’s penchant for surprises.

You are currently reading Executive Summaries of Smartkarma Insights.

Want to read on? Explore our tailored Smartkarma Solutions.

Brief FX & Rates: INDIA: Illiquid INR Government Bonds to Outperform and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. INDIA: Illiquid INR Government Bonds to Outperform

1. INDIA: Illiquid INR Government Bonds to Outperform

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2019 has been a good year for investors in local currency Indian government bonds but we see a year of mediocre returns in 2020. A combination of fewer policy rate cuts and continuing fiscal deficit concerns will keep long-term interest rates from falling further, in our view.

Our analysis shows that when interest rates are stable or rising, illiquid government bonds tend to outperform their liquid comparators. This outperformance is observed both in terms of capital appreciation (favourable price movements) and in total returns (including carry). Going into 2020, for long-term investors, we see value in switching out of liquid INR government securities into illiquid INR government securities.

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Brief FX & Rates: US Rates: A Bid for Real Yields and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. US Rates: A Bid for Real Yields
  2. The Growing Weight of Digital Currencies in Mainstream Finance

1. US Rates: A Bid for Real Yields

  • The US FOMC will announce its policy rate decision later today. The recent volatility in global crude oil prices has changed the dynamics a little. Developments in the Middle-East can have a supply side shock to inflation, which in general, could affect global demand. Weak global demand has been pushing the Federal Reserve to make insurance cuts.
  • With global central banks maintaining an accommodative policy stance while domestic economic data in the US is still robust, adding protection against inflation is prudent, in our view.
  • US interest rates have risen over the recent few trading sessions. For investors seeing this as an opportunity to long Treasuries, we see value in owning real rates relative to nominal rates. At current levels real rates are historically cheap to nominal rates.

2. The Growing Weight of Digital Currencies in Mainstream Finance

  • Digital currencies are gaining regulators’ attention. Bank of England Governor Mark Carney’s speech at the Jackson Hole Symposium is one acknowledgement of a need for a new economic order where virtual currencies could provide a solution.
  • Digital currencies help overcome the zero lower bound problem which interest rate markets face today, in our view. Though this requires the phasing out of cash, it is easier said than done. The development of the e-Krona in Sweden offers an interesting case study.
  • With the introduction of the People’s Bank of China (PBoC) digital currency, we expect the debate between privately-owned and central bank-owned digital currencies to gain steam. In our view, central banks will have to overcome the baggage of traditional finance to make a meaningful dent in the digital currency space, which is not easy; On the other hand, there is no known mechanism to control private crypto currency inflation.
  • The world is looking for a new monetary order. Virtual currencies are likely to find a way in there, we believe.

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Brief FX & Rates: The Growing Weight of Digital Currencies in Mainstream Finance and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. The Growing Weight of Digital Currencies in Mainstream Finance

1. The Growing Weight of Digital Currencies in Mainstream Finance

  • Digital currencies are gaining regulators’ attention. Bank of England Governor Mark Carney’s speech at the Jackson Hole Symposium is one acknowledgement of a need for a new economic order where virtual currencies could provide a solution.
  • Digital currencies help overcome the zero lower bound problem which interest rate markets face today, in our view. Though this requires the phasing out of cash, it is easier said than done. The development of the e-Krona in Sweden offers an interesting case study.
  • With the introduction of the People’s Bank of China (PBoC) digital currency, we expect the debate between privately-owned and central bank-owned digital currencies to gain steam. In our view, central banks will have to overcome the baggage of traditional finance to make a meaningful dent in the digital currency space, which is not easy; On the other hand, there is no known mechanism to control private crypto currency inflation.
  • The world is looking for a new monetary order. Virtual currencies are likely to find a way in there, we believe.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief FX & Rates: Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar
  2. Rates Monitor: Zero in on US Rates
  3. Great Currency War: Slowing Global Economy Will Test Truce
  4. Big Issues Holding Down AUD/NZD Have Flipped

1. Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar

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Hitherto, the Fed’s dovish policy tilt has not produced significant dollar weakness, an outcome beneficial for foreign investors in US equities. Meanwhile, previous economic cycles cannot provide definitive clues about the direction of the exchange rate at this stage of the current expansion.

Given the likelihood of policy easing by the European Central Bank and Bank of Japan, US monetary conditions will need to ease by a higher order of magnitude to produce meaningful dollar weakness. If the Fed’s actions fail to weaken the US currency then the Trump Administration could actively seek to talk down the dollar, despite current assurances to the contrary.

Although headline Q2 real GDP data confirms an ongoing slowdown, aggregate final private demand remains robust, thereby lowering the chances of aggressive Fed policy easing.

Normally, an insurance rate cut by the Fed would lower borrowing costs and ease financial conditions, but the Fed’s dovish tilt has already achieved these conditions. Fed Chair Powell will argue that a policy rate reduction is required to reverse earlier damage to US business sentiment.

The prospect of continued pressure on the Fed from the Trump Administration will keep the issue of policy independence on the radar screen. A recently passed measure to temporarily suspend the federal government debt ceiling until 2021 is a forerunner to another round of fiscal easing, an outcome that raises pressure on the Fed to provide an appropriate offset.

2. Rates Monitor: Zero in on US Rates

We are launching our Rates Monitor to track movements in global interest rates.

  • The US Federal Reserve Bank could be entering policy accommodation at its upcoming meeting on July 31, in our view. We note that historically, episodes of policy accommodation have lasted for a considerable number of months. Furthermore, the number of rate cuts (or QE equivalent) needed have been significant.
  • If the historical trend is repeated, policy rates could eventually hit zero and it is potentially likely for the Fed to look for measures beyond rate cuts.
  • However, long-term rates today are also not significantly above the zero-lower bound. The closer they approach the zero limit; somewhat lesser the ability of unconventional policy measures to stimulate.

3. Great Currency War: Slowing Global Economy Will Test Truce

Boj

Concerns about the slowing global economy will raise the importance of currency movements in 2019 H2 as a means to mitigate headwinds to growth. In particular, the Trump Administration seems keen to preside over a weaker dollar, particularly versus the euro and the yuan.

Markets are discounting policy easing by the Fed and the European Central Bank (ECB) that could push the yen higher in the event of no response by the Bank of Japan (BoJ). The sales tax increase in October raises downside economic risks in Japan that could ultimately force more policy easing by the BoJ.

The yuan briefly appreciated in the wake of news about the US and China resuming trade negotiations, but a final agreement is unlikely any time soon. Further monetary stimulus is likely to arrive via lower reserve requirements for banks, while deliberate weakening of the currency by the People’s Bank of China will only be contemplated if US-Sino trade talks collapse.

The current environment differs from the post-Plaza Accord environment due the persistence of low inflation and strong US growth relative to the rest of the world that has attracted strong capital inflows. A weaker dollar will require a degradation in the post-tax returns on US assets via significantly slower growth or degraded corporate operating performance.

Historically, the Fed has never targeted the US exchange rate as a policy objective, although it monitors the currency’s impact on inflationary expectations and financial conditions. Continued repetition of June’s strong Employment Situation report will make justifying three reductions in the federal funds rate in H2 impossible, thereby reducing the prospects for a weaker dollar.

4. Big Issues Holding Down AUD/NZD Have Flipped

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AUD/NZD is still languishing around record lows.  Pessimism over the AUD increased as the Australian economy stalled in the second half of last year, the Royal Commission into the financial sector unsettled confidence, the housing market downturn accelerated, political uncertainty peaked into the national election in May, and the RBA scurried to cut rates twice at back-to-back monthly meetings in June and July.  Now the regulatory, political and economic trends are moving in favour of the AUD and against NZD.  RBNZ is toughing capital requirements on NZ banks. The Australian housing market is stabilising, NZ’s is slowing.  The Australian political cycle is as positive as it has been for a decade, and tax cuts have been delivered.  Australian trade performance is much stronger, and its fiscal position has caught up to and over-taken NZ’s.  NZ is expected to cut rates in August and is largely pacing Australian rates lower. 

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Brief FX & Rates: Does China Control The World Gold Price? and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Does China Control The World Gold Price?

1. Does China Control The World Gold Price?

Smartkama

  • Gold prices have broken out higher, but unusually this cannot be explained by the US Fed
  • China is a de facto part of the notional US dollar area and the PBoC is easing once again
  • PBoC ends October-April tightening: injecting RMB 1.1 trillion into markets in May and June
  • Gold prices and PBoC liquidity are closely correlated. China is driving gold prices higher

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief FX & Rates: Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar
  2. Rates Monitor: Zero in on US Rates
  3. Great Currency War: Slowing Global Economy Will Test Truce
  4. Big Issues Holding Down AUD/NZD Have Flipped
  5. India Rates: INR Bond Market – The Participants

1. Insurance Rate Cut Will Not Reduce Political Pressure on the Fed Nor Weaken the Dollar

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Hitherto, the Fed’s dovish policy tilt has not produced significant dollar weakness, an outcome beneficial for foreign investors in US equities. Meanwhile, previous economic cycles cannot provide definitive clues about the direction of the exchange rate at this stage of the current expansion.

Given the likelihood of policy easing by the European Central Bank and Bank of Japan, US monetary conditions will need to ease by a higher order of magnitude to produce meaningful dollar weakness. If the Fed’s actions fail to weaken the US currency then the Trump Administration could actively seek to talk down the dollar, despite current assurances to the contrary.

Although headline Q2 real GDP data confirms an ongoing slowdown, aggregate final private demand remains robust, thereby lowering the chances of aggressive Fed policy easing.

Normally, an insurance rate cut by the Fed would lower borrowing costs and ease financial conditions, but the Fed’s dovish tilt has already achieved these conditions. Fed Chair Powell will argue that a policy rate reduction is required to reverse earlier damage to US business sentiment.

The prospect of continued pressure on the Fed from the Trump Administration will keep the issue of policy independence on the radar screen. A recently passed measure to temporarily suspend the federal government debt ceiling until 2021 is a forerunner to another round of fiscal easing, an outcome that raises pressure on the Fed to provide an appropriate offset.

2. Rates Monitor: Zero in on US Rates

We are launching our Rates Monitor to track movements in global interest rates.

  • The US Federal Reserve Bank could be entering policy accommodation at its upcoming meeting on July 31, in our view. We note that historically, episodes of policy accommodation have lasted for a considerable number of months. Furthermore, the number of rate cuts (or QE equivalent) needed have been significant.
  • If the historical trend is repeated, policy rates could eventually hit zero and it is potentially likely for the Fed to look for measures beyond rate cuts.
  • However, long-term rates today are also not significantly above the zero-lower bound. The closer they approach the zero limit; somewhat lesser the ability of unconventional policy measures to stimulate.

3. Great Currency War: Slowing Global Economy Will Test Truce

Boj

Concerns about the slowing global economy will raise the importance of currency movements in 2019 H2 as a means to mitigate headwinds to growth. In particular, the Trump Administration seems keen to preside over a weaker dollar, particularly versus the euro and the yuan.

Markets are discounting policy easing by the Fed and the European Central Bank (ECB) that could push the yen higher in the event of no response by the Bank of Japan (BoJ). The sales tax increase in October raises downside economic risks in Japan that could ultimately force more policy easing by the BoJ.

The yuan briefly appreciated in the wake of news about the US and China resuming trade negotiations, but a final agreement is unlikely any time soon. Further monetary stimulus is likely to arrive via lower reserve requirements for banks, while deliberate weakening of the currency by the People’s Bank of China will only be contemplated if US-Sino trade talks collapse.

The current environment differs from the post-Plaza Accord environment due the persistence of low inflation and strong US growth relative to the rest of the world that has attracted strong capital inflows. A weaker dollar will require a degradation in the post-tax returns on US assets via significantly slower growth or degraded corporate operating performance.

Historically, the Fed has never targeted the US exchange rate as a policy objective, although it monitors the currency’s impact on inflationary expectations and financial conditions. Continued repetition of June’s strong Employment Situation report will make justifying three reductions in the federal funds rate in H2 impossible, thereby reducing the prospects for a weaker dollar.

4. Big Issues Holding Down AUD/NZD Have Flipped

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AUD/NZD is still languishing around record lows.  Pessimism over the AUD increased as the Australian economy stalled in the second half of last year, the Royal Commission into the financial sector unsettled confidence, the housing market downturn accelerated, political uncertainty peaked into the national election in May, and the RBA scurried to cut rates twice at back-to-back monthly meetings in June and July.  Now the regulatory, political and economic trends are moving in favour of the AUD and against NZD.  RBNZ is toughing capital requirements on NZ banks. The Australian housing market is stabilising, NZ’s is slowing.  The Australian political cycle is as positive as it has been for a decade, and tax cuts have been delivered.  Australian trade performance is much stronger, and its fiscal position has caught up to and over-taken NZ’s.  NZ is expected to cut rates in August and is largely pacing Australian rates lower. 

5. India Rates: INR Bond Market – The Participants

  • With central banks turning accommodative in their monetary policies, Emerging Market Bonds are attracting interest again. Indian local currency government bonds are well-positioned.
  • In a series of notes, we will cover the investment behavior of major market participants in the Indian Government bond market. This article discusses the Reserve Bank of India (RBI).
  • The RBI’s participation is driven by its liquidity management framework. This is under review and fresh communication is expected by mid-July. We discuss our expectations in the context of RBI’s Open Market operations.

Get Straight to the Source on Smartkarma

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Brief FX & Rates: RBA Has Been Trying to Hold the AUD Beach Ball Under Water; Its Time May Be Up and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. RBA Has Been Trying to Hold the AUD Beach Ball Under Water; Its Time May Be Up

1. RBA Has Been Trying to Hold the AUD Beach Ball Under Water; Its Time May Be Up

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It might be odd to suggest that the AUD will rise just at the point when the RBA has gone to max-dovishness.  But yet we are. RBA dovishness is matched by the Fed.  The global pivot to easier policy is boosting EM and commodity currencies, and the AUD has lagged its peers, suggesting upside risk.  Australian equities are outperforming, reflecting both external factors and positive news at home.  Just as the RBA, investors, and Aussies get themselves in a funk, the news has got better, quite a bit better.  The LNC was returned surprisingly and emphatically.  They plan tax cuts and are likely to respond to increasing pressure to further boost infrastructure spending.  The housing market is stabilising, boosted by regulatory credit easing and the return of the market-friendly government.  The AUD is way underdone relative to commodity prices, the external balance is at a generational high, and the government budget is in rude health.  The focus on US-China trade relations and RBA policy has hit the AUD, but may have had maximum impact.  The Xi-Trump meeting next weekend could go either way, but if talks resume and further tariff increases put on hold, we expect some modest further rise in risk appetite and upside for the AUD.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief FX & Rates: Rates Monitor: Zero in on US Rates and more

By | Daily Briefs, FX and Rates

In this briefing:

  1. Rates Monitor: Zero in on US Rates
  2. Great Currency War: Slowing Global Economy Will Test Truce
  3. Big Issues Holding Down AUD/NZD Have Flipped
  4. India Rates: INR Bond Market – The Participants
  5. Does China Control The World Gold Price?

1. Rates Monitor: Zero in on US Rates

We are launching our Rates Monitor to track movements in global interest rates.

  • The US Federal Reserve Bank could be entering policy accommodation at its upcoming meeting on July 31, in our view. We note that historically, episodes of policy accommodation have lasted for a considerable number of months. Furthermore, the number of rate cuts (or QE equivalent) needed have been significant.
  • If the historical trend is repeated, policy rates could eventually hit zero and it is potentially likely for the Fed to look for measures beyond rate cuts.
  • However, long-term rates today are also not significantly above the zero-lower bound. The closer they approach the zero limit; somewhat lesser the ability of unconventional policy measures to stimulate.

2. Great Currency War: Slowing Global Economy Will Test Truce

Boj

Concerns about the slowing global economy will raise the importance of currency movements in 2019 H2 as a means to mitigate headwinds to growth. In particular, the Trump Administration seems keen to preside over a weaker dollar, particularly versus the euro and the yuan.

Markets are discounting policy easing by the Fed and the European Central Bank (ECB) that could push the yen higher in the event of no response by the Bank of Japan (BoJ). The sales tax increase in October raises downside economic risks in Japan that could ultimately force more policy easing by the BoJ.

The yuan briefly appreciated in the wake of news about the US and China resuming trade negotiations, but a final agreement is unlikely any time soon. Further monetary stimulus is likely to arrive via lower reserve requirements for banks, while deliberate weakening of the currency by the People’s Bank of China will only be contemplated if US-Sino trade talks collapse.

The current environment differs from the post-Plaza Accord environment due the persistence of low inflation and strong US growth relative to the rest of the world that has attracted strong capital inflows. A weaker dollar will require a degradation in the post-tax returns on US assets via significantly slower growth or degraded corporate operating performance.

Historically, the Fed has never targeted the US exchange rate as a policy objective, although it monitors the currency’s impact on inflationary expectations and financial conditions. Continued repetition of June’s strong Employment Situation report will make justifying three reductions in the federal funds rate in H2 impossible, thereby reducing the prospects for a weaker dollar.

3. Big Issues Holding Down AUD/NZD Have Flipped

6%20 %20copy

AUD/NZD is still languishing around record lows.  Pessimism over the AUD increased as the Australian economy stalled in the second half of last year, the Royal Commission into the financial sector unsettled confidence, the housing market downturn accelerated, political uncertainty peaked into the national election in May, and the RBA scurried to cut rates twice at back-to-back monthly meetings in June and July.  Now the regulatory, political and economic trends are moving in favour of the AUD and against NZD.  RBNZ is toughing capital requirements on NZ banks. The Australian housing market is stabilising, NZ’s is slowing.  The Australian political cycle is as positive as it has been for a decade, and tax cuts have been delivered.  Australian trade performance is much stronger, and its fiscal position has caught up to and over-taken NZ’s.  NZ is expected to cut rates in August and is largely pacing Australian rates lower. 

4. India Rates: INR Bond Market – The Participants

  • With central banks turning accommodative in their monetary policies, Emerging Market Bonds are attracting interest again. Indian local currency government bonds are well-positioned.
  • In a series of notes, we will cover the investment behavior of major market participants in the Indian Government bond market. This article discusses the Reserve Bank of India (RBI).
  • The RBI’s participation is driven by its liquidity management framework. This is under review and fresh communication is expected by mid-July. We discuss our expectations in the context of RBI’s Open Market operations.

5. Does China Control The World Gold Price?

Smartkama

  • Gold prices have broken out higher, but unusually this cannot be explained by the US Fed
  • China is a de facto part of the notional US dollar area and the PBoC is easing once again
  • PBoC ends October-April tightening: injecting RMB 1.1 trillion into markets in May and June
  • Gold prices and PBoC liquidity are closely correlated. China is driving gold prices higher

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.