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Since the Russian army’s full-scale invasion of Ukraine on 24th February most equity markets, government and corporate bond yields, commodity prices (energy, metals and agriculture), CDS spreads and major currencies have recorded significant intra-day volatility and outsized daily moves. Moreover, for all the “noise”, the current geopolitical crisis has accentuated multi-week trends in a number of financial market and economic
Read moreMarkets’ focus has in the past three weeks understandably been on the Omicron variant and the reaction function, present and future, of governments and central banks. The multiplication of social distancing restrictions and acceleration in booster jab programs in many major economies since late-November suggest that policy makers’ conviction that the Omicron variant will prove benign is still quite low.
Read moreThe spike in US Treasury yield volatility last week, following the release of gangbuster US CPI-inflation data for October, partly fed through to other asset classes. However, volatility in US asset prices, including Treasuries , the US Dollar and S&P 500, has since subsided while global FX volatility is still low in absolute and historical terms. Depressed volatility in FX
Read moreFollowing 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
Read moreOur measure of global headline CPI-inflation rose further in September to 3.7% yoy but the 0.17pp increase was entirely due to the 0.27pp rise in CPI-inflation in developed economies to a 13-year high of about 3.9% yoy. Headline CPI-inflation in EM economies was unchanged in September at about 3.3% yoy, with the fall in CPI-inflation in China and in particular
Read moreThe past week has seen a short-lived flurry of market price action, with daily volatility in the US Dollar and equities edging higher on 30th April and again on 4th May. However, volatility overall has remained subdued, particularly in the benchmark US 10-year Treasury yield. Moreover, the Dollar NEER and US 10-year yields – increasingly a bellwether for financial markets
Read moreThe Federal Reserve has in the past six weeks diligently stuck to its “patience until substantial further progress is seen” monetary policy mantra. Its “reward” has been range-bound US Treasury yields, a slowly depreciating Dollar and a metronomic rise in US equity indices, with all three financial markets exhibiting only modest volatility. Since 19th April the Dollar NEER has depreciated
Read moreThe Fed updated “dot-chart” of all FOMC members’ expectations of the appropriate policy rate points to only an incrementally less dovish stance. Based on a weighted average FOMC members still only expect one 25bp hike by end-2023, according to our estimates. Fed seems eager to cool market concerns that it will have no choice but to start hiking rates and
Read moreThe US Dollar NEER has since 12th February appreciated about 2.3% to a 4-month high and its inverse correlation with the S&P 500 (-4.2%) has re-established itself. This is in line with our forecast that the Dollar’s sell-off in early February was “a small, short-term correction” rather than “another prolonged downtrend”. If anything we were not bullish enough. We are
Read moreMedia and analyst reports focussing on the scope for further US Dollar weakness and Emerging Market currency outperformance have continued to proliferate in the past month. The consensus view is still seemingly that a Democratic administration will fuel large US twin deficits and expectations of higher domestics inflation while Fed will keep rates on hold, eroding the value of Dollar
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