Just another WordPress site
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 moreThe Fed is widely expected to hike its policy rate 25bp to 0.25-0.50% (its first since December 2018) at its meeting on 16th March, by which point it is due to have ended its asset purchases. Some FOMC members will likely push for a larger 50bp hike. Markets, as of 4th February, were pricing in a total of 120bp hikes
Read moreThe Yen depreciated about 13% versus the US Dollar between 5th January 2021 (a 9-month high) – and 4th January 2022 (a 4-year low) but has since rebounded about 0.7%. The Yen Nominal Effective Exchange Rate (NEER), which provides a more accurate overall picture of Japan’s currency and trade competitiveness and of the risks of imported inflation/deflation, has appreciated about
Read moreConsumer demand in the United Kingdom remains modest, which we attribute to a combination of factors. These include still curtailed opportunities to spend on goods (stock constraints) and services (social distancing restrictions), an erosion in real earnings, wealthy households’ low propensity to spend and a paradigm shift in spending habits. We expect falling Covid-19 cases and an ongoing easing of
Read moreThe number of new daily cases of Covid-19 has remained at or near record-highs in most Eurozone countries, including Germany, France, Italy and Spain, and the number of deaths since 11th December has either risen materially from the previous corresponding period, albeit from low levels (France, Italy, Portugal and Spain), or been broadly stable (Germany). The majority of Eurozone governments,
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 moreOur last FIRMS report was entitled FX round-up – Calm before the next storm (18th November 2021) and less than a week later a storm hit with South Africa reporting the Omicron strain of Covid-19 to the World Health Organisation on 24th November. This is what we know so far about the Omicron strain, albeit with differing levels of certainty.
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 moreThe release of record-busting US CPI-inflation data for October has seriously dented the Federal Reserve’s long-standing argument that high inflation will prove “transitory. What has proved transitory is the rally in short-end government bond yields in developed markets, in line with our expectations. Volatile monthly inflation in the US and fleet-footed developed central banks point to government bond yields remaining
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 more