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Simon Smith

Unintended consequences

Yesterday’s session once again opened up the divisive world of currencies. With Fed rate hikes off the table, then that dynamic is no longer applicable for the market. It’s become a lot more about risk, but more specifically the inability of central banks to counter-act the instability and uncertainty we are seeing, whether through words, actions or deeds. Indeed, the question is to what extent they have contributed to the current round of volatility and uncertainty through policies of negative ...

Simon Smith

Riskbank cut further into the red

Fed Chair Yellen faced something of an impossible task yesterday and the fact that the dollar is net-net little changed vs. levels prior to her testimony reflects that. Yes, the dollar did see some moves, but this was more down to position adjustment, with many having held back until the major event of the week was well under way. Ultimately, the Fed implicitly acknowledged that the outlook was less certain since the December tightening of rates, but was not willing to countenance the ...

Simon Smith

Leaning on Yellen

It’s a tall order to expect Fed Chair Janet Yellen to be able to rescue markets from what has been a turbulent week. The best that can be hoped for is an acknowledgement that things have changed fairly dramatically since the Fed increased rates less than two months ago and that she concurs with the market pricing that suggests the first half of this year is not the time to be increasing rates. Although the better tactic may be to remain bullish on the economy in the hope that good news may be ...

Simon Smith

No stopping the yen

With no key distractions ahead of Yellen’s testimony tomorrow, markets are taking the path of least resistance. For equities, this still appears to be lower, with European equities down yesterday for the sixth consecutive session (looking at the Eurostoxx 50 index), with this being biggest down-move since the first trading day of 2016. The outlook for the global economy remains too uncertain, with the growth dynamics in the US also moderating, whilst the QE being undertaken by the ECB not seen ...

Simon Smith

Waiting for Yellen

The dollar reaction to US payrolls on Friday was relatively muted, given the shake-out seen in the middle of last week of dollar longs, but most managed to put the positive above the negatives, which was probably the best way to look at it. Earnings were firmer and the unemployment rate was lower, but with wider measures of slack remaining steady. What the price action of last week has done is to once again change the dynamics of the FX market. The yen has unwound all of the losses seen against ...

Simon Smith

A more comfortable dollar ahead of payrolls

So, we are nearly at the stage where, in effect, you have to pay for the privilege of lending to a nation for 10 years, even though its total government debt stock is 2.5 times the size of the economy, the central bank owns one-third of it and they have grown an average of just over 1% a year over the past 5 years. Yes, it's Japan and not for the first time in recent history one can't help thinking what a mad financial world we currently inhabit. As I mentioned yesterday, the dollar was playing ...

Simon Smith

The dollar dumped

Yesterday was not a good one for the dollar. If one looks at the dollar index vs. the US 2 year, the appearance is of a currency catching up with the message already baked into the bond market of a central bank that will struggle to raise rates again this year. The dollar was down more than 1% on the dollar index, with the currencies gaining the most generally those that have lost the most against the dollar so far this year, such as the Brazilian Real and the commodity currencies, principally ...

Simon Smith

The yen turn-around

After last week’s surprise move from the BoJ, we’ve seen some tough talking from BoJ head Kuroda overnight, stressing that the BoJ will do their utmost to achieve their 2% inflation target. But the yen was pretty ambivalent to the comments, USDJPY nudging lower again overnight back below the 120 level. Stocks were unimpressed today as well, down more than 3%, with Japanese bond yields now negative out to 8 years. In other words, the price dynamics on the yen that were evident before the move ...

Simon Smith

RBA keeping the easing door open

US stocks clawed back their opening losses into the NY close on the back of comments from Fed vice chair Fisher, who suggested that the Fed does not have a pre-determined path for rates. The comment also weighed on the dollar into the close. It was no great surprise to see the RBA keeping rate steady, but the Aussie did nudge lower as the statement left open the door for further easing ahead, should inflation developments allow. The RBA is focused on the recent improvement in the labour market, ...