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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, ...

Simon Smith

New month, new paradigm

January felt like a very long month for most involved with markets, given the continued worries regarding China and the volatility seen in many asset markets. Friday’s move by the Bank of Japan proved to be the icing on the cake, although its eventual impact on the economy is likely to be a lot more muted. The impact on the yen remains in place, given that many were wrong-footed by the move. For currencies, the main take-away was that the conventional wisdom that prevailed going into the year ...

Simon Smith

Bank of Japan goes negative

There was plenty of speculation in the run to last night’s BOJ meeting that they would ease further and even though only a week ago the BOJ governor Kuroda suggested in Davos that further easing was on the cards, a move to negative rates was not expected. Understandably this caused some wild swings in the yen which weakened with USDJPY moving back above 120 and the Nikkei which strengthened. Other evidence of a weak Japanese economy came earlier in the week in the form of poor trade data and so ...

Simon Smith

Fed’s mixed signals

The recovery in risk assets was rather snuffled out after last night’s FOMC meeting which was dovish, but a little less dovish than many had previously hoped for. The reaction from the markets was mixed and unsurprisingly volatile as both equities and the dollar fell, however the greenback has recouped its losses overnight. When you look through these mixed movements what we do know is that since December the economic data has been rather on the soft side, but despite this it’s still likely ...

Simon Smith

Apple gives Fed food for thought

All eyes will be back on the Federal Reserve today as they make their first interest rate decision and monetary policy statement of the year but there are no economic projections or press conference this time round, which come at the next meeting in March. We’ve seen a rise in risk appetite in this final week of January which so far has been a bit of a blood bath, although the recovery from lows in many indices has softened the blow for many investors. This has come as a result of a bounce in ...

Simon Smith

Here we go again

The market’s ability to reverse any risk appetite at the moment indicates that we are not at the bottom yet of the current downward spiral. Chinese indices are 6% lower overnight, Japanese over 2% in the red and oil is back below 30 bucks a barrel. Volatility has been rising throughout the year so far but we’re still someway off the big spike in the Vix (volatility index or ‘fear gauge’) last August and so there’s potential for moves in markets to get even more dramatic. The week builds up from ...

Simon Smith

Crude recovery

Today marks the first Monday in 2016 where we’ve seen gains for Asian indices and this is due to rub off on European markets that are looking to add to the bounce from the end of last week. The risk appetite has been seen markedly in commodity markets where crude prices are enjoying their biggest two day rally in seven years with Brent and Nymex firmly back above the $30 a barrel mark. This is causing a considerable squeeze on the short sellers and there could be further strength to come as we ...

Simon Smith

Here we go again on the euro

The implication from yesterday's comments from Draghi is that the single currency is once again entering a six week period of uncertainty and guessing as to what the ECB will do come the March meeting. More economic projections will be released and the ECB itself will have to choose whether to fulfil on the prevailing expectations. The ECB President himself shared a little bit of the blame for the disappointment seen in December, when the ECB was seen failing to follow through on to the extent ...

Simon Smith

Relief for the Canadian dollar

There are two major currencies that have been one-way streets lower so far this year, namely the yen and also sterling. The Canadian dollar at least got a break yesterday, the first day of appreciation vs. the US dollar in 13 trading sessions, down by more than 4% so far this year, as the Bank of Canada kept rates on hold. The central bank was relatively upbeat on the economy, all things considered, which allowed short-dated bond yields to rise on the reduced prospect of easing later this year. ...

Simon Smith

As you were

Yesterday’s rise in stocks and oil, in part on the back of expectations of further Chinese stimulus, always looked a little strange and so it is that we’ve seen a more negative tone emerge to stocks and energy overnight. In FX, this means that the fall in the yen brought has been quickly reversed, USDJPY very close to the 116.50 low seen at the end of last week. USDCAD moved higher once again, not having seen a down day on a closing basis for the whole of the year to date. Meanwhile, sterling ...

Simon Smith

Strange reasons to cheer China

So, here’s the thing. The headlines on China are not that market friendly, slowest quarterly growth since 2009, or slowest growth for the year as a whole in 25 years. Yes equity markets have rallied strongly, shaking off the negative sentiment that has cloaked them for most of the year to date. One reason put forward is the expectation of Chinese stimulus. So China is in a funk because of the huge debt built up in 2008 onwards as it fought off the effects of the global financial crisis, but ...

Simon Smith

The permanence of lower oil

The last thing the oil market needs now is more supply but with the lifting of sanctions from Iran that it what it’s going to get from the country with the fourth largest amount of proven oil reserves. The oil price (Brent) is now in upper twenties, just above the USD 28pb level, with 27 handle seen briefly earlier on. The low oil price is proving to be a growing headache, for the traditional Middle East producers and their budgetary numbers, together with the newer shale producers (more ...