Weekly Assessments

Week ending Friday September 8 2017 A mostly slow week, dominated by impressive hurricane news updates, still there were some happenings on the macro-monetary front. Fischer out at the Fed, Trump and the Dems play nice, and a tug of war between yields and the USD in our forecast model. NGDP forecast marches higher There’s been a war between the yield curve and the currency markets in our market-driven NGDP forecast. So far, the currency markets are winning out, and the weak dollar, along with sporadic help from other market signals and revised NGDP for Q2, have moved the forecast to…...

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Week ending Friday September 1st 2017 An uneventful week in markets bar US equities, which enjoyed some secular support from Trump raising the prospect of corporate tax cuts, again. FX and bond markets were quiet, although the ramifications of the USD weakness since the start of 2017 continue to rumble on. Our NGDP forecast rises a bit Commodities like gold and copper have been enjoying a good run – maintaining their value in non-USD terms – and helping propel our market-influenced NGDP Forecast above 4%. Also contributing to our Forecast’s move up was the 2017Q2 NGDP 2nd estimate data. This…...

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Week ending Friday August 25th 2017 After all we have said about the ECB over the last few weeks, it turns out that surprisingly strong nominal growth data may be putting pressure on the ECB to tighten and markets may really be thinking that it will, thus driving the EUR up and the USD down. 2017Q2 data surprises from Europe When Germany finally released its own GDP data for 2017Q2 it showed both an upward revision to NGDP and RGDP of around 0.7% and a remarkably strong Q2 annualised rate for NGDP of 5.7% that pushed up the YoY rate…...

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Week ending Friday August 18th 2017 Two weeks ago here we suggested that the ECB would have to follow the Bank of England in calling a halt to the weakness in the USD. Last week they did. All western central banks need easier monetary policy, not by beggar-thy-neighbour currency weakness, but by altering their targets to order faster NGDP Growth and level targeting for that growth. War talk had ended the USD weakness over the weekend of 5/6 August, but now that war talk has quietened down it is Draghi that is taking the fight to the weak USD, quite…...

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Week ending Friday August 11th 2017 War talk, especially from the opposition, sends the USD up and bond yields and equities down. It is undoubtedly a bad thing for growth expectations. War itself tends to cause rapid recoveries in bond yields and equities and send the USD down, most famously on the actual outbreak of the first and second Iraq wars. Deflation That said, worse than war talk is weak CPI numbers. Although only mildly disappointing on Friday the CPI was disappointing enough to dramatically cause a fall in the USD as lower short term rate expectations had more impact…...

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Week ending Friday August 4 2017 USD flat over the week but very volatile within it. More declines occurred on the back of continued political turmoil in the Trump administration plus some modest evidence of Eurozone economic strength raising expectations for monetary tightening by the ECB. Yet it was mostly US politics that drove the USD down as the GBP rallied as much as the EUR in the first part of the week. Bank of England acts, finally Only strongly worded worries about the UK economy from the Bank of England managed to get the GBP down versus the USD in…...

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Week ending Friday July 28th 2017 The slump in the USD continued for a third week. This time it was only domestic drivers as the FOMC statement sparked a strong downward move of 0.5%, before a gradual recovery later on hopes of a Trump victory on Obamacare. This recovery was then crushed on Trump’s Obamacare defeat and less than sparkling GDP estimates. There was only a small movement in bond yields over the week but the dashing of any lingering near term rate rise expectations (and a move to only 50/50 for a rate in December) on the FOMC statement…...

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Week ending Friday July 21st 2017 The USD slumped twice last week, just like the week before. In addition, just like the week before both slumps coincided with jumps in the S&P 500. To be fair, there were some decent results from some tech companies that powered the NASDAQ to new highs and pushed the S&P500 a bit too – but the rally was mostly down to the weaker USD. The first bout of weakness was over the weekend as Obamacare troubles hit Trump (again), followed by Draghi’s comments post the ECB meeting that failed to convince FX markets he…...

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Week ending Friday July 14 2017 The USD slumped twice last week and both slumps coincided with jumps in the S&P 500. If the direct impact on equities is from stronger overseas revenues and earnings, then there seems little impact from monetary policy. But if the weaker dollar is implying easier monetary policy ahead, then there is an impact, albeit indirectly. The first 0.5% drop in the USD on Tuesday was linked to a mixture of bits of news. All sorts of things were cited: Trump Jnr’s emails, Fed Governor Brainard’s dovishness, the Bank of Canada raising rates, strengthening the…...

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Week ending Friday July 7th 2017 The holiday week in the US was marked by some consolidation of the previous week’s action. The bond curve steepened somewhat, both in the US and UK/Europe, continuing to reflect concerns over a reduction in the size of central bank balance sheets. The fact that shorter-term rates rose less is due to this newer focus on balance reduction over rate moves. The prospect of lower purchases inevitably pushes down bond prices and so raises their yields. The market is still uncertain about the impact on the economy, so expectations for nominal growth remain largely…...

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