Posts filed under “Currency”

US & the EuroZone

The 2 major data points during the week were

December CPI data for the EuroZone (EZ); and
US December non-farm payrolls.

EZ December CPI came in at -0.2% Y/Y, weaker than the decline of -0.1% Y/Y and below Novembers +0.3%. However, core inflation rose to +0.75%, up from +0.67% in November.

The data is yet another indicator which suggests that the ECB will announce a sovereign bond QE programme at its next meeting on the 22nd January. The size is expected to be E500bn and, most likely, will involve central banks of the countries in the EZ buying their own bonds up to their relative shareholding (which roughly equates to their respective GDP’s) in the ECB. Each central bank will be liable for their own credit risk, thereby avoiding German fears that the bond buying programme will pose a joint and several risk on all EZ countries.

Whilst the announcement is a near certainty, I have to say it is unlikely to work. The size, in any event, is too small and will, almost certainly, will need to be increased in due course. However, the QE programme will result in further weakness of the Euro. However, net Euro shorts are up from 152k to 161k contracts as at the 6th January, getting closer to the record net short position of 179k contracts last October, which could limit the Euro’s decline in the shorter term. Short positions on Sterling, C$, A$ against the US$ rose, though JPY shorts declined to 90k contracts, as opposed to 96k previously.

3 days later on the 25th January, the results of the Greek national elections will be announced. As it’s Greece, expect some twists and turns, but the market is remarkably complacent. Greece will not be kicked out of the Euro in the immediate future. The uncertainty will however weigh on the Euro further.

The US December non-farm payrolls data reported that 252k jobs were created in December, with job gains spread across most sectors. The unemployment rate declined to 5.6%, mainly due to a fall in the participation rate. A good number and the highest increase in employment since 1999. However, the fly in the ointment was the -0.2% decline in wages and November’s downward revision. Clearly disappointing and hard to explain, though the ECI data (which the FED looks at and, I suspect, is more reliable) suggests that wage growth continued to increase in Q3/Q4. Wage growth in the energy and related sectors are bound to have been negatively impacted by the oil price decline, but I continue to believe that wage growth will accelerate this year as the employment market tightens.

The market is panicking over deflation. Whilst inflation levels are and will remain low, the prospect of a Japanese style deflation is not on the cards. Indeed, lower inflation, due to a decline in commodity prices (energy, in particular) is a massive positive factor for consumer driven economies such as the US and UK. I remain convinced that oil prices (Brent) will decline to below US$50 (US$45?), though unlike markets, I see this as a huge positive. I remain bullish US and other developed equity markets, together with consumer driven emerging markets such as India. Having said that, there is a risk of higher inflation and a wider budget deficit in India, I must admit. Government reforms have been slower than expected – no great surprise – the new administration promised far too much and certainly will be unable to deliver this year.

S&P is likely to downgrade Russian debt to junk by the end of the month, with the Rouble weakening further. The continued decline of oil prices will not help either. A Rouble/Russian crisis looks as if its just a few months away.

My thoughts and prayers go out to those murdered in France by fundamentalists. The fear (very likely) is that countries will impose stricter laws as a result, which will limit personal freedom.

I am currently back in India and will be providing an update on the political, financial and economic situation.

Category: Currency, Data Analysis, Think Tank

BIS: Currency movements drive reserve composition


Category: Currency, Think Tank

The Russian Laundromat

Source: OCCRP From OCCRP: Call it the Laundromat. It’s a complex system for laundering more than $20 billion in Russian money stolen from the government by corrupt politicians or earned through organized crime activity. It was designed to not only move money from Russian shell companies into EU banks through Latvia, it had the added…Read More

Category: Crony Capitalists, Currency, Digital Media, Finance, Legal, Politics

Category: Currency, Technical Analysis, Think Tank

The Return of the Dollar

The Return of the Dollar John Mauldin November 13, 2014     Two years ago, my friend Mohamed El-Erian and I were on the stage at my Strategic Investment Conference. Naturally we were discussing currencies in the global economy, and I asked him about currency wars. He smiled and said to me, “John, we don’t…Read More

Category: Currency, Think Tank

Currency Markets Are Rigged

Big Banks Busted Massively Manipulating Foreign Exchange, Precious Metals … And Every Other Market Currency markets are massively rigged. And see this and this. Reuters notes today: Regulators fined six major banks including Citigroup (C.N) and UBS (UBSN.VX) a total of $4.3 billion for failing to stop traders from trying to manipulate the foreign exchange…Read More

Category: Currency, Gold & Precious Metals, Legal, Think Tank

1933: Colombia Experts Oppose Gold Plan


Category: Currency, Inflation, Really, really bad calls, Think Tank

King Dollar vs Euro, Yen Renminbi

click for giant graphic Source: FT   The U.S. dollar is still king of global currencies. The dollar made up 60.9 percent of foreign exchange reserves and was used in 42.1 percent of global payments. Some countries, though, contest how much influence the U.S. dollar really has. The term “exorbitant privilege,” coined by former French…Read More

Category: Currency, Digital Media, Politics

The Money Multiplier — A Rite of Passage for the Wrong Reason

The last time I taught college-level Money and Banking, over five years ago, the textbook I was  coerced into assigning (but didn’t use) still had a section on the mechanics of how the banking system in a fractional-reserve regime could expand deposits (a component of “money”) by some multiple of cash reserves provided by the central bank. The Federal Reserve…Read More

Category: Currency, Think Tank

Home Currency Issuance in Global Debt Markets

Category: Currency, Think Tank