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Who Speaks for the Fed, and Fiscal Brinkmanship

March 29, 2011
Many market observers seem to be exaggerating the role of some Federal Reserve officials. Bullard, who has mentioned exiting from QE2 before completing the $600 bln of purchases. Plosser, a voting member has also sounded a bit hawkish, though not as much as Bullard. However, while these views have been highlighted, the comments by Evans, a voting …
Who Speaks for the Fed, and Fiscal Brinkmanship Who Speaks for the Fed, and Fiscal Brinkmanship Reviewed by Marc Chandler on March 29, 2011 Rating: 5
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Portugal Update

March 29, 2011
Portuguese bonds are holding their own against the Germany today. The government seems to need around 1 bln euros to meet next months coupon and redemptions. There is some talk that it may seek a bridge loan. That will buy it time until the nearly 7 bln euros are needed in mid-June. A new government could be in place by then as well (55 days after…
Portugal Update Portugal Update Reviewed by Marc Chandler on March 29, 2011 Rating: 5
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Becalmed FX

March 29, 2011
US dollar is mixed, but the downside momentum seen recently seems to be taking a hiatus.  It is difficult for me to believe that it was comments by Bullard and Plosser turned the market as the former does not vote on the FOMC and Plosser's comments did not represent any new ground.  Both are known to be on the hawkish side of the Fed's spe…
Becalmed FX Becalmed FX Reviewed by Marc Chandler on March 29, 2011 Rating: 5
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Trichet: Seeing What Your Want

March 28, 2011
ECB President Trichet remained hawkish in comments today, noting that inflation is persistently above the target of just below 2%. Yet ECB monetary policy is not based on one pillar but two. The other pillar is money supply. Money supply measured by M3 rose 2% year-over-year in Feb. The ECB's reference rate is 4.5%. This is to say that money s…
Trichet: Seeing What Your Want Trichet: Seeing What Your Want Reviewed by Marc Chandler on March 28, 2011 Rating: 5
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Fiddling while the Periphery Burns

March 28, 2011
After more than a year since the European debt crisis began, officials have still failed to resolve it. They raised expectations for a “grand bargain” only to crash them on the shoals of political reality. The March 24-25 Summit was to finally provide closure and yet the situation remains fundamentally unresolved.
Fiddling while the Periphery Burns Fiddling while the Periphery Burns Reviewed by Marc Chandler on March 28, 2011 Rating: 5
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Dollar Firm, But Cable Weakness Pronounced

March 28, 2011
The US dollar is firmer in the aftermath of this weekend's event, which inlcuded a loss by the ruling parties in France and Germany, Japanese continuing to struggle to contain radioactive leaks and increased unrest in Yemen and Syria.  Sterling, which reached a multi-month high last Tuesday near $1.64 is off nearly a nickle as intreest rate di…
Dollar Firm, But Cable Weakness Pronounced Dollar Firm, But Cable Weakness Pronounced Reviewed by Marc Chandler on March 28, 2011 Rating: 5
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Quick Note on Weekend Developments

March 27, 2011
The US dollar is opening broadly higher in early and thin Asian activity.  The thinness of market conditions is surely playing a role, but the weekend news would encourage risk aversion.  First, the radioactive leak in Japan has yet to stabilize.  Second, the MENA tensions rose in especially in Syria.  Third both Merkel and Sarkozy's parties t…
Quick Note on Weekend Developments Quick Note on Weekend Developments Reviewed by Marc Chandler on March 27, 2011 Rating: 5
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Thank You Sir, Can I Have Another ?

March 25, 2011
Portugal has been downgraded by both Fitch (A-) and S&P (BBB) and the EU Summit looks like modest techical adjustments that have largely been unveiled.  The euro (yawn) is little changed.    On the week it is a mere 0.1% lower, less than a rounding error for most participants.  Its resilience remains remarkable.  It is coming at the same time …
Thank You Sir, Can I Have Another ? Thank You Sir, Can I Have Another ? Reviewed by Marc Chandler on March 25, 2011 Rating: 5
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Bloomberg: Chandler, Lyons Interview on Spain, Portugal Debt Bloomberg: Chandler, Lyons Interview on Spain, Portugal Debt Reviewed by magonomics on March 24, 2011 Rating: 5
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No Crisis Unless Spain Falls?

March 24, 2011
The resilience of the euro in the face of seemingly incontrovertible evidence that Portugal will need to get assistance and that very same program and approach has not been enough to stabilize the Greek and Irish situation is amazing.
It can be arguably explained by two considerations. First that come hell or high water, the ECB, which does not pr…
No Crisis Unless Spain Falls? No Crisis Unless Spain Falls? Reviewed by Marc Chandler on March 24, 2011 Rating: 5
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European Crisis Deepens, Euro Higher

March 24, 2011
The European debt crisis is deepening as the Portugal government has fallen, Moody's follows-up the recent Spanish sovereign downgrade with a downgrade of 30 cajas.  European officials have also indicated that some key issues that we thought to be settled at the summit that starts today will likely be dealt with later, like funding for the ESM…
European Crisis Deepens, Euro Higher European Crisis Deepens, Euro Higher Reviewed by Marc Chandler on March 24, 2011 Rating: 5
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Two Governments Could Fall, but Euro Resilience Continues

March 23, 2011
The US dollar is mostly lower.  The exception is sterling which was yesterday's outperformer.  Minutes from BOE meeting contained no surprises, but the market awaits the budget.  
Even though European bourses are higher, anxiety levels are running high--not just because of Libya, but also Yemen, Syria, Gaza strip, among the MENA, but also as I…
Two Governments Could Fall, but Euro Resilience Continues Two Governments Could Fall, but Euro Resilience Continues Reviewed by Marc Chandler on March 23, 2011 Rating: 5
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Portugal Government Under Pressure

March 22, 2011
Rumors of a missed coupon payment in Ireland made the rounds and many now are down playing it. However, the problems in the periphery have not lessened. The real immediate focus is on Portugal. The government's new austerity measures will be debated tomorrow. All of the main opposition parties are opposed to the extra spending cuts that EU lea…
Portugal Government Under Pressure Portugal Government Under Pressure Reviewed by Marc Chandler on March 22, 2011 Rating: 5
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Looking Past Canadian Retail Sales

March 22, 2011
Canada reported weaker than expected retail sales. Instead of a 1.0% rise in January, StatsCan reported a 0.3% decline. Weakness was especially noted in the ex-auto component which was flat instead of up 0.7% as the consensus expected. This is the second consecutive monthly decline (Dec -0.2%) and should reinforce perceptions the BOC is on hold un…
Looking Past Canadian Retail Sales Looking Past Canadian Retail Sales Reviewed by Marc Chandler on March 22, 2011 Rating: 5
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UK CPI Sends Sterling Higher, Other Majors Little Changed

March 22, 2011
The US dollar is little changed against most of the major currencies, remaining near the recent trough and in the post-intervention environment, where implied volatility has been sharply reduced. Sterling is the main exception and as a higher than expected inflation figure encouraged rate hike expected to be brought forward.
UK Feb CPI rose 0.7% to…
UK CPI Sends Sterling Higher, Other Majors Little Changed UK CPI Sends Sterling Higher, Other Majors Little Changed Reviewed by Marc Chandler on March 22, 2011 Rating: 5
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CNBC: Volatile Global Markets CNBC: Volatile Global Markets Reviewed by magonomics on March 21, 2011 Rating: 5
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Dollar Bloc Advances

March 21, 2011
The dollar-bloc is lead the move against the dollar. The easing of some anxiety around Japan's nuclear crisis and firmer commodity and equity prices are helping to lift the Canadian dollar and antipodean currencies.
We had noted recently that the Canadian dollar's correlation with oil prices and the S&P 500 had broken down. The Canadia…
Dollar Bloc Advances Dollar Bloc Advances Reviewed by Marc Chandler on March 21, 2011 Rating: 5
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US Treasury Unwinds MBS Securities, Lifts Dollar

March 21, 2011
News that the US Treasury will begin selling off its portfolio of mortgage-backed securities was greeted with dollar buying. The Treasury's portfolio of $142 bln of agency guaranteed MBS will be sold at a pace of $10 bln a month. The sales will start this month, according to reports and that Treasury Dept expects to make a $15-$20 bln profit.
…
US Treasury Unwinds MBS Securities, Lifts Dollar US Treasury Unwinds MBS Securities, Lifts Dollar Reviewed by Marc Chandler on March 21, 2011 Rating: 5
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Big Week Begins Off Slowly

March 21, 2011
The US dollar is mixed to start the new week.  The G7 intervention has been successful insofar as the yen volatility has fallen sharply.  It had neared 17% last week and is now near 12.5%.  Japanese markets were closed on Monday and there has been no intervention. 
German and French ruling parties were weakened in the local elections.  The EU Summ…
Big Week Begins Off Slowly Big Week Begins Off Slowly Reviewed by Marc Chandler on March 21, 2011 Rating: 5
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Fox News: Stabilizing the Yen a Success? Fox News: Stabilizing the Yen a Success? Reviewed by magonomics on March 18, 2011 Rating: 5
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Word of the Day: Coordination

March 18, 2011
The G7 nations agreed to intervene in the foreign exchange market for the first time since 2000 and the UN approved enformcement of a no-fly zone over Libya. The net consequence has been to take the yen broadly lower.  The euro has rallied to above $1.41 on ideas, suggested by the Japanese finance minister that intervention could take place on eur…
Word of the Day: Coordination Word of the Day: Coordination Reviewed by Marc Chandler on March 18, 2011 Rating: 5
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Yen: Speculation, Repatriation and More

March 17, 2011
There seems to be a general consensus among observers that contrary to the talk of repatriation that the yen's rise is largely speculative in nature. This is very much in line with our assessment from the get-go. Subsequently, data strengthened out conviction. At the same time, there are a couple of other elements that we have mentioned but ar…
Yen: Speculation, Repatriation and More Yen: Speculation, Repatriation and More Reviewed by Marc Chandler on March 17, 2011 Rating: 5
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Intervention Risks Rising

March 16, 2011
The yen is bid and the dollar has slipped to a new low for the year against it, and just slipped through the the low set late Nov near JPY80.20. Given that Japanese investors typically invest in fixed income when venturing offshore, evidence of repatriation is difficult to detect given the general rally in major bond markets. Yet the anticipation …
Intervention Risks Rising Intervention Risks Rising Reviewed by Marc Chandler on March 16, 2011 Rating: 5
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Some European Implications of Japan's Nuclear Accident

March 16, 2011
The Japanese nuclear accident has implications for Europe. The EU wants to have stress tests on members nuclear plants. The tests are not mandatory, but may be difficult to refuse. Switzerland has halted its nuclear program, according to reports. Perhaps the most interesting response is in Germany.
Chancellor Merkel has been an advocate of extendi…
Some European Implications of Japan's Nuclear Accident Some European Implications of Japan's Nuclear Accident Reviewed by Marc Chandler on March 16, 2011 Rating: 5
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Key Developments

March 16, 2011
The dollar is a mixed.  It is firmer against the major European currencies and many of the more actively traded emerging market currencies, but lower against the dollar-bloc and little changed against the yen.
The two most important developments have been the apparent stabilization of the situation in Japan and Moody's two-step cut in Portugal&…
Key Developments Key Developments Reviewed by Marc Chandler on March 16, 2011 Rating: 5
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Fed Tweaks Assessment and Does Nothing New with QEII

March 15, 2011
The FOMC tweaked their economic assessment and recognized the sharp rise in commodity prices in recent months, but believes that longer-term inflation expectations remain anchored. It specifically says that it expects the rise in commodity prices to be transitory. It seemed to also heighten its alertness to changes in inflation and inflation expec…
Fed Tweaks Assessment and Does Nothing New with QEII Fed Tweaks Assessment and Does Nothing New with QEII Reviewed by Marc Chandler on March 15, 2011 Rating: 5
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CNBC: Flight to Safey CNBC: Flight to Safey Reviewed by magonomics on March 15, 2011 Rating: 5
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Japanese Policy Response to Yen Strength

March 15, 2011
The dollar is firm against most of the major and emerging market currencies. The yen and Swiss franc are exceptions.
The dollar has fallen to new record lows against the franc. The franc is up about 1.5% against the euro, but is still about 3% above the record low carved out at the end of last year and earlier this year. The Swiss National Bank me…
Japanese Policy Response to Yen Strength Japanese Policy Response to Yen Strength Reviewed by Marc Chandler on March 15, 2011 Rating: 5
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Why is the Dollar Finding A Safe Haven Bid?

March 15, 2011
The jasmine revolutions in MENA and euro-era high yields on the peripheral of Europe failed to give the US dollar a safe haven bid. And yet today, it is difficult to deny the greenback is benefitting from the broader risk aversion.
Previously I explained the lack of dollar safe haven bid by noting that it was precisely because US Treasuries were a…
Why is the Dollar Finding A Safe Haven Bid? Why is the Dollar Finding A Safe Haven Bid? Reviewed by Marc Chandler on March 15, 2011 Rating: 5
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Japan Drives Markets

March 15, 2011
There is one overwhelming driver in the global capital markets today and its is risk aversion sparked by leaks of radiation from Japan's nuclear facilities.  This has prompted sharp drop in equity markets, a rally in bonds and lo and behold the dollar caught a good safe haven bid.  In addition to the dollar, the yen and Swiss franc are firmer,…
Japan Drives Markets Japan Drives Markets Reviewed by Marc Chandler on March 15, 2011 Rating: 5
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FOMC Outlook: Little Change

March 14, 2011
The FOMC meets tomorrow. The statement is likely to be little changed from the January statement and is unlikely to spur much of a market reaction.
The statement is very formulaic. The first paragraph offers an economic assessment. While the precise wording may be tweaked, the Fed's assessment that the pace of recovery is insufficient to "…
FOMC Outlook: Little Change FOMC Outlook: Little Change Reviewed by Marc Chandler on March 14, 2011 Rating: 5
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Parry and Feint: Outlines of Europe's Next Chapter

March 14, 2011
European officials have reached an agreement in principle that falls well shy of the “comprehensive plan” officials had promised and is unlikely to provide investors with a sense of closure to the debt crisis that began in late 2009. Yet progress was sufficient that the debt crisis is unlikely to override the divergence of US and European interest…
Parry and Feint: Outlines of Europe's Next Chapter Parry and Feint: Outlines of Europe's Next Chapter Reviewed by Marc Chandler on March 14, 2011 Rating: 5
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Japan and Europe Update

March 14, 2011
There is no good time for a disaster to hit, but this is a particular bad time for Japan. The Japanese economy is fragile, deflationary forces are still evident despite the jump in energy and food prices. Prime Minister Kan and the ruling DPJ party have been torn by internecine struggles and a series of financing scandals. In foreign affairs is a …
Japan and Europe Update Japan and Europe Update Reviewed by Marc Chandler on March 14, 2011 Rating: 5
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Earthquake Sends Yen Higher, Dollar Continues to Recover

March 11, 2011
There are two main features in the foreign exchange market as North American participants return to close out the week. The first is a continued recovery of the US dollar in a backdrop of widening peripheral European bond spreads, the continued reversal of the global equity market rally and the ongoing MENA tensions and within the context of marke…
Earthquake Sends Yen Higher, Dollar Continues to Recover Earthquake Sends Yen Higher, Dollar Continues to Recover Reviewed by Marc Chandler on March 11, 2011 Rating: 5
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More Color on Spain

March 10, 2011
The market continues to digest the meaning and implications of Moody's decision to cut its rating to Aa2 from Aa1. The two main considerations behind Moody's decision are that the cost to restructure the banks will be greater than Spanish officials have estimated and the sustainability of current austerity measures.
At 40-50 bln euros, Mood…
More Color on Spain More Color on Spain Reviewed by Marc Chandler on March 10, 2011 Rating: 5
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Key Developments

March 10, 2011
After a largely quiet first half of the week, there are a number of noteworthy developments today. The most important of which is arguably Moody's downgrade of Spain to Aa2 and maintaining a negative outlook. It is important because it took place hours before the Bank of Spain is to publish each bank's capital needs. Spanish officials have…
Key Developments Key Developments Reviewed by Marc Chandler on March 10, 2011 Rating: 5
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Stressing Out over European Bank Stress Tests

March 09, 2011
The newly created European Banking Authority will be overseeing the stress tests on almost 90 European banks. Recall that the stress tests last year met broad criticism for the lack of rigor. It was anticipated that the EBA would indeed provide for a more robust test this year. However, doubts are already being raised.
Initially there are two areas…
Stressing Out over European Bank Stress Tests Stressing Out over European Bank Stress Tests Reviewed by Marc Chandler on March 09, 2011 Rating: 5
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Euro Resilience Noteworthy, UK Trade Improvement, Japan Update

March 09, 2011
Peripheral European bonds are under pressure and the euro slipped through yesterday's lows against the dollar, but we continue to suspect the price action is largely technical in nature. The dollar's downside stalled encouraging momentum traders to square up positions. The underlying signal is still one euro resilience as it appears the in…
Euro Resilience Noteworthy, UK Trade Improvement, Japan Update Euro Resilience Noteworthy, UK Trade Improvement, Japan Update Reviewed by Marc Chandler on March 09, 2011 Rating: 5
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Spanish Bonds Decouple from Portugal

March 08, 2011
There have been two main surprises this year. The first is how the jasmine revolutions in MENA. It is one thing to recognize the fragility of those ancient regimes, it is another thing to watch a number of government's collapse. The second is that the European debt crisis seems to be having a marginal influence at best on the global capital ma…
Spanish Bonds Decouple from Portugal Spanish Bonds Decouple from Portugal Reviewed by Marc Chandler on March 08, 2011 Rating: 5
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Yen Notes

March 08, 2011
The yen is largely sidelined as the market's focus is elsewhere--ECB policy trajectory, the European debt crisis, MENA, etc. This is reflected by the fact that dollar-yen volatility (implied 3-month) is sitting on its 3-year low near 9.55%.
At 45 bp, the US-Japan 2-year interest rate spread is a few bp above its 100-day moving average. At 218 …
Yen Notes Yen Notes Reviewed by Marc Chandler on March 08, 2011 Rating: 5
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Turn Around Tuesday?

March 08, 2011
Corrective pressures grip the foreign exchange market today. The short-term momentum traders have been frustrated with the euro's inability to convincingly break above the $1.40 level and sterling's four attempts at $1.6350 appears to be the main impetus behind today's pullback. With today's losses, the euro has slipped through the…
Turn Around Tuesday? Turn Around Tuesday? Reviewed by Marc Chandler on March 08, 2011 Rating: 5
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When Will Portugal Ask for Assistance

March 07, 2011
Portugal will be selling 750 mln to 1 bln euro of 2 1/2 year bonds on Wednesday. It will be the first bond offering since the syndicated offering in mid-Feb. It has been trying to buy back bonds that expire this year, but these have generally seen lukewarm interest. Portugal is trying to raise funds not only to cover this year's deficit, but i…
When Will Portugal Ask for Assistance When Will Portugal Ask for Assistance Reviewed by Marc Chandler on March 07, 2011 Rating: 5
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CNBC: Choice Currency Plays CNBC: Choice Currency Plays Reviewed by magonomics on March 07, 2011 Rating: 5
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Canada and Oil: More Complicated than One Might Suspect

March 07, 2011
It seems clear. Canada is one of the few developed countries that is a net exporter of oil. Oil prices have soared and the Canadian dollar is at its best level against the US dollar since late 2007. But a closer look suggests a more complicated picture. Since February 15, oil prices have shot up by around 25%, while the Canadian dollar has rallied…
Canada and Oil: More Complicated than One Might Suspect Canada and Oil: More Complicated than One Might Suspect Reviewed by Marc Chandler on March 07, 2011 Rating: 5
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ECB Rate Outlook Dominates

March 07, 2011
It appears the foreign exchange market is being driven by one overriding consideration and that is that the ECB is going to raise rates as early as next month. The debt crisis on the periphery has been ignored. Fitch cut the outlook for Spain before the weekend, noting that the financial sector may need another 38 bln euros and the euro bulls wher…
ECB Rate Outlook Dominates ECB Rate Outlook Dominates Reviewed by Marc Chandler on March 07, 2011 Rating: 5
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Euro and Yen: Surprising Correlations

March 04, 2011
It looks so easy. Risk on and risk off. When risk trades are being put on, equity market and commodities prices, like gold and oil, rise. The euro appreciates and the yen sells off. When risk trades come off, just the opposite takes place.
Euro and Yen: Surprising Correlations Euro and Yen: Surprising Correlations Reviewed by magonomics on March 04, 2011 Rating: 5
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Jobs Data Disappointing, though Unemployment Rate Falls

March 04, 2011
The US employment data was in line with expectations, but this is disappointing in that it suggests that there has been no acceleration of private sector job growth from Q4 10. The 222k rise in price sector jobs was a bit more than expected and the upward revision to the Jan data keeps the monthly average around 140k. Manufacturing jobs grew by 33…
Jobs Data Disappointing, though Unemployment Rate Falls Jobs Data Disappointing, though Unemployment Rate Falls Reviewed by Marc Chandler on March 04, 2011 Rating: 5
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To Key Issues Today: ECB Intentions and US Jobs

March 04, 2011
Currency market participants are focused on two things today. The first is the implication of ECB's Trichet comments yesterday. The reference to "strong vigilance" and explicit refusal to indicate that "rates are appropriate" are understood as powerful signals of the ECB's intent to raise rates as early as next month. A…
To Key Issues Today: ECB Intentions and US Jobs To Key Issues Today: ECB Intentions and US Jobs Reviewed by Marc Chandler on March 04, 2011 Rating: 5
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Trichet Hawkishness to Exacerbate Peripheral Woes

March 03, 2011
ECB President Trichet is signaling a rate hike and the market debate seems to be between April and May. While the monetary setting may be too easy for Germany, the peripheral countries, where the debt crisis has been concentrated, monetary conditions (currency plus rates) are too tight. Germany 2-year yields are up 20 bp, but periphery yields are …
Trichet Hawkishness to Exacerbate Peripheral Woes Trichet Hawkishness to Exacerbate Peripheral Woes Reviewed by Marc Chandler on March 03, 2011 Rating: 5
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Trichet Sends Euro and Interest Rates Sharply Higher

March 03, 2011
Trichet has stayed true to form and issued relative hawkish signals. Two key points--"strong vigilance" is needed and no reiteration of the mantra that "interest rates are appropriate". He explicitly said that this could mean a rate hike as early as next month, but the ECB does not pre-commit.
The staff forecast for inflation w…
Trichet Sends Euro and Interest Rates Sharply Higher Trichet Sends Euro and Interest Rates Sharply Higher Reviewed by Marc Chandler on March 03, 2011 Rating: 5
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ECB and Europe Front and Center, Ahead US Jobs Tomorrow

March 03, 2011
The ECB meeting and more importantly the press conference that follows is the main event of the session. The market generally expects Trichet to continue to sing from the hawkish hymn book. Although many observers have been critical of the July 2008 rate hike decision, Trichet has referred to it, almost as a badge of honor, demonstrating beyond re…
ECB and Europe Front and Center, Ahead US Jobs Tomorrow ECB and Europe Front and Center, Ahead US Jobs Tomorrow Reviewed by Marc Chandler on March 03, 2011 Rating: 5
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CNBC: Gold: New Reserve Currency CNBC: Gold: New Reserve Currency Reviewed by magonomics on March 02, 2011 Rating: 5
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FX Forces: Rate Expectations and Petrodollar Recycling

March 02, 2011
There are two main drivers of the US dollar presently: divergent interest rate expectations and the recycling of petrodollars. Developments over the past 24 hours reinforce those drivers. The higher euro zone manufacturing PMI readings yesterday have been followed by news of a larger than expected jump in Jan producer prices. The 1.5% m/m increase…
FX Forces: Rate Expectations and Petrodollar Recycling FX Forces: Rate Expectations and Petrodollar Recycling Reviewed by Marc Chandler on March 02, 2011 Rating: 5
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Fight Over Budget, Opposition Balks at Financing, but Not US

March 01, 2011
The government submits a budget. Their majority in one house allows it to be passed there. The opposition is trying to obstruct it and it is raising concern about the world's largest public debt. This is not the US but Japan.
Earlier today the lower house of parliament approved the record JPY92.4 trillion budget for the new fiscal year that be…
Fight Over Budget, Opposition Balks at Financing, but Not US Fight Over Budget, Opposition Balks at Financing, but Not US Reviewed by Marc Chandler on March 01, 2011 Rating: 5
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Policy Divergence Theme Driven Home

March 01, 2011
The combination of the strength of the European data and Federal Reserve Chairman Bernanke's semiannual testimony before the Senate, which is unlikely to signal an early end to QEII, is reinforcing ideas that Europe is likely to raise rates before the US. This continues to weigh on the dollar. Talk of recycling of petrodollars as oil producers…
Policy Divergence Theme Driven Home Policy Divergence Theme Driven Home Reviewed by Marc Chandler on March 01, 2011 Rating: 5
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