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Three Key Developments

October 31, 2012
The US dollar is generally offered today.  There does not seem to be a major catalyst.  Rather technical factors, and in particular, the euro's inability to fall through the $1.2880 area despite repeated tests appears to have encouraged the move to the upside, as the path of least resistance.

Month-end flows are difficult to anticipate but m…
Three Key Developments Three Key Developments Reviewed by Marc Chandler on October 31, 2012 Rating: 5
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Great Graphic: Exchange Traded Fixed Income Products

October 31, 2012
It is widely appreciated that Americans, who typically prefer equities over bonds, have re-discovered the fixed income markets on the downside of the credit cycle.  This Great Graphic, from Dodd Kittsley at the  Ishares blog.  It looks at the demand for fixed income through exchange trade products (ETP).

Demand for fixed income ETPs has nearly do…
Great Graphic: Exchange Traded Fixed Income Products Great Graphic: Exchange Traded Fixed Income Products Reviewed by Marc Chandler on October 31, 2012 Rating: 5
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Great Graphic: QE and S&P 500 Is that All there Is?

October 31, 2012
This Great Graphic comes from Zero Hedge, who got it from SocGen  It purports to depict the performance of the S&P 500 and concludes that QE is generating diminishing returns.  
Although our eyes can deceive us, we shouldn't let it confuse our thinking.  There is a logic fallacy embedded in here:  post hoc ergo propter hoc.   Just because …
Great Graphic: QE and S&P 500 Is that All there Is? Great Graphic: QE and S&P 500 Is that All there Is? Reviewed by Marc Chandler on October 31, 2012 Rating: 5
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Feeling Sandy

October 30, 2012
Early estimates for the economic costs of the storm that hit the east coast of the United States range from $20 and $50 bln. Hurricane Katrina in 2005 still appears to be more potent. 
There are three main channels through which the economic impact is felt—property damage, infrastructure damage and lost business. Lost business averages around 4…
Feeling Sandy Feeling Sandy Reviewed by Marc Chandler on October 30, 2012 Rating: 5
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Great Graphic: Composition of SNB's Reserves

October 30, 2012
The Swiss National Bank will report the composition of its reserves as of the end of Q3 on Wednesday.  This Great Graphic comes from the SNBCHF blog, showing the composition of SNB currency reserves in Q1 and Q2.   The fact that the SNB ended Q2 with a greater proportion of euro reserves (60% vs 51%) than in Q1 indicated that it was not as aggres…
Great Graphic: Composition of SNB's Reserves Great Graphic: Composition of SNB's Reserves Reviewed by Marc Chandler on October 30, 2012 Rating: 5
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BOJ Moves, Market Yawns

October 30, 2012
In the face of a deteriorating economy and stubborn deflation, the Bank of Japan extended its assets purchase plan, but the bears had been hoping for more and they bought back the previously sold yen.  
The BOJ announced that it would increase its asset purchases by JPY11 trillion.  The consensus was for JPY10 trillion, though there had been some …
BOJ Moves, Market Yawns BOJ Moves, Market Yawns Reviewed by Marc Chandler on October 30, 2012 Rating: 5
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What is Rajoy Waiting For ? Some Thoughts

October 29, 2012
Spanish Prime Minister Rajoy has continued to indicate that he will formally request more assistance when it is in the country's interest, which essentially means, when he is good and ready. And he is not now.  
Following his meeting with Italy's Monti, Rajoy was quite candid.  "The most important thing", Bloomberg quotes him say…
What is Rajoy Waiting For ? Some Thoughts What is Rajoy Waiting For ? Some Thoughts Reviewed by Marc Chandler on October 29, 2012 Rating: 5
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What's on Your Radar Screen?

October 29, 2012
The US dollar is posting modest gains across the board, the notable exception of the Japanese yen, on the back of what appears to be largely a risk-off day. The MSCI Asia Pacific Index shed 0.2%, while the Dow Jones Stoxx 600 is off 0.5% late in London's morning. Spanish and Italian bond yields are higher. Emerging market currencies are mos…
What's on Your Radar Screen? What's on Your Radar Screen? Reviewed by Marc Chandler on October 29, 2012 Rating: 5
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Currency Positioning and Technical Outlook: Fade Breakouts ?

October 28, 2012
The US Dollar Index reached its best level in more than six weeks on Friday.  Yet it managed to only close a couple of ticks higher, as if warning short-term participants against ideas that a breakout is at hand.  This also appears to be the message of the yen's  dramatic recovery from four-month lows. 
Caught between what appears to be renewe…
Currency Positioning and Technical Outlook: Fade Breakouts ? Currency Positioning and Technical Outlook: Fade Breakouts ? Reviewed by Marc Chandler on October 28, 2012 Rating: 5
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Australia: Manipulating by not Intervening?

October 26, 2012
The Wall Street Journal brings to our attention the fact that the reserves at the Reserve Bank of Australia have risen sharply over the past two months.   Its reserves have risen by A$863 mln over the past two months after rising by about A$147 mln in all of Q2.

Typically when reserves increase, it is due to action by the central bank. However, as …
Australia: Manipulating by not Intervening? Australia: Manipulating by not Intervening? Reviewed by Marc Chandler on October 26, 2012 Rating: 5
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Europe Raises Bar, Japan Dithers

October 26, 2012
The US dollar is narrowly mixed against most of the major foreign currencies as the week winds down.  The big mover is the Japanese yen which is showing some resilience. Initially in Asia, the greenback had extended its recent gains to almost JPY80.40 before reversing to return toward yesterday's lows near JPY79.80.  A break of this area, and …
Europe Raises Bar, Japan Dithers Europe Raises Bar, Japan Dithers Reviewed by Marc Chandler on October 26, 2012 Rating: 5
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A Few Notes on FX

October 25, 2012
The US dollar is trading heavily after yesterday's mini-reversal, with a stronger than expected UK GDP report allowing sterling to lead the charge.  The UK reported a 1% rise in Q3 GDP over Q4.  The consensus was for 0.6%-0.7% expansion after three quarters of contraction.  
The news, coupled with recent comments from BOE's King, have damp…
A Few Notes on FX A Few Notes on FX Reviewed by Marc Chandler on October 25, 2012 Rating: 5
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Rising Volatility, Euro Out of Step

October 24, 2012
We have highlighted the contradiction between the low implied volatility and the large number of event risks on the horizon.  To us, it looked like a spring coiling.  The resolution, we anticipated, would be in favor of higher volatility, and we appreciated that there was a directional bias.  Higher volatility would likely, we thought favor lower…
Rising Volatility, Euro Out of Step Rising Volatility, Euro Out of Step Reviewed by Marc Chandler on October 24, 2012 Rating: 5
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Euro Slide Continues, Dollar-Bloc Resilient

October 24, 2012
The US dollar is broadly mixed.  The euro continued its sell-off.  With today's losses, it has shed nearly 2 cents since last week's high.  The Swiss franc has been dragged lower by the single currency.  The dollar-bloc is resilient as participants have second thoughts about the trajectory of policy, especially in Canada and Australia.  St…
Euro Slide Continues, Dollar-Bloc Resilient Euro Slide Continues, Dollar-Bloc Resilient Reviewed by Marc Chandler on October 24, 2012 Rating: 5
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FOMC Preview

October 23, 2012
The Federal Reserve's two-day meeting begins today. Given the proximity of the election and the fact that an open-ended asset purchase plan was announced last month, there will be a great deal more talk than action at the FOMC meeting. 
There are two issues that market expects the Fed to discuss. The first may fall under communication, but is…
FOMC Preview FOMC Preview Reviewed by Marc Chandler on October 23, 2012 Rating: 5
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Oh Canada, What Next ?

October 23, 2012
The Bank of Canada meets today. While there will not be change in rates, the Bank of Canada governor has already signaled a more neutral stance. The previously indicated desire to remove some monetary accommodation (raise rates) will be pushed back in the face of a weaker global outlook. 
Note that tomorrow’s monetary policy statement will furth…
Oh Canada, What Next ? Oh Canada, What Next ? Reviewed by Marc Chandler on October 23, 2012 Rating: 5
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Storms in Spain

October 23, 2012
Spain has returned to center stage, with Moody's downgrade late yesterday of several regions and today's official admission of what many had long anticipated; namely that Spain's relaxed fiscal targets would be overshot.  
And so it is.  
Moody's passed on cutting Spain's sovereign rating (to below investment grade) recent and…
Storms in Spain Storms in Spain Reviewed by Marc Chandler on October 23, 2012 Rating: 5
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S&P 500 and the Dollar: Weakening of the RoRo Trade

October 22, 2012
The US is in the middle of Q3 earnings reporting season. A fifth of US S&P 500 have reported (some 70% have beaten the managed expectations) and another third report this week. One theme that has been driven home by a number of companies is the two-prong challenge posed by China. Some have noted the slowdown in the Chinese economy. Others…
S&P 500 and the Dollar: Weakening of the RoRo Trade S&P 500 and the Dollar: Weakening of the RoRo Trade Reviewed by Marc Chandler on October 22, 2012 Rating: 5
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Great Graphic: Fiscal Thrust High Income Economies

October 22, 2012
This Great Graphic comes from the Financial Times Gavyn Davies.  One key observation is that the austerity shift next year to the US from the euro area, though the UK has more wood to chop too.
 The magnitude of the US contractionary fiscal thrust in part depends the degree to which the automatic tax hikes and spending cuts are actually implement…
Great Graphic: Fiscal Thrust High Income Economies Great Graphic: Fiscal Thrust High Income Economies Reviewed by Marc Chandler on October 22, 2012 Rating: 5
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Drivers in the Week Ahead

October 22, 2012
This will be an eventful week.  The highlights include four central banks meetings (Reserve Bank of New Zealand, the Bank of Canada, Sweden's Riksbank and the Federal Reserve).  The first estimate UK and US Q3 GDP will be released, while the euro area flash October PMI will be reported alongside Germany's IFO.
The RBNZ and the BoC are like…
Drivers in the Week Ahead Drivers in the Week Ahead Reviewed by Marc Chandler on October 22, 2012 Rating: 5
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Great Graphic: Political Economy and Gender Relations

October 21, 2012
We have suggested capitalism is about relationships and these relationships are being transformed.  We often think and write about the relationships between citizens and their sovereigns and employees and employers.  
This Great Graphic is from Pew Research.   It provides some evidence of another relationship that is being transformed and that is…
Great Graphic: Political Economy and Gender Relations Great Graphic: Political Economy and Gender Relations Reviewed by Marc Chandler on October 21, 2012 Rating: 5
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FX Positioning and Technical Outlook: Dollar Still Carving out a Bottom

October 20, 2012
Our big picture view is that the US dollar is carving out an important bottom, after selling off in Q3 as policy makers moved to reduce the extreme tail risks. The position adjustment that that inspired among investors appears to have largely run its course.

This bottoming of the dollar is proving to be a  more protracted process than we initially…
FX Positioning and Technical Outlook: Dollar Still Carving out a Bottom FX Positioning and Technical Outlook: Dollar Still Carving out a Bottom Reviewed by Marc Chandler on October 20, 2012 Rating: 5
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Great Graphic: Social Media and the Political Dialogue

October 19, 2012
Here is a Great Graphic from the Pew Research Center.  It show by age group who and how the social media is being utilized. 
I see this dovetailing nicely with a big picture hypothesis being sketched out in this space  (here and here).  To state it succinctly:  Capitalism is about relationships and the financial crisis is going to spur changes i…
Great Graphic: Social Media and the Political Dialogue Great Graphic: Social Media and the Political Dialogue Reviewed by Marc Chandler on October 19, 2012 Rating: 5
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Europe: Still Center Stage

October 19, 2012
There were three signals of note that emerged from the EU Summit, even if no new initiatives or measures were announced.

First, there was moral support for Greece as officials recognized “the determination of the Greek government to deliver on its commitments and we commend the remarkable efforts by the Greek people.”By acknowledging that good pro…
Europe: Still Center Stage Europe: Still Center Stage Reviewed by Marc Chandler on October 19, 2012 Rating: 5
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Great Graphic: Debt Crises

October 19, 2012
This Great Graphic comes from the FT Alphaville's Joseph Colterill's post on Cyprus.  The data itself is from the IMF.  It provides some useful metric of a number of large banking crisis since 1970.  The US and European banking crises are not included.  
What stands out to me is the frequency and cost.   The costs, as depicted here, are i…
Great Graphic: Debt Crises Great Graphic: Debt Crises Reviewed by Marc Chandler on October 19, 2012 Rating: 5
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Greece and Spain

October 18, 2012
European officials ability to reduce the tail risks appears to have been quite successful.  And they have achieved this without spending a single penny.  Yet the tension between the interests of the creditors and the interests of the debtors has not been resolved. 
This is clear the case in Greece.  Officials, including senior German officials ar…
Greece and Spain Greece and Spain Reviewed by Marc Chandler on October 18, 2012 Rating: 5
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Policy Implications: Japan, UK, Sweden, Europe

October 18, 2012
There have been a few developments that may impact policy expectations.  First, in Japan, recent reports suggest a more robust policy response.  Prime Minister Noda is preparing a using funds in the FY12 budget that are not earmarked, for stimulus program.  The political difficulty is that the opposition LDP is blocking the issuance of new bonds u…
Policy Implications: Japan, UK, Sweden, Europe Policy Implications: Japan, UK, Sweden, Europe Reviewed by Marc Chandler on October 18, 2012 Rating: 5
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The Changing Winds

October 17, 2012
Policy makers are taking new measures to address the financial and economic crisis.  The ECB's OMT, the Federal Reserve QE3+ and the BOJ's increase in its asset purchase program is the monetary response.  To this we expect to be added a new round of gilt purchases by the Bank of England.  Australia and Sweden, which have room to cut intere…
The Changing Winds The Changing Winds Reviewed by Marc Chandler on October 17, 2012 Rating: 5
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Great Graphic: Corporations Are People. Evil People Great Graphic: Corporations Are People. Evil People Reviewed by magonomics on October 16, 2012 Rating: 5
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Great Graphic: Income Inequality

October 16, 2012
This Great Graphic is from the Economist.   It shows the Gini coefficient that measures income inequality.  If every one has the same income, the Gini coefficient would be zero.  If one person received all the income the coefficient would be 1.  
The Economist reports that with the exception of Latin America, countries in most regions have experi…
Great Graphic: Income Inequality Great Graphic: Income Inequality Reviewed by Marc Chandler on October 16, 2012 Rating: 5
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Dollar-Bloc Update

October 16, 2012
Bank of Canada Governor Carney delivered a speech on Monday that strongly hinted that the tightening bias will be dropped at next week's rate meeting on October 23.  This is also likely to be the theme of the Bank's monetary policy report the next day.  
Carney explained that in highly uncertain economic periods, business reduces spending …
Dollar-Bloc Update Dollar-Bloc Update Reviewed by Marc Chandler on October 16, 2012 Rating: 5
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Bernanke Fires Salvo in Response to Currency War Claims

October 15, 2012
The Federal Reserve's open-end asset purchase plan (QE3+) is controversial.  Bernanke has defended its action against the domestic critics.  Over the weekend he defended QE3+ against foreign critics.      

Some in the emerging markets, most notably Brazil's finance minister, has claimed the unorthodox easing by the Federal Reserve in parti…
Bernanke Fires Salvo in Response to Currency War Claims Bernanke Fires Salvo in Response to Currency War Claims Reviewed by Marc Chandler on October 15, 2012 Rating: 5
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Three Drivers: US, Europe and China

October 15, 2012
A quiet start to the new week is leaving the US dollar little changed as North American participants return from the weekend.  Gains in early Asia were reversed in Europe.   The standout in the subdued activity is the yen, which has sporting a softer profile across the board.  The greenback is testing a two-month downtrend line near JPY78.75.  The…
Three Drivers: US, Europe and China Three Drivers: US, Europe and China Reviewed by Marc Chandler on October 15, 2012 Rating: 5
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Great Graphic: China Exports and New Loans

October 14, 2012
China reported its September trade figures. Exports showed a larger than expected increase. The 9.9% increase was nearly twice the Bloomberg consensus and well above August's 2.7% pace.  
Imports rose 2.4%, after falling for the previous three months.  Of particular interest, copper imports were at their highest level in four months and iron …
Great Graphic: China Exports and New Loans Great Graphic: China Exports and New Loans Reviewed by Marc Chandler on October 14, 2012 Rating: 5
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FX Positioning and Technical Outlook: What is Working

October 13, 2012
Market participants have to confront a stark asymmetry.  There are many ways to lose money, but there appears to be only three ways to make money. Nearly all strategies seem to come down to some variant of momentum or trend following, mean reversion, and carry trades.
Each is associated with different market conditions and require different behavi…
FX Positioning and Technical Outlook: What is Working FX Positioning and Technical Outlook: What is Working Reviewed by Marc Chandler on October 13, 2012 Rating: 5
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Great Graphic: Obama and NYSE Composite

October 12, 2012
I spotted this Great Graphic on Business Insider. Joe Weisenthal got it from Chartist Friend in Pittsburgh.  It appears to use www.intrade.com data to assess the odds that President Obama is re-elected.  The lower chart is the performance of the NYSE composite.  
Joe's note sounded skeptical and so am I.  First, the note below the chart cites a…
Great Graphic: Obama and NYSE Composite Great Graphic: Obama and NYSE Composite Reviewed by Marc Chandler on October 12, 2012 Rating: 5
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Great Graphic: World GDP Per Capita

October 12, 2012
This Great Graphic comes from The Economist.  It depicts world GDP per capita and shows the contribution from advanced and developing countries.   It notes that per capita GDP growth rates have returned to pre-crisis levels, though the composition has changed.  
Developing countries are contributing the lion's share of the world growth.  The …
Great Graphic: World GDP Per Capita Great Graphic: World GDP Per Capita Reviewed by Marc Chandler on October 12, 2012 Rating: 5
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Hold the Press: The IMF Changes Sides

October 12, 2012
A significant event has taken place this week.  It will alter the balance of power between creditors and debtors and help shape the contours of the ongoing policy response to the end of historic credit cycle.  The IMF has not only delivered a mea culpa of sorts, but urges its members to do so too.  
The IMF used to stand for It's Mostly Fiscal.…
Hold the Press: The IMF Changes Sides Hold the Press: The IMF Changes Sides Reviewed by Marc Chandler on October 12, 2012 Rating: 5
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Yen Bulls Spooked

October 11, 2012
The dollar initially fell against the yen in the immediate knee-jerk reaction to S&P two-notch cut of Spain's sovereign rating. It dipped briefly below JPY78. However, it has rebounded smartly and is holding above yesterday's highs. There are four considerations today.
First, Japan reported a whopping 12.6% decline in total machin…
Yen Bulls Spooked Yen Bulls Spooked Reviewed by Marc Chandler on October 11, 2012 Rating: 5
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Australian Dollar Hops Higher on Jobs

October 11, 2012
The Australia’s jobs data surprised on the upside and is spurring some second thoughts about an RBA rate cut next month. The 14.5k increase in jobs was three times more than the Bloomberg consensus expected. 
The details were arguably even better than the optics, as a net 32.1k full-time jobs were created, while 17.7k part-time jobs were shed. …
Australian Dollar Hops Higher on Jobs Australian Dollar Hops Higher on Jobs Reviewed by Marc Chandler on October 11, 2012 Rating: 5
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Great Graphic: Declining World Trade

October 11, 2012
This Great Graphic was found on Business Insider, who got it from  a speech given by FedEx CEO Fred Smith on October 9th. via @CEP_Observer).
It depicts the slowing pace of export growth since 2010, with some countries reporting outright declines in exports.  
Of course, one country's exports is another country's imports and what is captu…
Great Graphic: Declining World Trade Great Graphic: Declining World Trade Reviewed by Marc Chandler on October 11, 2012 Rating: 5
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Spain Dissed by S&P

October 10, 2012
Shortly after the North American markets closed, S&P surprised investors by declaring a two-step downgrade of Spain's sovereign rating to BBB-.  This is the lowest investment grade rating.  It is matching Moody's current assessment, but it has indicated it will complete its current review this month.  Many had expected it at the end of…
Spain Dissed by S&P Spain Dissed by S&P Reviewed by Marc Chandler on October 10, 2012 Rating: 5
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Great Graphic: International Joblessness

October 10, 2012
Here is a Great Graphic I found over at Sober Look.   It is from the IMF and shows unemployment rates in different economic regions.  
What Sober Look draws our attention to is the fact that the IMF projects euro area unemployment to be above the Middle East and Northern Africa.  It will have the distinction of being the highest joblessness in th…
Great Graphic: International Joblessness Great Graphic: International Joblessness Reviewed by Marc Chandler on October 10, 2012 Rating: 5
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Four Points on Hump Day

October 10, 2012
The US dollar narrowly mixed.  It rallied in Asia, extending yesterday's gains against the euro, but has had the gains pared a bit Europe. Immediate resistance for the euro is seen near $1.2880.  A move through there could spark another half cent move.  The real take away though is that the euro is range-bound, with the $1.28 area marking the…
Four Points on Hump Day Four Points on Hump Day Reviewed by Marc Chandler on October 10, 2012 Rating: 5
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The Euro's Decline and a New Front

October 10, 2012
Various reasons have been given to explain the euro's decline.  Some accounts attribute it to a vendor posting the wrong prices for 10-year Spanish bonds.  Others attribute it to the IMF's cutting European growth forecasts. It is always difficult to disprove post-hoc narratives, as this analyst well appreciates.  However, there seemed to …
The Euro's Decline and a New Front The Euro's Decline and a New Front Reviewed by Marc Chandler on October 10, 2012 Rating: 5
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Nordic Update

October 09, 2012
Sweden reports August industrial production figures on Wednesday, followed by the Sept inflation on Thursday. The data should encourage the view that the Riksbank can cut rates against later this month when it meets (Oct 25), even though it had cut rates last month as well.
There need not be a downside surprise in either output or inflation to st…
Nordic Update Nordic Update Reviewed by Marc Chandler on October 09, 2012 Rating: 5
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Two For Tuesday: Spain and Greece

October 09, 2012
There are two developments in Europe that seem particularly telling of what to expect in the period ahead.  First, the market has been anticipating a formal request from Spain for assistance.  It is not likely any time soon.  Second, the ECB's Outright Market Transactions was not the only force to dampen the tail risk in the euro area, but th…
Two For Tuesday: Spain and Greece Two For Tuesday: Spain and Greece Reviewed by Marc Chandler on October 09, 2012 Rating: 5
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FX Drivers in the Week Ahead

October 08, 2012
The US dollar and Japanese yen are starting the week on a firm note, despite their respective markets closed for holidays.  The gains are concentrated against the major European currencies, with the dollar-bloc itself little changed, against the greenback.  Equity markets are lower.  China re-opened after last week's holiday with the Shanghai …
FX Drivers in the Week Ahead FX Drivers in the Week Ahead Reviewed by Marc Chandler on October 08, 2012 Rating: 5
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