Marc Chandler
@marcmakingsense
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Breaking Down and Making Sense of Global Capital Markets
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Check it out. My new book: Political Economy of Tomorrow
Now available on Amazon:
Don't wait for the movie.
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@Gerashchenko_en
In my work, I draw parallels between the NATO driving east and China moving into the underbelly of the old USSR. Putin's invasion of Ukraine has turned Russia into a client state beyond what Beijing could not dream of 16 months ago.
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In my career, I have rarely been bullish gold, but the breakout last week and my reading of the macroeconomic and geopolitical situation have turned me positive toward. Spoiler alert. It is not due to inflation expectations.
#GOLD
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I am happy to announce I will be joining Bannockburn Global Forex, a boutique foreign exchange firm as a managing partner and chief market strategist. Anticipate continuing to share my commentary broadly, while working on bespoken projects.
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@TheStalwart
What strikes me is that rebuilding the human and capital infrastructure of the world's largest economy after years of neglect and at extremely low interest rates has become associated with left politics. It shows how far the political spectrum has shifted in America.
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The big story is not the 236k rise in US jobs or the 4.2% pace of average hr wage growth, but the sharp fall in commercial bank lending. The $105 bln drop in the last 2 wks of Mar seems to be a record. It is the key contagion channel of the bank stress.
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@scottlincicome
Indeed, I would argue the current administration has done more to support Russia's projection of power and weakened the alliance system more than a democrat socialist senator from Vermont.
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The correlation of the value of $USDJPY and US 10-year yield over past 60 days stands at -0.87. It is the largest inversion since January 2001.
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Argentina is desperate. It is out of $USD and needs to make a $2.7 bln payment to the IMF today. It will use swap line with PBOC to raise $1 bln of CNY and the rest will come from SDRs. Is this really de-dollarization as some claim? (1/10)
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@Kathleen_Tyson_
Wake me up when Saudi Arabia and UAE no longer outsource monetary policy to the Fed by pegging their currencies to the $USD. Then I will believe that the GCC could become an independent power source. Using the dirham is a bit like a stable coin tethered to the dollar, no?
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Is all data backward looking? What about the Leading Economic Indicators? It is up 4.4% over the past six months at an annualized rate. It typically falls into negative territory several quarters b4 the econ contracts. Just saying, difference between bear mkt and recession.
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My 2 cents, which may not buy much except nearly a third more TRY than a week ago--Market is exaggerating the risk-off. Turkey does not pose systemic risk. Thin summer turnover amplifies moves. Turkey is not the canary in the coal mine.
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Me: Alexa what is $1.1780 in the $euro?
Alexa: It is the 38.2% retracement of the euro's decline since the February high.
Me: It stopped just shy of it. What if it goes through?
Alexa: It will go higher.
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Apparently, Powell is wearing his purple tie as he did at previous pressers. Is it sign of bipartisanship (red+blue=purple)? Or is it like ancient Roman senators, where a purple thread at the edge of the toga was a sign of imperium and now signifying the Fed's independence?
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An important shift took place this week. The implied yield of the Dec 2023 Fed funds futures fell below the implied yield of the Dec 2022 contract. Mkt prices in the first Fed cut in Q4 23 from higher levels.
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Are rising prices and inflation expectations simply a reflection of the monetary and fiscal fueled economic recovery? Isn't the story more complicated? Spoiler from today's note.
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Looking for a weekend read? Try my essay in Barron's on what China would need to do to challenge the dollar. Timing: Ahead of BRICS summit amid talk of a gold-backed rival.
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FWIW...Mkt seems purposely to misinterpret Powell's comments. Not just below neutral as many say they heard, but below broad range of estimates of neutral level, which Sept SEP saw as 2.5%-3.5%. No sign that bottom of range appropriate Powell not signaling one and done.
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@ericadamsfornyc
@FrancisSuarez
@Sarasti
Will NYC have to buy
#BTC
to pay the new mayor--or is he really talking about converting his paycheck into Bitcoin, which means saving his first three paychecks, not spending them. How many Americans can do that?
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Say what you want about MMT's normative claims, but as a descriptive model of linkages, it understands how the US budget deficit in Feb that puts 12m shortfall at $932 bln a 32% y/y increase while 10-year ylds have fallen 37 bp, unlike orthodox models. POTUS does MMT?
#MMT
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@ianbremmer
Again, why let the facts get in the way of the story you want to tell? Your own data shows Reagan's approval was lower. And he was re-elected.
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@lisaabramowicz1
Higher inflation? The difference between -0.4% y/y and -0.8% from June is not more inflation, but less deflation. Core rate rises to 0.3% from 0.1%. Less disinflation. $Gold sell-off began at the end of last week setting wheels in motion after a record run.
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To my friends for whom Friday has already begun, note that the $euro has advanced on Fridays for the past 7 weeks. DXY has fallen on the past 7 Fridays. Random? Players reducing long $USD exposure as vulnerable to weekend tweet?
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If markets move to hurt most of the people most of the time, what is the pain trade now? What would a strong employment report with an acceleration of wage growth do? Asking for a friend.
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It is not just that May retail sales fell 0.3%, but the April data was revised lower to 0.7% from 0.9%, and the core measure, used in GDP models, was flat (0.3% expected) and the April series was cut in half to 0.5% from 1.0%.
It leaves the impression of softer consumption.
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Taking Some Time Off: Taking some time off for the next few days. Will return with the August monthly outlook on July 29 and daily commentary on July 31.
Good luck to everyone.
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I am not a gold bug, but a little less than two months ago, when the yellow metal rose above $1400, and given my sense of interest rate trajectory (lower for longer) and geopolitics (messy), I turned bullish and suggested target of $1700. Will discuss on
@CNBC
today ~4 pm ET.
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@biancoresearch
I don't think Fed set up swap lines. They were a standing agreement (permanent). What they did was lower the price to OIS +25 bp (from 50bp) and offered to lengthen duration of the swap
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Sometimes, turn around Tuesday begins on Monday. $USD stalling after DXY traded above 200-day moving average for the first time this year. 10-year US yield made (marginal) new session low. A move above $1.0950-60 in $euro and $1.2740 for $GBP would help technical tone.
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@LukeGromen
Can't we agree that repos are not the same as purchases and the Fed's repo is not the same as QE? That QE and using the Fed's balance sheet is a new innovation while repos are a standard Fed tool even if not used recently. Case also here for permanent and regular repo facility.
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I know coins and notes in circulation are so yesterday, but the US Mint's choice is uncanny.
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@upholdreality
Not to confuse a great narrative but the fact of the matter is that fir several years now foreign central banks have not been accumulating US Treasuries. Reserve growth in general had leveled off with excess national savings going into sovereign wealth funds of different sorts.
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The most insidious voter fraud is gerrymandering and power of incumbency.
A federal panel upheld a ruling to end Wisconsin’s gerrymandering, demanding a redrawn map by November 1.
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@georgemagnus1
@MichaelKovrig
And yet, the World Bank and ADB estimated that the Chinese economy would grow 5.2% in 2023.
Seems like a lot of smart people think it is more than fiction.
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@BrankoMilan
This is a poor and naive assessment of China. It is not because China is not aggressive. Ask most of its neighbors about the PLA's military harassment or India. Its activities must be recognized as lower rungs in a military escalation ladder.
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In the mid-1980s, I completed a MA in Am history and wrote my thesis on Frederick Douglass. I was interested in how one resists a system that is backed by law. His July 4th speech is powerful stuff.
Here it is read by James Earl Jones: (1/8)
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Were the FOMC minutes really dovish. Rates and $USD softened. Yes, it acknowledges the concern that it might overtighten, but it clearly indicated that this does not mean it is done. It explicitly said more hikes were coming and it saw no sign inflation was subsiding. Fade mkt?
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@StephanieKelton
Sorry Prof, you may be correct in the narrow sense of the facts, but miss the larger context and provide fodder for a resurgent nationalism that would seem to undermine your larger agenda. Italy's far-right makes the same claims. Are those really your allies?
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Bank of Canada Governor Macklem warns that rates may need to go up more than the market expects to curb inflation. Meanwhile, base effect may see Jan yoy CPI ease. Protests against Covid mandates cost estimated $CAD350 mln a day.
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Fitch downgrades US to AA+ from AAA. Outlook stable from negative. Cites fiscal deterioration over the next 3 yrs, growing debt burden, and "erosion of governance relative to AA and AAA" rated countries.
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Comments from hawkish ECB officials spur swap market to price in around 33% chance of a 50 bp hike in May. This helped lift the $eur to new highs. Soft US retail sales and mfg output is expected today, and earnings from several large banks.
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@RobinBrooksIIF
My argument is that your calculations assume costs of Chinese goods are incurred in yuan, but that is only true of something about 35%. The reason the yuan is selling off is not because PBOC wants to offset tariff, but because Chinese macro deteriorates, and $USD strong broadly.
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@RobertKennedyJr
Is someone who concludes that the US military is a "laughingstock" really suited to be Commander in Chief?
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Talk of PRC buying $41.6 bln of US Treasuries, the most since 2013, which is how the newswires are reporting yesterday's TIC data is misleading. They simply moved out on the curve. Including bills, they were reduced their overall Tsy holdings by $4 bln
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Perhaps some of what appears to be fx intervention are foreign central banks rebuilding Treasury holdings parted with during the March and April. They sold about $155 bln of Tsy and with the most recent period's $12.1 bln of purchases, they have bought back about $123 bln.
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@lisaabramowicz1
Ugh. Blame others before ourselves. Strong US growth (Atlanta Fed still 4.9%, BBG median 3% for Q3), larger deficit, more supply. Why not take valuation into account? And what about PRC Agency buying?
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@RBReich
What are the odds that the Court sticks to its 'originalism' doctrine and rules against Trump on the 14th amendment given the intention of Congress? Asking for a few friends.
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Complexities of trade often under-appreciated: See . 19th century framework is not enough.
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@cullenroche
To me, this still explanation still gives a priority to trade in goods and services. I think the $USD role is much more about capital markets, which are much larger than trade. FX alone is $7.5 trillion a day. Global trade is less than $30 trillion a year.
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I suspect that many high hopes for the BRICS summit to offer an alternative to the $USD will be dashed shoals of reality. Nationalism remains a powerful force. Outcome: path to larger membership.
Spoiler:
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Bad news is good news still. Flash PMI weaker than expected. Composite 46.3. Below 50 boom/bust for 5th month. Lowest since May 2020. Stocks like it. $USD extends losses. Yields soften.
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A currency pact between the US and China? It is supposed to prevent $CNY devaluing against the $USD but it also may prevent the USD from devaluing against CNY, which has been the US strategy vs Europe and Japan in past.
Why I am skeptical here:
Spoiler:
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It may not be my best-written piece. There are few literary or historic flourishes. But it one of my most important posts. It sketches out a 3-prong argument for the end of the third $USD rally since the end of Bretton Woods.
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My hypothesis is that the $JPY's recovery will take some pressure off $CNY to start the new week. Before the yen's recovery today, the yuan was trading lower on the day. Both are higher. Chinese banks to cut loan prime rates 1st thing Monday.
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Week Ahead: Does the Dollar have Legs?: There are different ways to measure it, but the dollar just put in its best week of the year. The greenback rose against all the G10 currencies, and the Dollar Index rose by the most since last September. It also…
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$USD bottomed against the CHF on July 21 and is above it July highs. US rose every day this week vs CAD and since Mon vs A$. Not just jobs.
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@tyson_whelan
@hare_brain
Well, at least the US is going to take a principled stance against China trying to repress dissent. Thankfully, we are not like them. Dripping with irony.
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@kennardmatt
And yet the peso and the Bolsa have rallied strongly this year, and foreign direct investment inflows are anecdotally strong. Previously, many claimed he would compromise the central bank, which has not happened. Nationalization is not always bad. See US housing market.
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Reports say China has closed the airspace over the Taiwan Strait for civilian aircraft. No fan of the cruel dictators in Beijing, but with the war in Ukraine and tensions high, what is there to be had by the Speaker going to Taiwan. What is the upside?
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@johnauthers
@Frances_Coppola
temp exit doesn't violate rules but debt relief does? Really? Rule-based defense rings hollow.
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Remember the St Valentine's Day Massacre of 1994? Then Japan, not China, was blamed for the US trade deficit. US Tsy Sec Bentsen threatened $USD depreciation if Japan did not open auto mkts. Now the another Asian country is being blamed for US imbalance.
#takeresponsibility
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Imagine the US gets what it wants. China buys more energy and foodstuffs from the US. It then uses these as inputs for finished goods, which it sells to the US. What happens to trade balance and terms of trade?
Capitalist, Rope. Hung.
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@RobinBrooksIIF
Sorry, Robin, we continue to see things diametrically opposed. A weaker dollar will help several large swathes of the global economy. It helps ease EM dollar-debt servicing burden and helps underpin commodity prices. It likely exerts downward pressure on global rates.
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FWIW, early indications seem to suggest new variant may have been around for bit b4 SAfrica sequenced it. Symptoms appear mild even if more contagious. Vaccines may still be effective. Suggests outsized pre-weekend moves may correct.
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While I have been anticipating this $USD pullback, risk is that it is longer and deeper than I initially anticipated.
#Euro
is flirting with neckline of head and shoulders bottom pattern that projects back to mid-$1.19.
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Confusion reigns: Establishment survey showed a 339k increase in nonfarm payrolls. The household survey showed a 313k loss of jobs (hence unemployment jump). Odds of Fed hike this month spikes but now back below 30%.
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I had been looking for the $USD to trade higher ahead of the FOMC. FOMC does what most expected, and now it strengthens! This is why after more than 30 years I still find the fx market so challenging.
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A weekend read? My take on the petroyuan. The key to role of $USD is not as a means of payment but as a store of value. $CNY is not convertible and China cannot (help) store the world's savings if it runs a c/a surplus.
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@TheStalwart
Keynes called this the "euthanasia of the rentier class." I think that is an important development in the evolution of capitalism. This segment of the capitalist class is finding it difficult to reproduce itself. So is the middle class.
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ICYMI: Tokyo election. LDP resounding defeat. What does it mean for Abe? Is there an alternative to Abenomics?
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@WarClandestine
I am not convinced that the two claims are mutually exclusive. The US does not support Taiwanese independence but will help defend it from an attack.
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Bannockburn Global Adds Leading Currency Strategist in Marc Chandler
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@steve_alarm
@carlquintanilla
@Reuters
Really? How many American households have more than $250,000 in a bank account? For the vast majority of Americans, FDIC cap is more than adequate and businesses there are numerous cash management options.
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Many argue protectionism is bad for the $USD. In short-term, not the case, and remember $USD rallied during first Reagan term despite protectionist actions against Japan. Policy mix is critical driver then and now., imho.
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Besides my understanding of macros, the fact that euro held 61.8% reacement of down move from 2014 (~$1.26) and monthly downtrend off record (2008) high remained intact, encouraged me not to abandon strong dollar strategic view, despite the more immediate challenges.
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First, Powell said softness in prices may be transitory. This week, he said maybe more persistent. After CPI and PPI, maybe he was right before he was wrong.
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When Mnuchin says that a weaker$USDis good for "trade and opportunities" what is he referring to outside of exports? It makes direct investment more expensive. Ok, it boosts USD value of foreign earnings, but that is math not opportunity.
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Finally...Long overdue. Judicial branch need to be included too.
*U.S. HOUSE DEMOCRATS PLAN TO ANNOUNCE A PROPOSAL NEXT MONTH TO BAN LAWMAKERS, THEIR SPOUSES AND SENIOR STAFF FROM TRADING STOCKS
🇺🇸 🇺🇸
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Though bullish the $USD, note of caution here. DXY is 3 standard deviations from 20-day moving average (~93.10). Bollinger Band is only 2.
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Hard to keep the $USD down with rising US yields. Some try to link it to fiscal challenges. But given 5.50% Fed funds rate, 3.2% headline inflation, and an economy seemingly accelerating, a 4.30% 10-yr yield does not seem to require fiscal concerns to explain.
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The $JPY has strengthened sharply in the past two sessions. Its use as a funding currency ahead of the
#BOJ
meeting later this month may be over. The trade that might express this the best is long $JPY/short $CHF as mkt finds another funding currency. 2-3% move possible.
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The September 2023 Fed funds futures' implied yield is about 4.76%. The December 2023 Fed funds futures' yield is 4.57%. This is to say that despite Fed's hawkish impulses, the mkt still sees a slightly better than a 50/50 chance of a cut in Q4 next year.
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@LukeGromen
It has been repeated. The Fed preannounced tomorrow's operation, which allows a rolling over of today's plus a bit more. No matter how large the repo or how often repeated, it is not ownership. These nuances matter. The repo is about providing liquidity. QE was credit easing.
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The Urge to Surge: The US dollar pulled back, and long-term yields softened last week, but the economic surge has only just begun. The more than 900k rise last month's non-farm payrolls and the jump in auto sales will set the tone for this month's…
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@michaelxpettis
@LuiMiyake
Fully agree with this take and my book, Political Economy of Tomorrow explores Conant's work in depth. He worked at Brown Brothers about a century before I did and anticipates much of Keynes' insight.
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Frontpage Financial Times story quotes a bank analyst saying: "US dollar has become one of the weakest currencies on the planet." I am a $USD bear, arguing that the 3rd big rally since the end of Bretton Woods (15 Aug 1971), but isn't
@FT
quote hyperbole?
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Fed says little and does less. Recognizes strong economy and acknowledges moderation of business investment, with inflation near target. Nothing to do. No hint at money market pressures or weakness in housing. FOMC to market: See you in December. Gradual hikes to continue.
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I joined
@DiMartinoBooth
for a discussion of the foreign exchange market and the role of the $USD. We had a broad exchange of views, including about the Federal Reserve.
Check it out:
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@Brad_Setser
Today officials reportedly blocked some $CNY swap transactions that implied the exchange rate was outside of the trading band--mostly appeared to involve T+0 and T+1 transactions.
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The Dollar is Heavy ahead of What is Expected to be a Dovish Fed: The US dollar had another rough week, and the poor close ahead of the weekend warns that the downside may not be exhausted. Despite unmistakable signs that the US economy is accelerating,…
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This is the last month that the G3 central banks will have a net increase in their "collective" balance sheet.. Next month the Rubicon will be crossed. ECB to confirm further tapering in Q4 on Sept 13.
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