According to Nomura, since 1980, there are only two periods of economic divergence — between the US and Europe and the UK — comparable to what we are observing currently.
The level of debate for a lot of money in emerging markets on Thursday must have been whether or not to hide under the desk with a bottle of bourbon. So, kudos to Olgay Buyukkayali and Tony Volpon, top EM strategists at Nomura, for standing back and raising the tone a little…
The bank’s published a debate between the two about the sell-off. Tony’s vaguely bearish and Olgay’s vaguely bullish. But that doesn’t do justice to what’s quite a nuanced debate on EM: Read more
That’s the new black according to Citi’s Steven Englander:
Since May 1 the median increase in 10-year local bond yields in 47 major EM and developed markets (DM) is 39bps (Figure 1). Among major EM economies (light blue) it is 83bps; among major DM (dark blue) economies it is 29bps. The US 10-year Treasury yield increase (red) is only at the median of developed economies and well below the overall median. In both EM and developed economies, the fat tail of rate increases is to the upside, so average increases are even higher. The paradox is that the run-up in US interest rates, which is arguably the primary driver of these global rate increases, is well below the average and median globally.
Header credit goes to UBS’s Paul Donovan, the source of the piece of Japanese skepticism that follows. He takes us first to Sherlock Holmes’ “Silver Blaze”:
Gregory: “Is there any other point to which you would wish to draw my attention?”
Holmes: “To the curious incident of the dog in the night-time.”
Gregory: “The dog did nothing in the night-time.”
Holmes: “That was the curious incident.”
A strong opening gambit, as yen tales go. Read more
By Theo Casey, marketcolor
The loss of simple narratives in forex is something we are learning to deal with together. To continue navigating major and minor crosses we need to make complex narratives more digestible.
Consider dollar-yen. It’s behaving like the bought end of a carry trade. Read more
The yen has gained back 2.4 per cent against the US dollar since it threatened but failed to break Y100 ahead of the most recent, and quiet, Bank of Japan meeting — the first since April 4, when QE on steroids was announced.
Now, we are not suggesting this is definitely the start of a yen correction — if we could predict FX moves for sure we’d be on a yacht, Japan isn’t lacking the political will to give it a further shot, this dip is small in context and we’ve seen its like before — but there is clearly a threat.
Simon Derrick, chief global markets strategist at Bank of New York Mellon, sent through a few thoughts which we think capture that threat quite nicely: Read more
(Or ‘goldilocks syndrome’ if you’d prefer)
An existential cry has been sounded once again in the world of FX which has suddenly been reduced to trading short term signals in a fickle market. Shocking. Gone are the days of simple carry, Risk on-Risk off and easy reifying market stories. And it seems they are missed, almost as much as they were once bemoaned…
From HSBC’s ever excellent FX team: Read more
Something to keep an eye on (the respective reaction of the 6mth, 2-year, 5-year, 10-year and 30-year JGBs to the BoJ’s QE onslaught):
Seemingly everybody is benefiting from the Bank of Japan’s decision to splash the cash. Peripheral bond yields in Europe have fallen and high-yielding carry targets such as Mexico and Brazil are being touted as destinations for Kuroda’s cash.
Where that cash ends up will in many ways define the success or failure of the Abe/ Kuroda push since what really matters is what happens after the cash has left the BoJ. Read more
Gloves off from Kuroda and everyone is very excited…
For those who need a rundown of what the BoJ actually did, here’s a summary from Nomura: Read more
Two charts for your morning consideration:
We’ve used that kind of header before… but Abe is forcing us to crack it out again. From the FT on Tuesday:
Japanese Prime Minister Shinzo Abe has said that the 2 per cent inflation target he imposed on the Bank of Japan may not be reached within two years…
In an exchange with Seiji Maehara, an opposition politician and former economy minister, Mr Abe said the BoJ should not pursue the inflation target “at all costs”.
He struggled as a young bureaucrat on a climb with officials and journalists up a 1,500-meter (4,900-foot) mountain in Nagano Prefecture, to the west of Tokyo, according to Utsumi, now president of Japan Credit Rating Agency Ltd. Kuroda “got exhausted and said he’d never do it again,” he said. “He’s not the sporty type.”
Metaphors aside we can ignore that but the rest of Bloomberg’s profile of the man set to take over at the Bank of Japan is worth a read. After all Kuroda has to convince the Japanese that Abenomics is for real now that much of the easy lifting has already been done. Read more
Rising inflation expectations and a diving Great British Krona helped another leg downhill on Tuesday by dire production data.
This does smack of desperation, doesn’t it? From the FT on Thursday morning:
Osborne will use his Budget on March 20 to reinforce his message of “fiscal conservatism and monetary activism” by clarifying how the government intends to use monetary policy to get the economy growing again.
“Whatever we can”, you say? Encouraging words from BoJ governor nominee Kuroda over the weekend (even if comparisons with Mr Draghi are overblown). If Cullen Roche is correct, what happens in Japan over the next year or many could change the future of economic policy. So it’s worth spending a bit more time on what Kuroda’s “can” might actually be.
We’ve argued already that much of the low-hanging fruit of expectations and verbal intervention has already been plucked. Read more
That’s the euro down 0.4 per cent or so against the dollar and crossing the $1.30 mark. Sterling (aka the Great British Krona) is also continuing its torrid start to 2013, losing another 0.9 per cent against the dollar and touching $1.50. Read more
Gotta love a good contrarian yen call.
As we’ve written multiple times, the yen’s recent fall been based on policy which has yet to appear, namely on expectations of Abenomics. Japanese authorities have done an excellent job of short-term monetary fear-mongering, but as Gavyn Davies put it recently there is a severe risk that the international hedge funds which have been driving the decline in the yen might come to the conclusion that the emperor has no clothes. Read more
All this has happened before and will happen again… at least, so hopes the Japanese government.
Current finance minister Taro Aso has been keen to channel the spirit of his 1930s equivalent Korekiyo Takahashi, whose polices are widely credited with pulling Japan out of the Showa Depression. It’s understandable. Read more
Dear everyone, this article is based on a questionable premise: that the dollar is about to head off on another bull run. We know this may not happen. Thanks, us. Read more
That’s Citi’s risk-warning signals beginning to spike over the past couple of weeks and especially over the last day or two. From Citi’s Steven Englander: Read more
Here’s the dovish BoE minutes that started sterling sliding (click through for the pdf): Read more
Japanese investors are a powerful bunch in world markets. For a microcosm of this, just look at Australia; Japan plays a big role here in debt and in turn, in currency; and it’s a market that has been very attractive to foreigners of late, keeping the currency stubbornly high regardless of price changes in the country’s key exported commodities. BUT, as with everything yen at the moment, there is a serious shift going on. Read more
The currency war meme rumbles on as the G7 does its very best to avoid a coherent message amid arguments about whether drawing a distinction between “domestic objectives” that weaken a currency and just plain weakening it actually matters. Ho hum. Read more
“Oh, Hollande…” said Mario Draghi as the rest of us wondered if he had or hadn’t entered the supposed currency wars. Or if, in fact, the question was redundant.
The euro’s dive on Thursday was impressive and clearly the result of ECB president Draghi’s comments after the ECB’s rate setting meeting. But whether it was justified or not is very much contested. Read more
Japan’s Masaaki Shirakawa gave notice on Tuesday that he would be leaving his post as governor of the Japanese central bank on March 19, three weeks earlier than slated.
Can we blame Shirakawa? His departure now coincides with that of two deputy BoJ governors who would be replaced by Abe-nominations (we resisted the urge to go for ‘Abominations’; it wasn’t easy.).
If Shirakawa had stuck around he presumably would have found himself the head of an increasingly mutinous court. Read more
For US dollar pairs at least…
Yes, dear readers, it is awards season. The time of year when the content of the most ignored slides in pitchbooks is decided upon. Even disclaimers may be read more, if only to discover if the poor, hapless, underslept and under-exercised analyst who wrote it remembered to do a find-and-replace for the previous client to whom the book was presented.
It has come to our attention that in this latest round, a couple of banks are taking notably different approaches to the Euromoney FX survey. And of course, we couldn’t resist taking a look at the methodology of the thing. Read more