Posts tagged 'Risk On Risk Off'

Are rates mispriced or are investors missing something?

The disconnect we’ve noticed between commodity fundamentals and forward rates appears to be popping up in other asset classes as well.

Priya Misra, rates strategist at Bank of America Merrill Lynch, makes a very interesting point on Friday about what she sees in her sector. Read more

From bubbles to wobbles

Western markets were all a-jitter on Thursday. Obviously we can blame the Fed. Bickering between central bankers just doesn’t look good, whether they are American, British or continental Europeans.

An immediate question is raised: are we witnessing the end of ‘fast and loose’ policy? The quick answer is probably ‘not yet,’ although yes, it will end, and maybe sooner than some had come to assume. This presents a fresh challenge for policy markets, as noted by Lloyds’ Charles Diebel: Read more

Woot! RoRo is fading.

This is from RBC’s Adam Cole who has been trying to get WOOT (World of One Trade) into the FX psyche for a while. So, l33t research indeed, but RoRo was always gonna be a tough meme to contend with.

Anyway… Cole’s point is that that there are more currency pairs uncorrelated to equities right now than at any time for five years. In fact, he says, correlations have started to break down to the extent that a majority of G10 currency pairs were uncorrelated with equity returns over the last three months. Another false dawn or an actual end to the dominant RoRo paradigm? Read more

A new era for FX

Today carry’s hold on FX has waned as global rates gravitate towards zero, forcing the FX market to react instead to the far more ambiguous implication of QE. By contrast, other asset classes, notably equity markets, provide a cleaner mechanistic link between a given view and a price.

The conclusion is that even if we knew the outcome of future events with certainty, the FX market is not the best place to reflect those views. We have fallen to the bottom of the food chain.

 Read more

Total domination!

Of risk-on, risk-off.

It’s getting back to its all-time high according to HSBC’s quant team: Read more

RoRo and the carry trade’s fight back

There have been rumours of the so-called carry trade’s demise knocking about for a little while now, but HSBC think it is staging a quiet comeback and taking a chunk out of RoRo’s (Risk on/Risk off) importance in the FX markets.

This is a chart from HSBC which tracks the importance of interest rate differentials in the FX market over the past few years (click to enlarge): Read more

Kicking a central bank when it’s down

Japan eased… the yen appreciated. The Bank of Japan may be a bit sad. Is now really the time to rub salt into wounds by reminding the BoJ of the futility of its easing actions – at least where the yen is concerned?

Nomura’s Yujiro Goto certainly thinks so (click charts to enlarge): Read more

RoRo and the BoJ

The Bank of Japan’s monetary policy decision on Friday has been powerfully talked up by analysts and officials alike, with the bank under real political pressure to satisfy market expectations and announce new easing measures that target inflation and growth.

The BoJ surprised markets on February 14 when it announced an increase in its asset-purchasing programme to Y65tn from Y55tn, and an explicit inflation target of 1 per cent. But at its last policy meeting on April 10 it decided not to implement additional monetary easing. Read more

Risk on/risk off is changing

Standard Chartered’s Priyanka Kishor has spotted an interesting new development in correlations.

As has been well documented, since the 2008 crisis, ‘risk off‘ market temperament has strongly coincided with dollar inflows. In short, ‘risk-off’ has equalled ‘dollar positive’. Read more

“The FX market has lost its anchor of reason”

Take everything you ever thought you knew about foreign exchange and bin it.

According to HSBC’s stellar FX guru David Bloom, currency markets are trading through the looking glass, and will continue to do so for some while. Read more