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Monetary Policy in Focus, but Fiscal Policy may Prove More Formidable Monetary Policy in Focus, but Fiscal Policy may Prove More Formidable Reviewed by magonomics on October 30, 2009 Rating: 5
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USD Stabilizing Against the Mexican Peso

October 30, 2009
Earlier this week the US dollar rallied strongly against the Mexican peso, nearing MXN13.37 and was even near MXN13.36 yesterday before staging an outside down day (traded on both sides on Wed range and then the dollar finished below the Wed low). However, the pressure on the greenback appears to be abating just below the MXN13.00 level. That said…
USD Stabilizing Against the Mexican Peso USD Stabilizing Against the Mexican Peso Reviewed by magonomics on October 30, 2009 Rating: 5
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Canada August GDP Disappoints

October 30, 2009
Canada reported that August GDP contracted by 0.1%, whereas the consensus expected a 0.1% increase. Small change for sure, but the sign is wrong. And it likely prevents the Canadian dollar from recovering from the recent slide that has brought it to a 4 week low against the otherwise sagging US dollar. Although the US reported a 3.5% expansion in …
Canada August GDP Disappoints Canada August GDP Disappoints Reviewed by magonomics on October 30, 2009 Rating: 5
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Fox News: Will Dollar Remain World's Reserve Currency Fox News: Will Dollar Remain World's Reserve Currency Reviewed by magonomics on October 29, 2009 Rating: 5
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More Thoughts on Brazil

October 29, 2009
Brazil's 2% IOF tax comes as a wave of profit-taking weighs emerging markets in general. The MSCI EM index is off nearly 8% since Oct 20, while the Brazilian Bovespa entered "correction" territory yesterday with a cumulative decline of a little more than 11% in the same period. In the last 5 days, net-net the Brazil real has slipped …
More Thoughts on Brazil More Thoughts on Brazil Reviewed by magonomics on October 29, 2009 Rating: 5
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IMF Regional Report

October 29, 2009
The IMF's regional report noted that the recoveries in India, China and Australia are proceeding at such a pace that the output gaps are beginning to close. As we have often highlighted, central and Eastern Europe are significant laggards. This is underscored today by Russia's central bank 50 bp cut in its key refi rate to 9.5%. It is the …
IMF Regional Report IMF Regional Report Reviewed by magonomics on October 29, 2009 Rating: 5
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New Fed Paper on Crisis and the Dollar--Interesting New Fed Paper on Crisis and the Dollar--Interesting Reviewed by magonomics on October 28, 2009 Rating: 5
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More Thoughts on Deciding What to do with the Brazil Real

October 28, 2009
Investors continue to grapple with the best way to work around Brazil's new 2% front-end tax on foreign inflows. Understanding that in order to minimize impact, many investors would contemplate holding BRL balances received as proceeds of a sale, a dividend or coupon payment to use to make purchases of other Brazilian assets at some future tim…
More Thoughts on Deciding What to do with the Brazil Real More Thoughts on Deciding What to do with the Brazil Real Reviewed by magonomics on October 28, 2009 Rating: 5
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Reduction in Risk Continues to Support US Dollar

October 28, 2009
The Japanese yen is benefiting the most from the current bout of reducing risk trades. Month-end demand by Japanese corporates may also be helping the yen recovery from roughly week lows against the dollar and two month lows against the euro. Dollar support is seen near JPY90.60 today and then JPY90.20/30. Japan's Sept retail sales were strong…
Reduction in Risk Continues to Support US Dollar Reduction in Risk Continues to Support US Dollar Reviewed by magonomics on October 28, 2009 Rating: 5
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Chance US First Time Homeowner Tax Break is Extended

October 27, 2009
We have generally emphasized monetary factors, such as the low relative and absolute US interest rates and a global financial system awash with dollars in understanding the dollar's weakness. At the same time we recognize the concern over the trajectory of fiscal policy.
Two recent signals from Washington may be undermining confidence in the co…
Chance US First Time Homeowner Tax Break is Extended Chance US First Time Homeowner Tax Break is Extended Reviewed by magonomics on October 27, 2009 Rating: 5
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UK CBI Distributive Trades Keeps Sterling Bid

October 27, 2009
Sterling continues to recover from the trouncing its received at the end of last week on disappointment with a negative Q3 GDP reading. Talk today is of consistent Middle East demand against both the dollar and euro. The $1.6450 area has been approached, but good offers thought to lie in the $1.6470-$1.6500 band may encourage some intra-day positi…
UK CBI Distributive Trades Keeps Sterling Bid UK CBI Distributive Trades Keeps Sterling Bid Reviewed by magonomics on October 27, 2009 Rating: 5
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Firmer US Dollar Tone in Play

October 27, 2009
Although yesterday's dollar gains have not been extended, the underlying tone remains relatively firm. There are two fundamental currents that are aiding what appears to be largely a technically inspired move. First, there has been a modest firming of short-term US interest rates in recent days. And some observers are linking this to speculati…
Firmer US Dollar Tone in Play Firmer US Dollar Tone in Play Reviewed by magonomics on October 27, 2009 Rating: 5
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Euro Reverses

October 26, 2009
The euro had made new highs for the year earlier today in response to calls to diversify Chinese reserves and after trading broadly sideways in Europe has broken down in North America. With the hitting of stops, the euro has been pushed through Friday's lows, near $1.4986. A close below there would be what technicians call a key reversal. The …
Euro Reverses Euro Reverses Reviewed by magonomics on October 26, 2009 Rating: 5
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US Survey Results: Sentiment Improves, but...

October 26, 2009
The Dallas Fed factory index rose to -3.3 in October from -6.4 in Sept. The index bottomed in Feb at -565 and has risen steadily since. The best news came from the six-month ahead activity index which rose to 16.7 from 13.9. Most of the other components though suggest moderating activity. Output, new orders, shipments, employment and unfilled orde…
US Survey Results: Sentiment Improves, but... US Survey Results: Sentiment Improves, but... Reviewed by magonomics on October 26, 2009 Rating: 5
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China Inflation Fears Rising

October 26, 2009
In recent week's there has been a steady increase in "wagers" that the Chinese yuan will resume its appreciation in the coming months. There appear to be two main drivers. First, decline in exports is moderating. The 15% year-over-year decline in September is the smallest of the year. Second, last week the State Council (cabinet) sig…
China Inflation Fears Rising China Inflation Fears Rising Reviewed by magonomics on October 26, 2009 Rating: 5
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US Treasury Supply Continues

October 26, 2009
The US Treasury will auction a record $123 bln of notes and bonds this week, adding to the $1.1 trillion net sales already this year. It is interesting to review who is buying all this paper.
US Treasury Supply Continues US Treasury Supply Continues Reviewed by magonomics on October 26, 2009 Rating: 5
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Asia--the Contested Terrain

October 23, 2009
The East Asian Summit will be held this weekend in Thailand. Japan's (new) Prime Minister Hatoyama seems to be leading the call for an expanded trade bloc. Partly this is seen as a way to take some initiative and balance off not only the US, but China as well. China, as one would expect, has greeted Japan's proposals cautiously. China, Ind…
Asia--the Contested Terrain Asia--the Contested Terrain Reviewed by magonomics on October 23, 2009 Rating: 5
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A Review of the Trade Weighted Dollar

October 23, 2009
Companies and investors often have exposure to individual currencies, such as the euro, Japanese yen, British pound and the Brazilian real. The bilateral movement of a foreign currency against one’s base currency can be substantial and have significant financial impact. However, from a broader economic perspective, and especially to understand the…
A Review of the Trade Weighted Dollar A Review of the Trade Weighted Dollar Reviewed by magonomics on October 23, 2009 Rating: 5
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Worth Reading: Is Happiness Still That New Car Smell? Worth Reading: Is Happiness Still That New Car Smell? Reviewed by Marc Chandler on October 22, 2009 Rating: 5
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Brazilian Bonds and Stocks

October 20, 2009
Late yesterday Brazil announced it would impose a 2% tax on foreign purchases of Brazilian bond and stock transactions. This is particularly aggressive in that the new tax replaces a 1.5% tax that was scrapped last year during the crisis and only was applicable to fixed income purchases. The new tax goes into effect today. The tax may weigh on the…
Brazilian Bonds and Stocks Brazilian Bonds and Stocks Reviewed by Marc Chandler on October 20, 2009 Rating: 5
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Currency Adjustments

October 20, 2009
Currency adjustments help ease global imbalances, but perhaps not so much through prices, but underlying economic activity. Press reports suggest that Honda may be considering moving production for its popular FIT hatchback form Tokyo to the U.S. to offset the strength of the yen. Currently, Honda produces 8 of 10 cars it sells in the U.S, accordi…
Currency Adjustments Currency Adjustments Reviewed by Marc Chandler on October 20, 2009 Rating: 5
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What is Driving Norway

October 19, 2009
Norway is widely expected to be the next major country to hike rates. The Norges Bank meetings on Oct 27 and the following day is likely to lift the deposit rate 25 bp to 1.5%. As one of the early hikers, the krone has benefitted. In addition, relatively poorer news from Sweden has seen the krone appreciate almost 9% since Sept 23 against the kron…
What is Driving Norway What is Driving Norway Reviewed by Marc Chandler on October 19, 2009 Rating: 5
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Treasuries and the Dollar

October 19, 2009
At the end of Sept, the IMF COFER data showed euro and yen reserve holdings rose faster than dollar holdings, even though dollar holdings rose as well. We are reluctant to read a new trend into one quarter's report. In addition, the TIC data shows foreign investors continue to increase their Treasury holdings.
Treasuries and the Dollar Treasuries and the Dollar Reviewed by Marc Chandler on October 19, 2009 Rating: 5
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Dollar Concern Remains Low

October 16, 2009
Comments from the German Economics Minister Guttenberg has played down the significance of dollar weakness on German exports and identified a benefit of a weak dollar in that it keeps oil prices down for Europe. Given sentiment, this is a close to a green light to sell dollars as one could hope for ahead of the weekend and the euro immediately pok…
Dollar Concern Remains Low Dollar Concern Remains Low Reviewed by Marc Chandler on October 16, 2009 Rating: 5
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TIC Data Color

October 16, 2009
The TIC data for Aug was in line with expectations. Long-term flows rose to $28.6 bln from $15.3 bln in July. Although there is much talk about demand for short-term US securities, net purchases of long-term assets has risen from about $8 bln in Q4 08 to $49 bln in Q1 09 and $82 bln in Q2. The July and Aug pace is about $45 bln, threatening to bre…
TIC Data Color TIC Data Color Reviewed by Marc Chandler on October 16, 2009 Rating: 5
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The Bump and Grind of Demographics

October 16, 2009
Forces of change seem to come in one of two varieties: bumps and grinds. Bumps are generally an event contained in a short term that produces profound effects. Think about 9/11 or an earthquake. Grinds are slow, almost imperceptible events, which produce significant change over longer time periods. Think climate change or the peak oil story.
The Bump and Grind of Demographics The Bump and Grind of Demographics Reviewed by Marc Chandler on October 16, 2009 Rating: 5
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Difference of Opinion BOJ and MOF

October 14, 2009
The Bank of Japan upgraded its assessment of the economy today, but Finance Minister Fujii opined that he thought that economic conditions were more severe than the BOJ appreciated. There was another are of disagreement. The BOJ suggested that the corporate bond and CP market were less dependent on the central bank. Fujii seemed much more sympathe…
Difference of Opinion BOJ and MOF Difference of Opinion BOJ and MOF Reviewed by Marc Chandler on October 14, 2009 Rating: 5
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Import Prices Show Little Problem with Weak Dollar

October 14, 2009
The channel through which a weak currency fuels inflation is through imported prices. The US reported that import prices rose 0.1% in September, but are 12% lower on a year-over-year basis. This was slightly lower than consensus expectations. Excluding energy, core import prices rose 0.6% and are off 4.1% from last Sept.
Import Prices Show Little Problem with Weak Dollar Import Prices Show Little Problem with Weak Dollar Reviewed by Marc Chandler on October 14, 2009 Rating: 5
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Trajectory of Policy Mix Bullish for NOK

October 14, 2009
The trajectory of the policy mix in Norway will continue to underpin the krone and may lead to some under-performance of the local bond market and underpin the equity market, which is one of the best performers in developed Europe. Although the Norwegian economy is expanding sufficiently to prompt the central bank to have considered hiking rates l…
Trajectory of Policy Mix Bullish for NOK Trajectory of Policy Mix Bullish for NOK Reviewed by Marc Chandler on October 14, 2009 Rating: 5
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Not Much Canada Can Do About Soaring Loonie

October 13, 2009
The Canadian dollar hit a low near 77 cents in early March and with today's advance, briefly moved above 97 cents. Since the March low the Canadian dollar has appreciated by more than 25%, which is nearly 3 times the yen's advance and 50% more than the euro's advance in the same period.
Not Much Canada Can Do About Soaring Loonie Not Much Canada Can Do About Soaring Loonie Reviewed by Marc Chandler on October 13, 2009 Rating: 5
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American Investors Playing Role in Dollar Slide

October 13, 2009
With the US deficit large and rising, the appetite of foreign investors for US securities is keenly monitored. Often the TIC data is viewed in its aggregate form, which is really on a net basis, net that is of what American investors are going. By looking at what Americans themselves are doing illustrates another source of pressure on the greenbac…
American Investors Playing Role in Dollar Slide American Investors Playing Role in Dollar Slide Reviewed by Marc Chandler on October 13, 2009 Rating: 5
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Unemployment and Rate Hikes

October 13, 2009
Since 1954, the Federal Reserve has only begun raising rates after unemployment peaks. Recent comments by Fed officials reinforces this expectations. Most recently, St. Louis Fed's Bullard that he would like to see job growth and unemployment easing before hiking rates. The perennial hawk Lacker from the Richmond Fed was one of the few that su…
Unemployment and Rate Hikes Unemployment and Rate Hikes Reviewed by Marc Chandler on October 13, 2009 Rating: 5
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Déjà vu All over Again

October 09, 2009
The Economist Magazine ran a story and leader noting that the U.S. dollar’s dominance is waning. There are numerous press articles about oil being denominated in something other than dollars and, more broadly, there is much discussion about the diversification of central bank reserves. That was in the first quarter of 1995.
Déjà vu All over Again Déjà vu All over Again Reviewed by Marc Chandler on October 09, 2009 Rating: 5
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Fed Funds Futures Adjust

October 09, 2009
The seemingly more hawkish stance taken by several Fed officials including Bernanke has helped spur the bout of dollar short covering. There is a sharp adjustment in interest rate expectations which is evident in the Fed funds futures strip. The market sees a little chance of a hike in Q1 but a higher target is fully discounted by the middle of …
Fed Funds Futures Adjust Fed Funds Futures Adjust Reviewed by Marc Chandler on October 09, 2009 Rating: 5
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Sweden Disappoints

October 08, 2009
Sweden's industrial order and production data disappointed the market. August industrial production was expected to have risen almost 1%, but increased Sweden reported a 2.9% decline, which is the largest drop in the cycle. And, adding insult to injury, the July decline was revised to -0.6% from -0.5%. The year-over-year rate edged lower to -2…
Sweden Disappoints Sweden Disappoints Reviewed by Marc Chandler on October 08, 2009 Rating: 5
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Consolidative FX Session

October 07, 2009
The dollar has enjoyed a firmer bias today, but is largely in a consoldiative mode. Two main considerations lie behind the price action today. First, as we noted no one we talked with or seen quoted actually believes the press claim of a secret meeting to denominate the oil in a basket of currencies and gold. Although the report allowed participan…
Consolidative FX Session Consolidative FX Session Reviewed by Marc Chandler on October 07, 2009 Rating: 5
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Polish Cabinet Reshuffle, Opportunity to Add to Long Zloty

October 07, 2009
News that the Polish Prime Minister Tusk is using the alleged corruption scandal to re-jig his cabinet to attempt to rebuild support for his ruling Civic Platform Party has weighed on the zloty as a wave of profit-taking on its strong three day advance is seen. Public support for the Civic Party has declined according to polls since the the scan…
Polish Cabinet Reshuffle, Opportunity to Add to Long Zloty Polish Cabinet Reshuffle, Opportunity to Add to Long Zloty Reviewed by Marc Chandler on October 07, 2009 Rating: 5
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Struggling with a Strong Yen

October 07, 2009
Japan's new government continues to wrestle with the strength of the yen. Although previously as a finance minister Fujii seemed more sympathetic to intervention, he now wants to break from the past. While he has back tracked from his previous apparent endorsement of a strong yen, he is still setting the bar for intervention high. News wire…
Struggling with a Strong Yen Struggling with a Strong Yen Reviewed by Marc Chandler on October 07, 2009 Rating: 5
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East Europe Update: Zloty Extends Gain, Rouble Rallies

October 06, 2009
The rally in oil prices has given the Russian rouble a spur and reports suggest that the central bank intervened, estimates suggest $500- $700 mln worth of roubles were sold. The rouble traded at its best level for the year against the dollar. While much of the intervention is thought to have been conducted against the dollar, there is talk that…
East Europe Update: Zloty Extends Gain, Rouble Rallies East Europe Update: Zloty Extends Gain, Rouble Rallies Reviewed by magonomics on October 06, 2009 Rating: 5
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US Corporate Cash and the Dollar

October 05, 2009
It is widely appreciated that US corporate bond sales have been very strong this year. It begs the question what are they doing with all that cash they have been raising. There are two general answers.
US Corporate Cash and the Dollar US Corporate Cash and the Dollar Reviewed by magonomics on October 05, 2009 Rating: 5
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Will the Euro See $1.60 and the Dollar JPY80 ?

October 05, 2009
Sentiment toward the dollar is clearly negative. Some observers cite structural factors; other cyclical. But how negative is market sentiment?
The first place to look may be surveys. News wire surveys put the consensus for the euro in Q4 09 and Q1 10 around $1.45. This is close to the forward rate of about $1.46 for both periods. Howev…
Will the Euro See $1.60 and the Dollar JPY80 ? Will the Euro See $1.60 and the Dollar JPY80 ? Reviewed by magonomics on October 05, 2009 Rating: 5
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Treasury Supply Weighs on Dollar Sentiment

October 05, 2009
The US Treasury sells $78 bln in notes and bonds this week and $60 bln in bills. The continued deluge of supply weighs on dollar sentiment, especially given indications from the G7 that the pain threshold to stop the dollar's decline has not been reached. The auctions begin with $7 bln 10-year inflation protected security and the bills toda…
Treasury Supply Weighs on Dollar Sentiment Treasury Supply Weighs on Dollar Sentiment Reviewed by magonomics on October 05, 2009 Rating: 5
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Make Me: The State of U.S. Manufacturing

October 02, 2009
The United States has been hollowed out. It no longer manufactures goods. Once the factory of the world, the U.S. now manufactures debt. The high wage manufacturing jobs have been out-sourced to low wage economies. The demise of U.S. manufacturing is at the core of the decline of America, its chronic trade deficits and growing international in…
Make Me: The State of U.S. Manufacturing Make Me: The State of U.S. Manufacturing Reviewed by Marc Chandler on October 02, 2009 Rating: 5
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Euro Run Back to $1.4850

October 02, 2009
The euro broke below $1.45 support briefly in the knee jerk response to the disappointing US jobs data. However, more critical support near $1.4470 held and the euro has made new highs for the session. While the close will be important, the price action suggests the nearly 2 week and 3.5 cent correction may be over. Good buying was reported from s…
Euro Run Back to $1.4850 Euro Run Back to $1.4850 Reviewed by Marc Chandler on October 02, 2009 Rating: 5
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Zloty To Reverse

October 02, 2009
News that the zloty dividend had to a large extent been hedged by Dutch-based Eureko has helped the Polish currency recover from the 10-week lows against the euro reached earlier today near 4.30. The resolution of the PZU-Eureko dispute is seen as removing a negative. In addition, an economic advisor to Poland's president and a candidate for…
Zloty To Reverse Zloty To Reverse Reviewed by Marc Chandler on October 02, 2009 Rating: 5
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