A dispassionate look at the issues and events shaping the investment climate in the week ahead.
Near-term outlook for the dollar, without resorting to inflammatory and unproven claims.
While we have again and again explained why Abenomics is ultimately doomed as you simply cannot print your way to prosperity (a message The Fed appears to be discovering rapidly), when Goldman Sachs unleashes an Abenomics-bashing piece, one has to wonder just what options Abe has left as economic data starts to collapse (and approval ratings drop just as fast). Simply put, as we concluded before, "Monetary debasement does NOT result in an economic recovery, because no nation can force another to pay for its recovery... Eventually the monetary debasement raises all costs and this initial benefit to exporters vanishes. Then the country is left with a depleted capital base and a higher price level. What a great policy!"
On July 16, 1661, the bank of Johan Wittmacher - a Latvian merchant of Dutch descent - became the first in history to issue paper banknotes - Kreditivsedlar. After only seven years, the bank collapsed. But the idea of paper notes lived on to infect the evolution of money ever since. Today’s commercial banks take in customer deposits, maintain a laughably small portion in reserve, and use the rest of our money to make idiotic loans for their maximum benefit. When they fail, they’re bailed out by taxpayers and do the same thing all over again. In Wittmacher’s time, this was fraud. Today it’s not only legal, it’s the industry standard. So... happy birthday paper money. It’s a hell of a system you’ve brought us.
One can't help but wonder just how concerned the powers that be are becoming when such an esteemed mainstream media outlet as Bloomberg News would deem fit to defend the almighty US Dollar. "There are always people who say the dollar is going to be replaced, but it hasn't happened," chides one strategist (clearly forgetting that nothing lasts forever). As growing concerns of "exorbitant privilege" spread from the usual anti-imperialist foes (Russia and China's de-dollarization) to close allies like France and now to the world's growth engine - BRICS, it seems defending what was previously unquestionable itself should be grounds for alarm...
Overview of the price action in the forward exchange market and a look ahead.
As the US spreads its message of cheer around the world, it appears an increasing number of trade 'partners' are more than willing to consider alternatives to the hegemony. As AFP reports, China's Yuan usage in global trade and finance has more than doubled this year. While still notably below USD usage in international payments it remains firmly in second place for trade finance and according to a recent survey by HSBC, the number of US companies planning to use Yuan has almost tripled this year (from 8% to 22%). De-dollarization continues...
America, Europe or Asia: those are the usual continental suspects which come to mind when asked where the world's most expensive cities for expats are located. They are also incorrect. According to the most recent study conducted by Mercer consultants not only the world's most expensive city, but also the second most expensive place for foreigners to live at this moment, are located in the one continent which we predicted two years ago, would become a Chinese colonial feeding ground. Africa.
This clown parade of clueless opinions (did we mention Goldman had BES at a buy until this morning?), stretched all the way to the very top with Bank of Portugal itself issuing the following pearl:
- BANK OF PORTUGAL SAYS BES DEPOSITORS CAN STAY CALM
Uhhh, what else would the Portugal central bank say? Panic and withdraw your deposits from a bank whose exposures to insolvent entities have been largely unknown until today (and even now).
- Espirito Santo Financial Suspends Shares, Bonds on ESI Exposure (BBG)
- Europe Stocks Drop for Fifth Day as Espirito Santo Sinks (BBG)
- Espirito Santo Creditors Doubt Containment on Missed Payment (BBG)
- French Stocks Seen Extending Losses on Economy Concern (BBG)
- Stocks Slide With Portugal Bonds as Yen Gains; Oil Drops (BBG)
- U.S. Probes Hacking of Government Computers at Personnel Agency (WSJ)... finds terabytes of porn
- It's Congress' fault: Obama rejects criticism over border crisis (Reuters)
- Israel Mobilizes 20,000 Troops for Possible Gaza Invasion (BBG)
- Chinese hackers pursue key data on U.S. workers (NYT)
- Donetsk Primed for Siege as Ukraine Army Hems In Rebels (BBG)
It is no secret that unlike other banks who, while directly intervening in the bond market only manipulate equity prices in relative secrecy (usually via HFT-transacting intermediaries such as Citadel), the Bank of Japan has historically had no problem with buying equities outright, traditionally in the form of REITs and equity-tracking ETFs. Which explains why overnight it was revealed that in order to boost the stock market, pardon, economy, the Bank of Japan is preparing to purchase exchange-traded funds based on the JPX-Nikkei Index 400 as an "option to boost the impact of unprecedented easing," according to people familiar with BOJ discussions.
While the situation between Israel and Gaza continues to escalate, pulling the markets' attention away from the recent developments in Iraq (as for the Ukraine civil war, forget it), the big news overnight came out of Chine which reported another contraction in consumer prices, which both declined to 2.3% and missed expectations of a 2.4% print (down from 2.5%). Producer Prices had another negative print, the 28th in a row, and have remained negative since 2012. This led to the Hang Seng Index falling at the fastest rate since late June to erase all YTD gains. However, as has now become the norm, macro news hardly impacted US equity futures, which are driven exclusively by the Yen carry trade, which unlike yesterday's pounding, has traded rangebound between 101.6-101.7 keeping US equity futures just barely in the green. We expect the momentum ignition algo to kick in at some point, for absolute no fundamental reason beside the NY Fed trading desk issuing a green light, sending the USDJPY surging, taking the Spoos with them, and helping stocks forget all about the weak Asian session.
A look at the investment climate through the currency market and upcoming events and data.
Dispassionate overview of the price action in the foreign exchange market in the context of the funamental developments.