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Dollar Shoots Higher
The combination of the outright deflation in the eurozone and the seemingly immunity of the US economy to the poor global developments has encouraged investors to extend the dollar's gains. The euro has been pushed below $1.18. Sterling neared $1.50. And the dollar, which was at three week lows against the yen on Tuesday, near JPY118, is knocking on JPY120 again. Meanwhile, yesterday’s recovery in the US equity market has helped lift global markets today. The MSCI Asia Pacific Index rose 1.2%, with only the Chinese markets not following suit. In Europe, the Dow Jones Stoxx 600 is up nearly as much. US shares are trading broadly higher, pointing to around 0.4% opening gains in the S&P 500. Benchmark bond yields are slightly higher, though Greek and Portuguese bonds yields have slipped lower. Oil prices are steady.
The dollar bullish divergence theme was underscored by the -0.2% preliminary eurozone CPI reported yesterday and the stepper than expected 2.4% drop in German factory orders reported today. The consensus had expected a 0.8% decline after the 2.5% rise in October (revised to 2.9% today). At the same time, the US ADP data pointed to another good monthly national report due tomorrow. The smaller than expected US November trade deficit also showed little sign that the dollar's strength is biting.
For their part, the FOMC minutes confirmed our interpretation of the policy signals from the Fed's leadership. If the labor market continues to heal, as most signs suggests, which includes some preliminary upward pressure on labor costs and wages, then the Federal Reserve is likely to raise rates in the middle of the year, even if there is little if any progress on inflation from here. Recall that the 2004 tightening cycle began with the core PCE deflator (which was not a target then) was near current levels.
At the same time, the market takes for granted that the ECB will announce a wider asset purchase plan. It is now debating the "modalities". We have argued that the divergence with the euro area had been a key hurdle to such a program, but now that the German economy has lost its momentum, and is also on the verge of outright deflation, the opposition to a larger asset purchase program has softened.
That said, we expect a modest program of 500-600 bln euros, and for the national central banks to bear the risk buy keeping the purchased bonds on their balance sheets, unlike the SMP bond buying program under Trichet. We suspect that the national central banks will not buy instruments with negative yields. This will force the core countries to buy longer maturities than the periphery, which also has implications for the relative risks and yield curves.
In the US experience, the dollar would often sell-off and Treasuries would rally on anticipation of QE, and then reverse when the announcement was made. This could play out in Europe too.
Turning to Australia, the much better than expected building approvals report helped the Australian dollar resistant the US dollar's strength today, but it does not change the trend. Building approvals in November jumped 7.5% compared with a consensus forecast of a 3% decline. It follows on the heels of better trade figures earlier in the week. The Aussie recovered nearly a cent off yesterday's low below $0.8035 but ran out of steam again as the 20-day average was approached near $0.8140.
The politics that investors seem most interested in is the Greek election on January 25, three days after the ECB meeting. However, there is another election that is receiving practically no attention, but could be very revealing. The prefecture of Saga in Japan holds an election Sunday that could give insight into how much Prime Minister Abe is going to be able to enact his reforms. We have argued that the main hurdle to real structural reforms is the LDP itself. It is a coalition, like most major parties. There are forces of order and forces of reform within the LDP. Abe himself has a foot in both camps. His appointments and policies reflect this.
The election in Saga pits an agent of reform, Hiwatashi, the ex-major of Takeo (a city in Saga) against Yamaguchi, an ex-bureaucrat. These are the two main candidates. Hiwatashi is supported by the LDP in Tokyo (Abe). However, some parts of the LDP are supporting Yamaguchi. This seems especially true of the Japan Agricultural Cooperatives (JA). Hiwatashi enjoys a small lead according to the polls, though Yamaguchi appears to have narrowed the gap. There appears to be greater misgivings of Abenomics in Japan than the super-majority that the LDP-led coalition secured again would suggest. If Yamaguchi draws the protest vote and wins, it could stymie Abe's third arrow, and invigorate the resistance to significant concessions in the Trans-Pacific Partnership trade talks. That said, the election in just one confrontation between the agents of change and the agents of order in a larger struggle over Abenomics and the soul, if not the future of Japan. It may not the decisive battle, but it offers insight into the early days the Abenomics 2.0.
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A large, well-respected institutional firm cannot $afford to stray off the reservation. Creating fear/panic amongst the clientele by even hinting that something doesn't smell quite right (even though you know yourself that all ain't what it seems), isn't good for business and besides, when the shit starts flying (again, 10X), you'll be in the same 'clueless' boat as every other major firm - 'who could have seen it coming' after all...? So losses incurred or the ire of clientele both, won't be much different than than the next fund manager down the street, so what the hell right...? You'll still get your $$$bonus.
Rock on M2M - oh, and let's work on that tag line for next week Ok...? I want to see that good 'ole smarmy confidence reflected in a choice swipe at the ne'er-do-well rabble that resides down here in the dregs. This week was really lame...
Consuelo--I am sorry if my tag lines hurt your tender feelings, or if I make one think about silly blame-America first that often passes for analysis.
If you can't take the heat, get out of the kitchen, down here. You are used to bullying people in the comment section, and are at a loss by some one who fights back.
Like I have said before, if you thinnk my commentary is poor and I am just an apologist for the Man, don't read it. But you do, like a little boy who has a crush and insults the one he likes. Sorry boy, homey don't play that.
Sorry Marc - I just had to come back for this one... 'Bullying people'...?
BBBBBBBWWHWHWHWHHWHWHWHHAHHAHHAHAAAAA!!!!!!!!!!!
Should Tyler call the resident school marm to come down and make me play fair...?
There's no 'heat' here Dude... You are far from creating discomfort for me, so go chase down another commenter while trying to defend the indefensible. Seems that task is keeping you quite occupied.
The new physical delivery markets for Gold around the globe provide a nice counterbalance against the top Fed and Wall Street crooks.It won't be gold synthetic paper that wins.Central Banks are paronoid about helping out the crooks by dumping more Gold on the market because it just gets gobbled up by Russia,China,India and others.It's actually the biggest wealth transfer in history.
Hey Marc, how is it that both gold and the dollar are going higher these days? I'm asking because I seriously just don't know. I've been expecting gold to drop, really.
Obama, I don't know why gold and the US dollar can go up on the same day. I just know that on a trend basis, gold has been falling and the dollar has been rising. Some times, the price of bread and butter go in the same direction and some times opposite directions. I just don't think it is very meaningful or necessarily says anything about anything.
so basically, you should buy the Euro now, not when it's at 1,35 ...
I don't know about buying the Euro; but you can short the Pound; on any significant ralliy; if it ever has one. England is dead in the water and the exchange rate of the GBP is just humans having trouble with past concepts; like didn't they used to be Great ?> Yeah, not so much anymore<
Silver trading a solid dollar higher than it's low for the year, 2014-15; of $15.50; accordingly to me. So when it plunges below there again you can scream at me; in the mean time, I have $5,000 paper profits on my Dec. '15 contract; and waiting patiently.
."the US economy is more vibrant now than the Europe or Japan"
Meh, it's just dying muscles twitching.
Uncle Remus, hoping and dream don't make it so.
10 things the media won’t be talking about after the Paris terror attack
by reading this article it's party time again in the USSA and time to max out my credit cards which are currently paid off and hey the balances will pay themselves as I am unemployed health ins salesman which after 29 years I can't give a policy away. I can't find a job and live in Oklahoma City hmmm things on the ground are just great. glad I prepared for these great times
sarc$$$
Bossman, you just don't get it. Americans are consuming but not using revolving credit. It is not being done with credit cards. In the world I live in, the US is healing, but it is not healthy. I live in a world in which the fx market is about relative strength and relative weakness. The US is relatively stronger than Europe and Asia. This must be one of the few places on earth that dispute this. I am all for dissent and questioning authority. But just because the Man says the world is round, doesn't mean that it is really flat.
"Junk Silver" US coins are going to look good in five years; real good. just a suggestion.
New York
Marc Chandler joined Brown Brothers Harriman in October 2005 as the Global Head of Currency Strategy. Previously he was the Chief Currency Strategist for HSBC Bank USA and Mellon Bank. A prolific writer and speaker, Chandler's essays have been published in the Financial Times, Barron's, Euromoney, Corporate Finance, and Foreign Affairs. Marc holds a Masters in American history from Northern Illinois University and a Masters in International Political Economy from the University of Pittsburgh. He has taught classes on International Political Economy at New York University since the early 1990s. In 2009, his first book, Making Sense of the Dollar, was published by Bloomberg Press.
Uchtdorf--WTF? I do not hide behind fake names. Who I am, and what I do for a living is public record. How do you put food on your table? How do you support your family? What is your real name and phone number ?
Who I am is nunya.
But hey, you deceptive piece of work, are you truly ignorant of the role your company has played in promoting Marxism?
That is rich....me deceptive and that is from some one who hides. Who I work for is public record. I am sure not responsible for what the bank did back whenever you say the last of the partnership banks on wall street promoted marxism. I don't know what is funnier you call me deceptive or saying the bank promotes marxism, whatever that really means here in the 21st century.
HSBC and Mellon? Some nerve posting this utter dogshit here. I noticed Tyler quickly removed this article from the banner.
ZH lowers the bar for financial truth, honesty and integrity by publishing this worthless Wall St bankster propaganda.
Guys like you are so convinced you know absolutely everything (because you read it on the internet and because you have LINKS), when in point of fact you know absolutely nothing, and have direct access to nothing other than fifth hand drivel pulled from some Internet Guru’s a-hole. You are so woefully naïve, you don’t even know this site (started by a former HF analyst who had a problem with public---or not---information) tosses raw meat to you, and then laughs at how you scoff it up, no matter how outlandish. The joke is on you. You are the chump at the poker table, and after all this time still you don’t know the site is taking the piss out of you.
I’m going to go out on a limb here and guess your portfolio hasn’t exactly performed well for the last few years, while bonds and equities have soared. Even the "sheeple" you diss have leapfrogged you in terms of wealth. Is that truck you've been "backing up" out of gas yet, or do you believe silver did a 3 for 1 split? All of you prolific commenters here are the perfect fade. Classic 100% wrong, without fail. You’ll take your opinions to the grave, never admitting you have been dead wrong, and that grave will be in the Pauper’s Plot. The good news is you'll be buried with your Turkey Tetrazinni and shirtless Putiporn.
If you want to catch up with the adults, read M2M, Bruce Krasting, and testosteronespirit. Everybody else is fluff and filler.
Bay of Pigs, Tylers are still letting me post my analysis here. What is wrong with it ? You don't agree with it ? Tylers can take their permission away any time they want. They know it. You know it. I know it. Until that happens, if you don't like it don't read it. But if oyu are going to act like the Man and censor it, remind me again why you don't like the Man.
Marcy-boy, I recommend you read everything written by Brandon Smith (alt-market.com) as soon as possible. Here's a sampling from his most recent article and, hint, hint, he's talking to you:
Though my analysis tends to lean toward the economic side of things, I am not only speaking of shattered illusions in the financial realm. In my next article, one last time I plan to go over nearly every mainstream economic statistic used today to misdirect the public (from national debt to unemployment to inflation to retail sales and corporate profits) and expose why they are false while giving you the real numbers. Most of my regular readers are familiar with much of this information, but I think it important to consolidate it all in a single article so that we can take stock of where our society sits fiscally as we enter 2015. For now, though, I want to discuss the core problem of self-deception, the problem that makes all the rest of our problems possible.
Dear Sir,
The $US is in its death throes, in the process of being dumped globally. Haven't you kept up with all the $US bypassing swaps that are snowballing? The US economy is also in its death throes. Haven't you kept up with all the retail closings? Haven't you taken a drive thru any US city lately? Lastly, the truth is also at its lowest in the US govt. Haven't you been able to discern all the lies the US govt has spewed forth to keep the sheep at bay?
Mr/Mrs Unpluggeded. I do not think the dollar is in the death throes. It is not in the process of being dumped globally. The fact that it is rising is proof that more are buying it than selling it. "Truth is also at its lowest in the US govt? Really? More than other goverments? How do you string together a bunch of claims that are so meaningless. And why do you hold people in such contempt to think they are sheep ? Like some Marxists I know you seem to think it is something like false consciousness. Maybe you are the sheep.
The Dollar is going to be GREAT; until it isn't.
See below Marcy-boy's profile... In other words, he, and the company/university where he works, are part of the problem. So stop telling him that very soon he won't be getting those 6-figure bonuses to which he's grown oh so accustomed.
Personal informationI am the global head of currency strategy at Brown Brothers Harriman. I also am a professor at NY University.
So if I dropped out of grade school and lived in my mother's basement and handed out passes for the local strip joint, then you would believe my analysis ? Get real.
stellar establishment credentials indeed!
Hey Mr. Marc currency guru, riddle me this dear Professor: what's the average life span of a fiat currency, the sample space being all fiat currencies throughout world history ? Part 2: in your expert opinion, how much longer does the $US have to live?
Who is winning the propaganda war?
As long as a semi-peace is kept, the kleptocrats and their minions win the propaganda war - and anything is possible, at least for them.
Who is the ECB forcing(?) the NCBs to buy gouverment debt ?
Who is the ECB that they can force the risk on the taxpayer ?
What if a gouverment or NCB says "no thank you" ?
What has this to do with a united Europe ?
as in the other comment, how can the ECB "force" any eurozone NCB do do anything?
Eugend66--what don't you understand? ADP data, which is generated from the private sector, not subject to the typical claims here of govt manipulation show this. You are in denial. Get over yourself.
When you're a trader, all that matters is which way the wind is blowing... The true imbalance is between essentially fraudulent financial assets and real assets. All financial assets (USD and competing currencies are overvalued).
How does a labor market continue to heal with a shrinking labor participation rate? Upward pressure on the labor costs and wages being used as evidence of a healing labor market ignores the reality of cost push inflation...some bad sophistry here.
Europe is growing rapidly weary of supporting the American sanctions on Russia. Look for the Eurozone to act in its own self-interest by rejecting the central bank sanctions on Russia. It wouldn't surprise me to see Germany to tell Obama "see ya', wouldn't want to be ya'!"
So-called Apolitical blues--As numerous studies have shown, the decline a good part of the decline in the participation rate is from Baby Boomers retiring. Demographics play a role, no? Cost push inflation, really ? You accuse me of bad sophistry. It is true analysis is bad sophistry. What you demonstrate is good sophistry. Kudos. Well done.
I'm a baby-boomer retiring this year. It happens.
Demographics do play a role, unfortunately it's a global economy, what percentage of the earth's population are the boomers again?
Moreover, downturns come and go, the big difference with the most recent downturn in the business cycle is that the bad debt was not cleared (it was transfer to the public you stupid fuck) and bad actors did not go bankrupt and to prison.
I will be more than happy to take your head motherfucker.
A vibrant economy does not have zero interest rates, create part time jobs and have tapped out consumers.
Tapped out consumers? Not what retail sales and auto sales say. Moreover, US revovling debt, that is credit cards, are not being used much. Psst... it is not 200Q1 2009 any more.
Employment participation rate? Total debt outstanding? Average wage? Total cost of living, education, healthcare?
Unfunded liabilities!?!?!?
Mark is a fucking idiot/shill.
move along.
I didn't know MDB was masquerading as Marc to Market now...
You're delusional. The "great" economy is built on a pile of debt. If things are so great, why are most of those auto "sales" a combination of leases, sub-prime loans and 7-9 year loans? Winning.
With lower labor participation rates, more SS disability payments and more part-time jobs, how is the economy great? It's not. It's just fewer cracks have appeared here vs. the rest of the world.
Thank you Tylers for fixing the comments section for mobile. No more squished comments into hundreds of lines!
From the article:
"If the labor market continues to heal, as most signs suggests, which includes some preliminary upward pressure on labor costs and wages, then the Federal Reserve is likely to raise rates in the middle of the year ......"
WTF?
Jawboning, nothing more. Rates will go negative before the ten-year sees 3.5 % again.
Agree. Fed will increase the Fed funds rate and the ten year will STILL be negative. The Fed will have to sell bonds to get positive rates in the long end. The good news for them is they have huge paper profits in those bonds.
Watch Switzerland, they said that if the peg @ 1.20 were to breached that there would be some Major problems.
Houston we have cracks forming.
USisCorrupt--I don't want to confuse you with the fact,but the SNB has NOT pegged the Swiss franc. They have capped it. This is significnatly different than a peg. If cows could fly, Houston, we'd also have a problem.
With cracks forming everywhere how does the average person lock in gains in the dollar? Solution: buy physical gold.