Marc Chandler

Marc Chandler

About the author:

Head of Global Currency Strategy at Brown Brothers Harriman.

Stories by the author

Retail Sales, Japanese Nuclear Power and Spanish Politics for Your Weekend

There is a general consolidative tone in the capital markets as the week draws to a close.  The US retail sales report may offer a brief distraction, but it is unlikely to significantly shift expectations about the trajectory of Fed policy.  Indeed, it might not really change investors' information set.  The US consumer was busy in Q2 and is likely to have stayed active in Q3.  Consumption is not the main challenge of the US economy (see inventories and investment).

Relatively Quiet Markets (for Some) Should Liven Up this Fall

US LIBOR continues to rise.  LIBOR may not be what it was before the Great Financial Crisis, or before the scandalous revelations.  However, it remains an important benchmark. 

Three-month LIBOR rose from around 25 bp before last December's Fed hike to a little more than 60 bp.  It gravitated around there until edging a few basis points higher around the UK referendum and the end of H1.  This month it has taken another leg up to 70 bp. 

New Zealand's Central Bank Cuts, but the Currency Shrugs

The US dollar has found steadier footing today after trading heavily yesterday.  There are two main themes.  The first is sterling’s heavy tone.  After closing the North American session 0.5% higher yesterday to snap a five-day losing streak, it has come under new pressure today. 

Emerging Markets Boosted by Lower Rates

Scratch an investor, and you will find two models.  One is a fair value model, perhaps based on free-cash-flow or earnings expectations, or breakup value.  The other is based on liquidity.  We suspect that the latter is overwhelming the former in the emerging market equity space. 

The ECB and BOJ are easing policy aggressively.  The BOJ has indicated it will conduct a comprehensive review next month.  The only pre-condition BOJ Governor Kuroda has indicated is that the BOJ will not do less. 

Eurozone Finance Ministers to Iberia: No Fines for You

The Eurozone finance ministers have accepted the EC's recommendation that Spain and Portugal not be fined for their fiscal excesses.  A few weeks ago, the EU Commissioner for Economic Affairs, Moscovici explained that punitive actions would strengthen anti-EU sentiment.  However, that consideration did not prevent the EU from threatening to cut off part of the European Structural and Investment (ESI) funds for next year.

Nothing New to Change the Lower Rates for Longer Theme

The robust US jobs report at the end of last week had arrested the down draft seen the previous week in response to the disappointing Q2 GDP report.  The mostly sideways movement has given way to a broader pullback today.  The greenback is heavier against all the major and most emerging market currencies today.

A Heavy Pound

In an otherwise uneventful foreign exchange market, sterling's slide for its fifth consecutive session is the highlight.  It was pushed below $1.30 for the first time since July 12.  Initial resistance for the North American session is seen near $1.3020, while the $1.2960 area corresponds to a minor retracement objective. 

Sterling has been sold-off since the middle of last week.  Today's data may have simply provided a little more ammo for what the market was already doing.

A New OPEC Meeting May Give Oil New Life

This Great Graphic from Bloomberg shows the September light sweet crude oil futures contract since peaking in early June near $52.75.  It reached a low last week of about $39.20. 

The turn last week came on news that although oil inventories rose gasoline inventories fell dramatically.  The recovery seemed to have stalled at the end of last week near $42.40 but it was given a new lease on life by reports of an OPEC meeting next week.  OPEC President Al-Sada (Qatar) seemed to try to make the most of the informal meeting.  

Here is Your China Update

This is the period in the monthly cycle that China releases most of its high frequency data.  The process is well under way.  Over the weekend, China reported its reserve figures that suggested capital outflows have slowed.

Earlier today, China reported its largest trade surplus (in dollars and yuan) since January. 

With the help of a lending spree, Chinese officials have managed, apparently, to stabilize the economy.  Data due out over the coming days is likely to confirm this signal. 

Pre-weekend Equity Rally Shows Increased Risk Appetite

Investors favor risk assets today.  Global stocks are moving higher in the wake of the pre-weekend US rally that saw the S&P 500 close at record levels.  Bond yields are mostly firmer, again with US move in response to the robust employment report setting the tone in Asia.

European bonds participated in most of the pre-weekend move and are consolidating today with a slightly heavier tone.  UK Gilts are outperforming, with a new record low of 64 bp on the benchmark 10-year issue. 

Many EM Central Banks Meet though Few, if any, Will Act

EM ended last week on a firm note, despite the stronger than expected July jobs report.  As we suspected, one strong US data point is not yet enough to derail the dovish Fed outlook.  With the RBA and BOE cutting last week and the RBNZ expected to cut this week, the global liquidity backdrop remains supportive for EM and risk.