President Donald Trump keeps on complaining about “unfair trade” and tweeted recently that “the U.S. has an $ 800 billion yearly trade deficit because of our ‘very stupid’ trade deals and policies.” He should probably join an Econ 101 seminar as this is simply not true.
White smoke coming out of the chimney on the roof of the Sistine Chapel means “habemus papam,” the current fog in Rome suggests: We have no Government. Unlike election results in the Euro-zone last year in the Netherlands, France and Germany, we have to acknowledge there is a big swing to populism this year in Italy.
President Donald Trump’s agenda could not be more different than Franklin Delano Roosevelt’s New Deal. While FDR back in the 1930s set a series of federal programs, reforms and regulations in response to the Great Depression, Trump is focused on corporate welfare, deregulation and trade wars.
It has become somewhat quiet in recent weeks from Banks in the U.K. regarding what their plans might be to leave the country due to uncertainties about Brexit. Representative for many companies, Sylvie Matherat, Chief Regulatory Officer at Deutsche Bank, said last November “it is the very beginning of the year when we need to have a clear view on what is going to happen” (see our 22 Nov edition).
Is Prime Minister Theresa May planning to blackmail the E.U. if it refuses to give the trade deal she wants? Prime Minister Theresa May’s team has drawn up a contingency plan to withhold billions of Pounds in Brexit payments in order to force the E.U. to give the U.K. the trade deal it is demanding.
The Bank of England left rates unchanged at 0.50% as expected in a 9-0 vote. It was the triple whammy as the BoE Statement and Inflation Report accompanied the BoE rate decision. We feel Mark Carney’s commentary was very hawkish, starting with “rate may need to rise sooner and faster than seen in November”.
The rout in global equities continued yesterday, with the Euro Stoxx 50 now down 7.4 percent from the January peak, then the S&P 500 and this morning the Nikkei 225 stabilized but are still down 6.6 percent and 10.3 percent from the highs two weeks ago.
The Česká Národní Banka board voted unanimously to lift the Repo Rate at its MPC meeting to ¾ percent from ½ percent. Furthermore, the CNB raised its GDP growth forecast for this year to 3.6 percent from 3.4 percent prior. For European standards – and also the U.S. – this is stellar.
With the break-away gap in major U.S. equity indices (Dow Jones, S&P500) and the VIX rising to the highest level since last August, we received some questions from clients if there was a currency hedge against stock exposure in their portfolios.....
Anglo-Saxon media enjoys firing shots at the E.U. and painting pictures of the single market falling apart. For instance, U.K.’s “Express” titled yesterday: “Looming crisis for E.U. as Italy’s election frontrunner makes this threat about failed Euro.”....
President Donald Trump’s speech at the World Economic Forum in Davos was rather a show and lacked of substance. Everything was “great” and about “America first.” It reminded of his countless sales pitches in the past decades as a real estate developer....
Once a year, the sleepy mountain resort of Davos is in the global spotlight as it hosts the World Economic Forum. At the Forum – founded back in 1971 by Klaus Schwab, a professor at the University of Geneva – some 2’500 politicians, business leaders, economists and journalists are discussing the most pressing issues facing the world....
The penultimate round of NAFTA negotiations is due to start today in Montreal. Some preliminary talks already began last Sunday and this round is scheduled to last until 28 January, with the final days reserved for the thorniest subject: the rules of origin, related to manufactured goods such as cars.The U.S. is running out of patience with Canadian and Mexican resistance to their key proposals. In the following section, we look at the three myths about NAFTA that the Trump administration continues to propagate. First, they claim that NAFTA has widened the U.S. trade deficit...
Yesterday, at a special party convention in Bonn, the Social Democrats narrowly approved Grand Coalition talks. After five hours of impassioned debate, 362 of the 462 delegates or 56 percent approved the talks, relative to 86 percent in 2013.
Last night, the House of Commons backed Theresa May’s government Brexit legislation, one of the milestones on the long road toward cementing the legal foundations of Brexit. The Bill approved by Parliament (324 to 295 votes) repeals the 1972 law which made Britain a member of the E.U. and transfers E.U. laws into British ones.....
Following our comment on 27 December that cryptocurrencies account for 10 percent in global currencies outstanding, we received several questions as to whether this valuation is justified and whether it is possible to find a fair value for Bitcoins and the like.One reader suggested comparing it to an asset with limited supply, like Gold, would make sense. The analogy does not work exactly as, arguably, Gold has a limited supply of production per year but total reserves in the ground are unknown. Still, it is worthwhile to make a backof-the-envelope calculation as it is the closest approximation to a limited “currency” we have. According to the U.S. Geological Survey, about 170’000 tons of Gold have been mined so far in history which means the global Gold stock is worth approximately $ 7.3 trillion. Annually, roughly 3’000 tons are mined at a marginal cost of production of $ 1’100 per ounce.... JB-Currencies & More
It became dark around the SNB 3 years ago
Franc: All good things come in 3s
15th January 2018
Three years ago today at 10:30, lights went out on FX trading floors around the world – of course only metaphorically. When the SNB announced that it would no longer hold the Franc at a fixed exchange rate with the Euro, there was panic in the market. Within minutes, €/SFr fell from 1.20 to about 0.84, down 30 percent, an unprecedented move within G-10 currencies.
Today, we get two key events for the Euro which are interlinked, the start of wage negotiations in Germany and the release of the Account of the 14 December Governing Council meeting. ECB policymakers will keenly watch the wage talks of IG Metall as it is negotiating on behalf of 3.9 million metalworkers for a 6 percent pay rise.
Similar to the Kiwi in New Zealand, the Canadian currency is also nicknamed after a bird: The loon. Unlike the Kiwi, the loon can fly, and so did the Loonie in the past couple of weeks. In our 5 January edition, we pointed towards the ongoing Loonie strength (Loonie tunes as Dollar swoons). Since then, $/C$ declined further but has been stalling in the past two days.
Dollar: Will the tax reform impact the Fed’s policy?
9th January 2018
Fed policymakers seem to be of the opinion that President Donald Trump’s tax overhaul will neither supercharge the U.S. economy nor cause an immediate disruption that would require a policy response. This view emerged in recent interviews from Fed members across the policy spectrum.
As on every first Friday of the month, the Bureau of Labor Statistics will provide the latest unemployment rate and changes in Non-Farm Payrolls today. As yesterday’s harbinger for NFP, the ADP Employment Change (+250’000), NFP for December might well come above the consensus forecast of 190’000. The unemployment rate is expected to have remained at a 17-year low of 4.1 percent.
Many FX market participants will probably say “new year, new luck,” as the vast majority of forecasts did not play out last year. The bullish view on the Dollar was the call in FX markets a year ago for 2017. But right from 2 January onwards, the Dollar traded on the soft side throughout last year.
On the last day of the year, it is worthwhile to look back on the “mystery” of 2017, as Fed Chair Janet Yellen put it. This was the year that the textbook connection between inflation and unemployment broke down. According to the so-called Philips curve, there should be an inverse relationship between inflation and unemployment.
Prime Minister Shinzo Abe’s wish – or order? – for 2018 is that Japanese companies raise wages by 3 percent or more. “We must sustain and strengthen Japan’s positive economic cycle next year to achieve our long-standing goal of beating deflation,” Abe said in a speech at a meeting of Japan’s biggest business lobby Keidanren.
Officially, we do not cover Bitcoin but given the market capitalization virtual currencies have reached, we thought it is worthwhile to look at their macro impact. Although launched back in 2010, Bitcoin has entered the spotlight mainly this year with the spectacular rise from $ 900 to $ 19’000 and the recent collapse to $ 16’000 currently.
We received several questions from clients as to why the finally successful passage of the tax reform has proven a bit of a damp squib as the Dollar did not rally, but on the contrary, declined slightly in the past two days. The muted reaction could be described by the widely touted “buy the rumor, sell the fact” or simply because it will hardly have an impact on the broad U.S. consumer base.
After the House approved the tax bill yesterday, at the news conference in the White House, President Donald Trump again called the legislation “the biggest tax cut in history,” even though many experts have said this is not the case.
In a rare event, today no less than six central banks will announce their policy decisions. In chronical order: SNB, Norges Bank, Türkiye Cumhuriyet Merkez Bankası, BoE, ECB and Banxico. An accumulation of six major central banks in one day is something we have not seen in years.
Adrian Orr has been named as the RBNZ’s next Governor and he will begin a five-year term on 27 March, Finance Minister Grant Robertson said yesterday. Orr will replace acting Governor Grant Spencer, who assumed a caretaker role when Graeme Wheeler’s term ended late September. Orr is well known to FX markets due to his previous roles.
…is a play by William Shakespeare and is considered by critics to be one of his problem plays, so named because it cannot be neatly classified as tragedy or comedy. This title and categorization could also be applied to the Brexit negotiations last week and leads to the question: Is all well that ends well?
Unlike its main peers who telegraph their rate moves well in advance, the BoC has a history to surprise FX markets. Therefore, surveys of BoC MPC meetings regularly change in the run-up to the event. Two weeks ago, economists surveyed by Bloomberg unanimously forecasted that the BoC will remain on hold at yesterday’s meeting.
Prime Minister Theresa May’s political weakness was clearly exposed last Monday as an agreement struck between Britain and the E.U. to solve the problem of the Irish border and move to the next phase was torpedoed from the Democratic Unionist Party.
Dollar: Looking beneath the surface of the tax bill
5th December 2017
We received several questions why the “biggest tax bill and tax cuts in history,” as President Donald Trump put it, did not have a positive impact on the Dollar. The market reaction can be judged from either an ideological or an expectations point of view.
There are often reports in the lifestyle sections of magazines on high-end restaurants with outrageous prices for multi-course dishes. Fortune features a report on the 12 most expensive meals with the restaurant SubliMotion in Ibiza at the top, where the tasting menu of about 15 – 20 courses goes for just € 1’700.
The Pound continued to soar yesterday following Tuesday’s reports in British media that the U.K. and E.U. have reached an agreement on the Brexit divorce bill (see yesterday’s edition). The figures circling around vary but the likelihood of an agreement at the mid-December Summit has clearly increased.
Yesterday, Jerome Powell appeared in front of the Senate Bank Committee for his confirmation hearing as next Fed Chair. Overall, his 6-minute introductory statement (!) and lengthy answers in the 2-hour Q&A session suggest that he stands for continuity, meaning raising interest rates on a data-dependent path and trimming the Fed’s balance sheet.
The Brexit negotiations seem to be jinxed: Just as the two sides are making some progress on the bill and the role of the European Court of Justice, the third issue – the Irish border – pops up amid a political crisis in Ireland. Today, Deputy Prime Minister Frances Fitzgerald is facing a no-confidence vote in Parliament over a policy scandal.
There was zero progress at the round five NAFTA renegotiations in Mexico this week. Canadian and Mexican officials have complained about what they see as “U.S. inflexibility,” while U.S. Trade Representative Robert Lighthizer said “I remain concerned about the lack of headway.”
It is truly ironic that in a year where FX market participants were worried about elections in the Netherlands and France, of all things the elections in Germany have led to the biggest negative surprise. Today, President Frank-Walter Steinmeier will meet with Martin Schulz, leader of the Social Democrats.
Following an ITV report that Prime Minister Theresa May won the backing of Ministers on both sides of her divided Cabinet to offer the E.U. more money to break the Brexit deadlock, market talk shifted yesterday to more optimistic assumptions ahead of the upcoming European Council Summit in mid-December.
Speaking at the “European Banking Congress” in Frankfurt on Friday, ECB President Mario Draghi predicted that workers in the Euro-zone will soon start winning bigger pay increases which would relieve pressure on his ECB to keep supporting the economy. On balance, he still appeared cautious but it was the first time we heard such a statement from him..
The biggest and probably only headwind the Peso is facing is the uncertainty about the NAFTA negotiations. The fifth round of talks to modify the free-trade agreement between the U.S., Mexico and Canada has begun this Wednesday and will last until next Tuesday.