By Marc Chandler As the year winds down, a Gordian knot tying Russia, oil prices and China together is receiving a great deal of attention. Let’s see if we can unravel some of the confusing twists and turns. We turn first to China’s offer of assistance to Russia. The idea that Russia could activate its CNY150 bln (~$24 bln) currency […]
I haven’t posted to the blog portion of Credit Writedowns for some time because my schedule has been filled producing the finance show Boom Bust on RT. So I apologize for not having a lot of content for you. Last week, I hosted my first complete show on the TV show I produce called Boom Bust because the anchor, the wonderful Erin Ade, was out sick. It’s on currency boards and bottoms up investing. I also do a bit of a monologue on Apple.
There is a battle within the European Central Bank. Some want to take stronger action. Others do not think it is necessary. It is not just a matter of counting up who is on what side of the issue. It is not simply about majority rules. The ECB seeks consensus. As is well appreciated, there are important political and legal obstacles to buying European sovereign bonds.
The US dollar is narrowly mixed, largely within its well-worn trading ranges against the major currencies with two exceptions. There have been several marginal developments over the 24 hours that are shaping the investment climate.
We view Q1 2014 as a potential turning point for EM this year, just as the May 22 Bernanke speech on tapering was last year. In recent weeks, EM has digested the start of Fed tapering, devaluations in Argentina and Kazakhstan, the Crimean crisis, a deeper than expected China slowdown coupled with a shift in its FX regime, and now potentially earlier than anticipated Fed rate hikes.
Market based information is telling us that spreads and leverage are now disconnected, fundamentals remain in-line with theory. Companies with higher net debt also have poorer liquidity positions.
Many continue to argue that the rate normalization taking place now will slow business activity in the US. Good luck betting on that however. There is no question that corporate America had benefited tremendously from extraordinarily low rates. Many US firms have locked in these rates over the past couple of years by refinancing – interest expense savings that go directly to the bottom line. But what will happen now as rates “normalize”?
Treasuries once again experienced what amounts to a sharp curve flattening in recent days. The market action resembled what took place after the initial announcement of taper back in December. The yields in the “belly” of the curve have risen sharply as the market prepares for rate “normalization”.
By Marc Chandler There has been sharp rise in US interest rates and the dollar in the immediate response to the Federal Reserve’s statement. The key it seemed was the expectation that Fed funds would be at 1% at the end of next year. This is more than the market had expected. The December Fed funds futures were implying a […]
Weekend developments will dominate the first part of the week ahead. Two developments stand out. First, China announced a doubling of the permissible band from 1.0% to 2.0% around the daily fix. The PBOC deliberately and preemptively facilitated the narrowing of onshore and offshore yuan interest rates to avoid a new influx of capital that might have been spurred by the widening of the trading band. The second development over the weekend was the Crimean referendum.
The PBOC announced a band-widening for USD/CNY over the weekend, doubling the allowable band around the fix rate to +/- 2%. Off of Friday’s fix, the new band is 6.01-6.26 vs. 6.07-6.20 previously. The USD/CNY band was last widened in April 2012 from +/- 0.5%, and before that in May 2007 from +/- 0.3%.
Talk that Russia could be behind the bulk of the more than $100 bln drop in the Federal Reserve’s custody holdings for foreign central banks, in the week ending Wednesday has many observers scratching their heads. This would represent about eighty percent of the dollar holdings.