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China’s FX Rate: Strategy & Opportunism
China’s latest FX adjustment is neither a “competitive devaluation” nor the opening shot in a “currency war”. Given the negative contribution of net exports to growth as of late, it is also unrelated to efforts to boost growth. Instead, the … Continue reading
Three Simple Reasons Why the New Greek Government Will Blink
As the positions between the Greek government and the Troika harden, it appears that an agreement to extend the current bail-out program or secure some other form of official financing becomes ever more elusive. Yet, it is highly unlikely that … Continue reading
Russia’s Ruble Let Loose Prematurely
Russia’s central bank yesterday abandoned its policy of unlimited FX intervention in support of the ruble. This precipitates the shift to a freely floating exchange rate regime which was due to commence only in 2015. The move came in response … Continue reading
A Glide Path for the Fed: Earlier, But More Predictable and Flexible Tapering
The Fed began the process of ending QE and thereby kicked off the end of a 30-year long cycle of progressively easier monetary conditions. In starting the tapering process earlier than expected, the Fed has traded off incremental adjustments in … Continue reading
A Bad Idea Returns: Negative Deposit Rates
As ECB policy rates skirt the zero bound, expectations for the use of alternative tools, such as negative deposit rates are again on the rise. However, this is an ineffective and potentially harmful policy option. Several problems may arise: transmission across other … Continue reading
Market Prospects Ahead of the QE3 Wind-Down
The Fed surprised markets with a more hawkish posture than expected, suggesting the start of QE tapering in late 2013 and completion by mid-2014. While Fed guidance may not ultimately come to pass, EM equity markets in particular remain subject … Continue reading
Beyond Cyprus: Implications of the Latest “Unique Solution”
The numbers involved are small. Yet, the Troika/Cyprus move to renege on deposit insurance and appropriate private funds is set to reverberate beyond the tiny island. The decision bodes ill for future rescue efforts: 1) it derails popular support for … Continue reading
PIMCO’s Galactic Fallacy about the Role of Credit
Bill Gross argues that credit is losing its power and suffers from entropy, destined to a fatal supernova end. But pay heed to the power of compound interest and the fact that correlation does not establish causation and it is clear that PIMCO’s analysis … Continue reading
(Fed) Talk is cheap. So don’t listen
Recent market perceptions notwithstanding, the Fed is unlikely to end its accommodative stance (incl. QE) anytime soon. However, this does not mean that asset markets will continue to derive undiminished support from such actions forever.
Seven Reasons Not to Bet On A Falling Yen
Calls for a Yen sell-off have been an ongoing feature of the economic Kommentariat for the past three years. They have gained renewed vigor as the BoJ engages in yet another round of quantitative easing against a backdrop of a … Continue reading
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