Monthly Archives: January 2014

Ignore Market Headlines – Market Plunge Halts in Asia!

photo (8)The mainstream media is running Monday morning headlines that the sell-off has followed through to Asia. That’s not surprising since such an ugly close in the US on Friday. But, a closer inspection casts doubt on the bearish headline:

1. The AUD/USD reveresed its declines from the open of the Asian market. It did so even though Australia itself is closed for business – in other words it did so on a day when the AUD could easily have gotten whacked. Continue reading

EM Led Sell-Off, Looks Like an Opportunity to Me

photo (7)Markets have been hammered this week. I’ve been surprised (bruised a bit too). Not only I. Every commentator I read seems to agree: First, the market was looking for a correction, and we are all asking is this it? Second, EMs are selling mostly due to asset allocation – funds are moving back to DMs. Great, so run that by me again, why are we selling? Fundamentally I mean? Continue reading

QE Play-off: The US vs The UK

cropped-photo-71.jpgMost global investors fixate over how and when the US Fed will taper quantitative easing, and what impact this will have on the global economy. Few have considered that the place to look for understanding this is the UK. For the UK is well ahead of the US in economic developments now, which provide useful guides on the road ahead of the US.

The BoE set 7.0% as its target unemployment rate for considering rate hikes, the rate is now at 7.1%. And what is more, this has come with a relatively stable labour force participation rate. In other words, the BoE’s unemployment threshold ought to be more binding than that being used by the FOMC (6.5%). Continue reading

China’s Weight on the World Market

Today is a perfect example of why we are all China-watchers now. Disappointing PMI data released last night (implying that the manufacturing sector is contracting) led to selling in equities and a rally in bonds. In Europe (despite stronger than expected German data), in the UK and in the US.

It’s worth remembering the next time your bank tells you to avoid EMs – the bulk of global growth still comes from developing countries. Treasury and equity markets know its true. Watch China closely!

Bloom’s Bluster – Noise in Global FX

photo (7)Of course, a bit of controversy makes a great story, and a great story gets you publicity. But one has to wonder what’s with Mr Bloom? The man is head of FX strategy at HSBC, but his tone and content imply that he has no grasp of economic history. Anyone who remembers the Plaza Accord, or the Louvre Accord, or has studied the causes of World War II (to say nothing of the Marshall Plan and the rebuilding of the defeated nations) knows that Japan needs to do something to stimulate inflation and growth; and knows also that the global community supports Japan’s effort. Because a healthy de-levering and growing Japan contributes so much to the global market. By contrast a defaulting collapsing Japan is in no one’s interests.

“When your currency falls heavily like the yen did, you create inflation for yourself but disinflation for others,” David Bloom, the global head of currency strategy at HSBC Holdings Plc in London, said in a Jan. 20 phone interview. “If we get to the point where inflation falls and growth looks like it’s going to be incredibly weak again, then the background for a currency war is growing.”

Early 2014 Markets – Time to Get Direction?

It has been a difficult start to the year. Markets have edged down, rather than up as many had hope. Of course, the old proverb says that as goes the first week of the year, so goes the year as a whole, weighing now on the mood. But, the direction has been far from clear, making even short-selling tricky. And day-to-day, the market still feels like it wants to go higher.

The start to the year has already seen some important economic data, not least the US employment report, which has kept the macro mood awake. But, this week is economic data light, of course the US is also closed for Monday, but overall the coming week will be dedicated to corporate earnings. By the second half of the week, there is every chance that the market will have indicated which way earnings are going to take it, in the first substantial movement of the year.

Nervousness abounds earnings, where margins face a never ending threat of normalising, as revenues continue to disappoint macro forecasters. Many had thought this was the quarter of take-off, but post December jobs report, there is a sense that the GDP momentum is tied up in inventory build. Analysts are likely scaling back their hopes, and the longer it takes, the less likely the next leg up in the market looks.

It’s a tough direction to call, but corporations still look more hopeful than of late. Look for earnings roughly inline, but hopeful 2014 guidance may support the market anyway…


Can EMs Escape the 2014 Capital Flow Vortex?

JB CNBC EM BannerToday’s FT runs a great opinion piece on the stresses faced by EMs as the Fed starts to unwind QE and the prospect of higher rates becomes a real world concern. I liked this comment because it captures both sides of the story. Whereas so much journalism these days falls into blind attempts to “call” the next crisis, Wigglesworth looks at both the risks and the reasons that this time could be different. In this post, I will stake out my position for the 2014 EM trade, as of January 2014. Continue reading

January 2014 Jobs Trade

photo (7)The January jobs report is one hour off. The market is expecting 196k jobs, but how should we trade the number? Is an above expectation number good, because it implies healthy expansion? Or bad, because it implies faster tapering? Conversely, is a bad number good, because it means less tapering?

For me, a number close to the forecast (+/-15%) is good. It means the expansion continues and the Fed has is well calibrated.

A strong beat is also good. When the taper started, equities rallied because Continue reading

Russia 2014 A First Taster

Olympics, macroeconomics, the weather and how to invest for maximum potential in 2014. My interview starts at minute 32 of Gavin’s great online show.

Looking for a detailed review of Russia and the CIS in 2014? Or for a completely independent global asset allocation consultation? Contact me.