Euro Area – Q&A on QE

By Reza Moghadam and Ranjit Teja: As inflation has sunk in the euro area, talk of quantitative easing (QE)—and misgivings about it—have soared. Some think QE is not needed; others that it would not work; and yet others that it only creates asset bubbles and may even be “illegal.” In its latest report on the euro area, the IMF assesses […]

The Yen Continues to Surprise

There have arguably been two significant surprises in the capital markets this year, the strength of the yen and US Treasuries.  The two are related. The dollar-yen rate appears particularly sensitive to US interest rates.    The yen (not dollar) moves in the opposite direction of US 10-year Treasury yield two-thirds of the time of the past […]

China, Not Piketty, Explains ‘Confused Signals’ in U.S. Asset Prices

The FT’s Ed Luce recently took on the “confused signals” being sent by U.S. stock and bond prices moving in sync (upward). Which is it, he asks?  Are economic prospects good, as stock prices suggest, or bleak, as bond prices suggest? Both and neither, he offers.  High-end retailers like LMVH and Tiffany are doing great, he says, […]

Three Developments in China

After depreciating earlier this year, China’s yuan now appears to be carving out a trading range.  The dollar has been confined to roughly CNY6.20-CNY6.2650 since early April. Recent data lends credence to our view that the Chinese economy was stabilizing with annualized growth a little above 7%.  Although officials have clearly indicated a reluctance for […]

What the ECB Did and What it Means

We anticipate that it will take investors some time to digest the new initiatives the ECB announced last week. The ECB will be providing more details as well going forward. Here we will review the actions and discuss the implications of the different measures. There were five new measures announced: 1. Rate cuts: The entire rate corridor […]

Euro Sheds More Post-ECB Gains

The US dollar is mostly little changed against the major currencies. The euro is the main exception. After a halfhearted attempt to push above the $1.3600, the euro has been sold through yesterday’s lows.. With positioning assumed to be more balanced after the gyrations in the second half of last week, there is some pressure to […]

Russian Companies Plan to Denominate More Trade in Renminbi

The lead story in tonight’s Financial Times is Russian companies prepare to pay for trade in renminbi, on how Russian companies are seeking to protect themselves from the impact of possible increasing US sanctions against Russia by denominating more of their foreign transactions in the renminbi and other non-dollar currencies. The critical question is: how serious […]

Some Things to Consider if Spain Leaves the Euro

It might seem almost churlish to wonder what would happen if Spain were to leave the euro. The official European position is that the battle of the euro has been pretty much won, and anyone who argues otherwise will be accused of being a euro hater, an Anglo-Saxon or, even worse, a writer for theFinancial […]

Talking Down Exchange Rates: Japan and China Can’t, but Europe Can?

Many observers and policy makers expressed frustration with Japanese officials in late 2012 and early 2013 for seemingly making the exchange rate an objective of policy and explicitly talking the yen down. European and US officials insisted in February 2013 that Japan pledge to use monetary policy for domestic purposes and not target foreign exchange rates. […]

Is the Dollar at a Turning Point?

On the most basic level, the key issue facing investors is whether the markets are at a turning point. The dollar had looked like it was going to break down, with the euro and sterling poised to have taken out the $1.40 and $1.70 levels respectively. The yen was also strengthening, pushing the greenback to the […]