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Back in the UK 19/04/2016

Posted by chrisdshaw in Domestic Politics, Economics, Geopolitics, Human mobility, United States.
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After a six year break I have decided to resume blogging, commenting, opining on Brave New World. Since I stop my regular posts in early 2010 I have got married, moved abroad, had two beautiful daughters, set up and run a business in the wilds of southern Louisiana, and experienced a culture few Europeans are privileged to enjoy . While much of our experiences have been challenging, we have had rewarding and magical experience.

The blog was originally intended to focus primarily on global macro-economic concerns, which were uppermost in people’s minds following the 2008 financial crisis. The slow and weak economic recovery in the developed world, helped by a lopsided and unsustainable policy response benefitting a small percentage of the population at the expense of the rest, means that economic policy will continue to be an important focus of attention on this site.

However, I would like to widen the scope of discussion to include;

  1. Domestic politics around the world, particularly with regard to the disenchantment with the political establishment and the resulting rise of populism, the rise of geopolitical instability
  2. Rising geopolitical instability, led by the decline in US prestige and world influence and the increasingly aggressive stances by Middle East actors and China and Russia
  3. Decline in media standards and the effects on discourse
  4. The growth in human mobility and its effects- economic and political refugees-causes and effects

If all that sounds too bleak I apologise.  I promise to include a focus on hope for the world and humanity. We owe it to our children to keep working to improve our situation, even it- at times like these- the world appears to have lost its head. I’ll also be giving my views on living and working in southern Louisiana and New Orleans, The Crescent City. I love that place- warts and all!

Back soon….

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Germany to Pick up Greece’s tab? 18/01/2010

Posted by chrisdshaw in Economics.
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Gabriel Stein from Lombard Street Research thinks so. His colleague Charles Dumas goes further, arguing that the Eurozone will break up as southern European countries succumb to the inevitable (I’m having problems posting this clip- see Bloomberg videos for today “Lombard’s Dumas has “no doubt” Euro zone will break up”)

FX Lunchtime update- Spotlight on Euro 18/01/2010

Posted by chrisdshaw in Economics, FX.
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The flight from risk witnessed at the end of last week has continued in Asian and morning London trading. EURUSD reached a one week low early in the session and USDJPY dipped lower to below the 90.75 level. Following last week’s monetary tightening by China and the worse than expected U.S. retail sales figures today’s sentiment is driven by the eurozone, in particular the growing worries over Greece and its government’s plans to cut its fiscal deficit. Greek stocks and bonds are lower today and EURGBP is now trading below the 0.88 handle; the lowest since September.

The situation in Greece will presumably dominate the meeting of Eurozone finance minsters in Brussels this week. Greece’s finance minister Papaconstantinou said, “If there is something lacking (in our crisis plan), we will take additional measures.” He added, “As a new government, our priority of re-establishing reliability in our statistics and outlining our growth and stability program has helped create a new climate of hope but there is still work to do.” The sheer scale of the the  task facing the socialist government doesn’t sit well with the track record of fiscal discipline by previous Greek governments. The current plan is to cut the budget gap to 2.8% of GDP in 2012 from a deficit of 12.7% today. This year the deficit is to be reduced by the equivalent of 4% of GDP. Such stringent cuts would test the most socially cohesive and law-abiding society. The fact that Greece has shown a relative propensity for social unrest- witness the riots in December 2008- has led to nervousness among European officials and international investors. Strong words from the ECB and some German politicians about the lack of options have not quelled doubts that Greece will be able to repair its fiscal position. Today’s Daily Telegraph reports that the ECB has issued a document titled: “Withdrawl and explusion form the EU and EMU”. A long hot summer of rioting on the streets of Athens will do little to give investors confidence in the country or the periphery of Europe and will lead investors to speculate that Greece will be the first country to leave the eurozone. And with it the potential for further countries to exit. In any case, the position of the Euro is looking increasingly precarious.

Too Big to Fail: Reasons to be Fearful 12/01/2010

Posted by chrisdshaw in Economics, Financial Crisis.
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As investment banks announce record bonus pools for 2010 while economic growth expectations for the developed world remain sluggish, media attention has been directed once again towards the widening disparity between Wall Street and Main Street. Away from the non-financial press focus with bonuses, there appears to be a growing anxiety about the level of risk taken on by the largest institutions. Karl Whelan highlights the concerns, most notably by former IMF Chief Economist Simon Johnson.

Sterling has most to lose from Dubai 30/11/2009

Posted by chrisdshaw in Economics, Financial Crisis, FX.
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Following the flight to safety and sell off in the risk assets on Thursday and Friday of last week, markets today showed a return to stability with equity markets closing up in Asia and marginally down in Europe. Abu Dhabi and Dubai, whose markets opened today for the first time since the news of Dubai World’s warning on debt repayment, witnessed a record drop in their indices; falling 8.3% and 7.3% respectively. Fears that the delay in debt repayments by Dubai World may signal new strain of systemic risk have largely abated. The United Arab Emirates central bank’s announcement that it would stand behind domestic and foreign banks has reassured investors and has stemmed a potentially larger capital flight. Nevertheless, the news from Dubai is a sharp reminder that the financial crisis that began two years ago and almost destroyed the global economy a year ago is still with us. Pimco’s Mohamed El-Erian believes Dubai is a reminder that we still need to deal with the repercussions of massive credit expansion to unjustifiable projects earlier this decade.

Despite the emirate’s astonishing level of self-aggrandisement, Dubai’s debt is not enough to rock financial world. Of the $123bn of UAE foreign obligations, US banks account for $10.6bn, Japanese banks for $9bn and EU banks $40bn. The UK appears to be uniquely vulnerable to a potential Dubai default as British banks account for $50bn of the debt. The Foreign Exchange markets have reflected this, with Sterling being the only currency to fall against the USD at the start of the trading week. The US Dollar had strengthened significantly against all currencies, bar the CHF and JPY. The resumption of a weakness reflects a modest return to risk. However, the news from Dubai has had a broader impact on sentiment towards sovereign debt. Given the sharp increase in debt to GDP over the last two years, no end in sight for emergency monetary policy and, unlike Euro area countries such as Greece and Ireland, an ability to put off difficult political decisions by devaluation, Sterling may be the biggest loser from the Dubai debacle.

Market sobers up 30/10/2009

Posted by chrisdshaw in Economics, FX.
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GDP figures don’t have the staying power they once had. Just as talk of a calamitous slump in the UK following the awful GDP numbers on Friday had evaporated by earlier this week, with Sterling recouping its losses, the brief euphoria in the markets after yesterday’s US data evaporated within a matter of hours and with it the US Dollar index recouping most of its losses. This morning’s US economic data has added to the bearish tone in the market. Personal consumption stalled in September after climbing each of the four previous months, while personal income was down 0.5% m/m, compared with a market expectation of a 0.5% rise. The University of Michigan Consumer Confidence survey beat market expectations but was still down to 70.6 in October from  73.5 in September. Overall, a nervousness is creeping into the market as it is looking increasingly unlikely that the consumer, which still accounts for 70% of the US economy, is strong enough to recover without government support. The Dollar has rallied strongly on the bearish sentiment on the economy, reaching a low of 1.4727 in afternoon London trading. Expect further dollar strength in the meantime; at least until the crucial FOMC meeting next week.

US GDP data rekindles risk appetite 29/10/2009

Posted by chrisdshaw in Economics, FX.
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Risk appetite has returned, with a vengeance following this morning’s better than expected US GDP figures. The US economy grew by 3.5% on an annualised basis in the third quarter of 2009, higher than the market expectation of 3.2%. This is the first positive GDP number Q2 of 2008. As expected, risk appetite improved with the expected rise in US equities, a fall in government bonds and a sell-off in the US Dollar.

All of this was expected, and as I began writing this post it looked as though the rally would be short-lived. The GDP growth look less impressive given that much of it has relied on “stimulus-driven gains in consumer and home building“. On that basis it would be reasonable to expect a buy-the-rumour, sell-the-fact type of reaction in the market, with the USD recouping its losses and equities drifiting lower. I’m glad I didn’t place any trades. Barring the Japanese Yen, all other G10 currencies have kept hold of their gains. In particular, the British Pound has had a stellar morning, jumping over 100 pips since the GDP figures- apparently on the back of strong buying from the Middle East. Earlier, positive mortgage approvals numbers from the UK gave investors confidence that the UK economy may be on the turn.

One of the purest gauges of risk appetite in the FX market is AUDJPY. Since the US growth numbers were announced the pair has risen from 82 to 83.27 (as of 10.51 ET). The Aussie appears to have found its footing again after a few nervous days of risk aversion and concerns about the health of the Australian banking sector.

Overall though, the mood is nervous, with a much higher VIX (volatility index) and some technicals showing the market at a crossroads. The jury is still very much out on whether we are at the start of a sustainable recovery. Macro Man sums it up

The Week Ahead for Currencies 26/10/2009

Posted by chrisdshaw in Economics, FX.
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The week has started in lacklustre fashion with little movement in nearly all the main G10 currency pairs. In overnight Asian trading the Swiss France moved tantalisingly close to parity against the US Dollar, although the pair has since moved away from this important psychological level. Little in the way of economic data or equity price action has given much of a direction to the FX market. This is unlikely to last.

Important data from the US and Europe should stir market price action, with American consumer confidence data out on Tuesday and Q3 GDP and personal consumption data out on Thursday. The market is looking for an annualised rate of economic growth for the latest quarter of 3%, with the same expectation for consumption. Given the US Dollar’s current status as the weakling of the G10 (second to Sterling) it will take much stronger than expected readings to change the course of the greenback.  The EURUSD will be a particularly important pair to observe as the recent rally appears to have stalled around 1.5000. Before the psychologically level was breached many strategists warned of a break-out with the expectation of barrier options being triggered. This hasn’t happened, and calls into question how much further the rally in the Euro has left to run. EURUSD has been trading on risk appetite and interest rate differentials, both of which have been given a boost by an impressive run in recent weeks of positive economic data. The pair has had a remarkably close correlation to the S&P 500. My view, therefore, is that the equity market is well overdue for a correction translates into a bearish EURUSD position. A surprise to the downside in German and Eurozone CPI data later on this week, as well as consumer confidence data from the US tomorrow, may also influence a sell-off.

Sterling has found a some support today following Friday’s meltdown. Some in the FX Strategy community are beginning to forecast a reversal in Sterling’s weakness, particularly against the USD. BNY Mellon’s Simon Derrick believes the political fallout of Sterling reaches parity with the Euro would be too great for the Labour government in the run-up to the general election for them to continue their policy of benign neglect. Also, there is widespread scepticism about the preliminary GDP numbers released on Friday.  I don’t buy the Sterling bull story one bit. The Brown government is powerless in so many areas that the idea they have control over the currency markets is laughable. If EURGBP does go to parity it will be due ti Asian central banks continuing to diversify their FX reserves into Euros following a maintenance of the peg to the USD. The British pound has no such friends. 70% of the UK’s GDP is made up of consumer spending- something that will remain on its uppers for some time to come. GBPUSD may reverse but given the US relationship with China, a dollar collapse is almost unfathomable in the near term.

Littler Britain 23/10/2009

Posted by chrisdshaw in Economics, FX.
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The UK economy contracted by 0.4% in the third quarter of 2009, according to preliminary data released today. The financial markets, which had been expecting weak growth, reacted with shock. Not one of the 33 economists surveyed by Bloomberg expected a negative reading; the consensus forecast being 0.2% from a range of zero to 0.7%.  Chris Giles from the FT suggests that forecasters had expected a better reading due to the positive sentiment from business survey data since June and recent benign industrial production data. Overall, it seems,  a positive outlook for the UK has recently gained momentum, with Bank of England minutes revealing a more hawkish position adopted by the MPC, with a unanimous verdict against the extension of QE. Such a view will have to be revisted with today’s figures, at the very least, as they are so out of the step with expectations for growth.

It was therefore no surprise that the GBP nosedived today. Sterling fell from almost 1.67 to below 1.65 within minutes of the announcement while gilts rallied and short sterling futures fell as expectations for any near term monetary tightening evaporated. By late London trading GBPUSD had fallen a massive 370 pips- a sharp spike in volatility and what looks to be a key reversal in Sterling’s two week rally. The next target should be 1.60- safely within its 9 month range, and still higher than two weeks ago but with all the feeling of a dead man walking, particularly given today’s much more sanguine data from the Eurozone.

Just like before, but in fast forward 22/10/2009

Posted by chrisdshaw in Economics.
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Following the cheering on Wall Street that surrounded the Dow breaking 10,000 (yet again) a slew of articles have been published warning that the current rally, not only in equities but in credit markets, is purely a function of the extraordinary amounts of central bank denominated liquidity. As it was pre-Lehman, or at least pre- August 2007, optimists actually believe the current boom in asset prices reflects a return to strong fundamentals. This time the rally is faster, sharper and sprinting towards an inevitable correction. The other difference is that when the bubble does burst, policy-makers will well as truly have run out of bullets. Here are two of the better articles/posts I have come across recently. Wolfgang Muncheau believes that the countdown to the crisis is already underway. Gillian Tett feels a sense of foreboding.