Category Archives: Forex

Market Mayhem

by CantillonCH

Between Li Keqiang, Mario Draghi, and the BLS, markets everywhere had a wild ride into the weekend.

Starting east and working west, the upshot of the Chinese ‘Twin Sessions’ was a perseverance with the so-called ‘New Normal’ theme – namely, with the idea that headline, GDP-style growth should be lower in future with the emphasis shifting from brute volume to the encouragement of a shift in the productive structure towards the provision of higher-value added, more technology-rich goods, towards service in place of smokestacks, aall the better to spread the benefits of industrialization to the domestic populace.

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Chart(s) of the Day

by CantillonCH

Taken over a forty year history, US gasoline is trading in its 3rd percentile – 1.8 sigmas from the mean – when expressed as a ratio of the price of heating oil. In seasonal terms, this makes sense as the winter draw for space heating coincides with the consumption lull in (discretionary) road transport and the anticipatory change of emphasis by the refiners. Given the severe weather being endured Stateside these past several weeks, it should surprise no-one to learn that stocks of heat are more than 8% below the mean for thetime of year, while those for mogas are 4.3% above that norm. Hence the wider price differential.

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Macro & Markets: The Bulls Cling On

by CantillonCH

Avoiding for now all comment on the ongoing Eurozone schism, we start by taking a look at the UK where, conveniently in the run-up to the May election, everything seem to be coming up roses for the incumbents. Retail sales are strong, CBI output intentions are comfortably back inside the upper decile of the last 20 years’ readings and – perhaps most politically heartening of all – real wages are at last rising while both numbers employed and hours worked are making new, all-time highs with the ratio between the two suggesting the proportion of those working full-time is back at pre-crisis highs.

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Macro & Market Update

by CantillonCH

More than half a century ago, in his role as an advisor to the men responsible for trying to set Taiwan on the road to prosperity, a redoubtable economist called Sho-Chie Tsiang argued that the monetary authorities should stop suppressing interest rates and directly rationing credit and should move instead toward a more market-oriented system where real rates were sufficiently elevated to encourage productive saving.

His reasoning was that the existing combination of what we might call Z(Real)IRP with ‘macro-prudential’ control was plagued with several significant drawbacks.

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Technical Update

by CantillonCH

Wracked by the actions of the various central banks – which gave us another key reminder that volatility does not equate to risk – yet not wishing to start rethinking their entire thesis, a characteristic loss confidence has started to set in among those who were telling themselves over the Christmas trukey just what geniuses they were. We could have an interesting couple of weeks in store – not helped by the fact that we are about to enter the great Chinese data avoid as the lunar new year approaches.

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Tell me another!

by CantillonCH

In the wake of the SNB decision last week to remove its infamous 1.20 euro floor rate, the ever ingenious – and no less self-assured – Willem Buiter has been expressing his outrage that any central banker might dare to deviate from a consensus which shares three articles of faith, each engraved by the Deity on the tablets he handed down to His prophets at MIT.

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Let’s be Franc about it

by CantillonCH

On Wednesday, we were all utterly not shocked to learn that the Advocate-General of the European Court of Justice, Pedro Cruz Villalón, had decided that he could see no major objections to Mario Draghi’s Fed-wannabe programme of so-called Outright Monetary Transactions – a decision upon the legality of which was earlier referred to that august body by the German Constitutional Court like the hot potato it was.

Though Snr. Cruz Villalón’s decision is not binding – a decision of the full body sometime in the middle of the year is needed for that to occur – it was nevertheless highly suggestive of the way the court might rule and was therefore seized upon by stimulus junkies everywhere as a result.

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The End of Exuberance?

by CantillonCH

Back in the halcyon days of summer, it seemed nothing could go wrong.

Commodities were still things it was not utterly disreputable to own. Base metals had shaken off a springtime swoon to hit 18 month highs. Though still suffering from that enervating, post-bubble flatness, precious metals had just enjoyed a neat little 10% rally. Energy was threatening to print new 2 ½ year highs as WTI sold for more than $107 at the front and $86 at the back of the curve. Nor were people much interested in paying for downside protection: across the complex, options premia were as low as ever they had been in recent years.

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