Waiting for Jay

Investors are waiting for Jay
Their fears, about rates, to allay
They want it made clear
That rates will be here
From now ‘til we reach judgement day

From the market’s perspective, the world has essentially stopped spinning, at least until we finally hear the words of wisdom due from Chairman Powell beginning at 9:10 this morning.  Trading volumes across products are currently running at 50%-70% of recent average activity, highlighting just how little is ongoing.  And remember, too, as it is the last week of August, summer holidays are in full swing with most trading desks, on both the buy and sell sides, more lightly staffed than usual.  In other words, liquidity is clearly impaired right now, although by 10:00 this morning I expect that things will be back closer to normal.

As discussed yesterday, the working assumption of most analysts and investors is that Jay is going to explain the benefits of targeting average inflation over time.  The implication being that the Fed’s new policy framework, when officially announced later this year, is going to include that as a KPI.  Of course, the big question about this policy is the average over exactly which period.

Consider, it has been 102 months since then-Chairman Bernanke established the target for core PCE at 2.0%.  During that time, core PCE has been between 1.9% and 2.1% just 12 times with 89 of the other 90 readings below 1.9% and a single print above 2.1%, which happens to have been the first print after the announcement.  Meanwhile, this past April’s reading of 0.931% is the lowest reading.  The average of the two extremes is 1.53%.  Is the Fed going to be happy if core PCE jumps to 2.47% and stays there for a while?  The average of all periods since January 2012 is 1.633%, does that mean we can expect the Fed to target 2.367% core PCE readings for the next eight plus years? The point is, without some specificity on what average inflation means, it is very difficult to understand how to incorporate the idea into investment and trading decisions.

But what if Chairman Powell does not bring clarity to the discussion, merely saying that average inflation over time seems like a good future benchmark.  How might different markets react to such a lack of specificity?

Starting with equity markets, certainly those in the US will rally because…well that’s all they do these days.  Good news, bad news, no news, none of that matters.  The rationale will be stocks are a good inflation hedge if inflation goes higher (they’re not) or stocks will benefit from ongoing low interest rates if inflation remains below target.  Parabolic markets are frightening, but there is no indication that Powell’s comments are going to change that situation.  We need a different catalyst here.

Now let’s look at the bond market and what might happen there.  Specificity on how much higher the Fed is going to target inflation is going to be a pretty distinct negative.  If you own 10-year Treasuries that are yielding 0.68% (today -1bp), and the Fed explains that they are going to push inflation above 2.0%, there is going to be a pretty spectacular decline in the price of your bond should they achieve their goal.  Will investors be willing to hold paper through that type of decline?  It would not be a surprise to see a pretty sharp sell-off in Treasuries on that type of news.  Remember, too, that Treasury yields have backed up nearly 20 basis points in the past three weeks, perhaps in anticipation of today’s comments.  If Powell delivers, there is likely far more room to run.  If he doesn’t, and there is no clarity, bond investors will be back to reading the economic tea leaves, which continues to be remarkably difficult at this time.

How about the gold market?  Well, here I think the case is quite straight forward.  Clarity as to the Fed’s efforts to drive inflation higher will result in anticipation of lower real yields, and that will be an unalloyed benefit (pun intended).  A lack of clarity and gold will likely continue to consolidate its recent gains.

And finally, what about the dollar?  How will it respond to the Chairman’s speech?  Consider that despite the dollar’s recent rebound, short dollar positions remain at near record levels against both the euro and the DXY futures.  The market scuttlebutt is that the hedge fund community, which was instrumental in the dollar’s recent modest strength as they pared short dollar positions, is ready and raring to buy euros on the idea that higher US inflation will lead to a weaker dollar à la economic theory.  Certainly, if Treasuries sell off, the dollar will see some downward pressure, but one of the things that does not get as much press in the FX market is the equity market impact.  Namely, as long as US equity indices continue to set records, international investors are going to continue to buy them, which will underpin the dollar.

But what if the speech is a dud?  If there is no clarity forthcoming, then the dollar story will revert to its recent past. The bear case continues to be that the Fed’s largesse will dwarf all other nations’ policy easing and so the dollar should resume its decline.  The bull case is that the US economy, at least by recent data, appears to continue to be outperforming its major counterparts, and thus inward investment flows will continue.  That current account deficit is only a problem if international investors don’t want to fund it, and with US equity markets amongst the best performing asset classes globally, that funding is easy to find.  I know I’m not a technician, but recent price action certainly appears to have created a top at the highs from last week, and a further pullback toward 1.1650 seems quite viable.

It is difficult to draw many conclusions from today’s market activity, which is why I have largely ignored it.  Equity markets are leaning a bit lower, although the movement is not large, less than 1%, and the dollar is mixed against both the G10 and EMG blocs.

Arguably, the biggest market risk is that Powell doesn’t tip his hand at all, and that we are no wiser at 10:10 than we are now.  If that is the case, I think the dollar’s consolidation will continue, and by the end of the day, I imagine stock prices will have recouped their early losses.

But for today, it is all about Jay.

Good luck and stay safe
Adf

Deep-Sixed

This morning the UK released
Fresh data that showed growth decreased
By quite an extent
(Some twenty percent)
Last quarter. Boy, Covid’s a beast!

But really the market’s transfixed
By gold, where opinions are mixed
It fell yesterday
An awfully long way
With shorts praying it’s been deep-sixed

Two stories are vying for financial market headline supremacy this morning; the remarkable collapse in gold (and silver) prices, and the remarkable collapse in the UK economy in Q2. And arguably, they are sending out opposite messages.

Starting with the gold price, yesterday saw the yellow metal fall nearly 6%, which translated into $114/oz decline. On a percentage basis, silver actually fell far further, -14.7%, although for now let’s simply focus on gold. The question is, what prompted such a dramatic decline? Arguably, gold’s rally has been based on two key supports, the increasingly larger negative real yield in US interest rate markets and an underlying concern over the impact of massive monetary stimulus by the Fed and other central banks undermining all fiat currencies. These issues drove a speculative frenzy where gold ETF’s were trading above NAV and demand for physical metal was increasing faster than production.

Looking at the real yield story, last Thursday saw the nadir, at least so far, in that metric, with real10-year Treasury yields falling to -1.08%. However, as risk appetite recovered a bit, nominal yields rebounded by 10bps, and real yields did the same, now showing at ‘just’ -0.99%. At this point, it is important to remember that markets move at the margin, so even though real yields remain highly negative, the modest rebound changed the tone of the trade and encouraged a bout of profit-taking in gold. Simultaneously, we saw a much more positive risk environment, especially after Germany’s ZEW survey showed much better than forecast Expectations, pumping up European equity markets and US ones as well. This simply added to the rationale to take profits on what had been a very sharp, short-term increase in the precious metals markets. As these things are wont to do, the selling begat more selling and bingo, a major correction resulted.

Is this the end of the gold story? I sincerely doubt it, as the underlying drivers are likely to continue their original trend. If anything, what we continue to see from central banks around the world is additional stimulus driving ever lower nominal and real yields. We saw this last night in New Zealand, where the RBNZ increased their QE program and openly discussed NIRP, pushing kiwi (-0.5%) lower. But in this context, the important issue is that, yet another G10 central bank is leaning closer to negative nominal yields, which will simply drive real yields even lower. Simultaneously, additional QE is exactly the issue driving concern over the ultimate value of fiat currencies, so both key factors in gold’s rise are clearly still relevant and growing today. Not surprisingly, gold’s price has rebounded about 1.0% this morning, although it did fall an additional 2.5% early in the Asian session.

As to the other story, wow is all you can say. Q2 GDP fell 20.4% in the UK, more than double the US decline and the worst G10 result by far. Social distancing is a particularly damaging policy for the UK economy because of the huge proportion of services activity that relies on personal contact. But the UK government’s relatively slow response to the outbreak clearly did not help the economy there, and the situation on the ground indicates that there are still several pockets of rampant infection. One thing working in the UK’s favor, and thus the pound’s as well, is that despite the depths of the Q2 data, recent activity reports on things like IP and capital formation have actually been better than expected. The point is, this data, while shocking, is old news, as is evidenced by the fact that the pound is unchanged on the day while the FTSE 100 is higher by more than 1% as I type.

So, what are the mixed messages? Well, the collapse in gold prices on the back of rising yields would ordinarily be an indication of a stronger than expected economic result, as increased activity led to more credit demand and higher yields. But the UK GDP result is just the opposite, a dramatic decline that has put even more pressure on both PM Johnson’s government as well as the BOE to increase fiscal and monetary stimulus, thus driving yields lower and debasing the currency even further. So which story will ultimately dominate? That, of course, is the $64 trillion question, but for now, my money is on weaker growth, lower yields and a gold rebound.

Not dissimilar to the mixed messages of those two stories, today’s session has seen a series of mixed outcomes. For instance, equity markets are showing no consistency with both gainers (Nikkei +0.4%, Hang Seng +1.4%) and losers (Shanghai -0.6%) in Asia with similar mixed action in Europe (CAC +0.4%, DAX 0.0%, Stockholm -0.5%). Not to worry, US futures are pointing higher across the board by roughly 0.75%.

Bond markets, however, are pretty consistent, with 10-year yields higher in virtually every market (New Zealand excepted), as Treasuries rise 2.5bps, UK gilts a similar amount and German bunds a bit more than 3bps. In fact, Treasury yields, now at 0.67%, are 17bps higher in the past 6 sessions, the largest move we have seen since May. But again, I see no evidence that the big picture stories have changed nor any reason for US yields, at least in the front end, to rebound any further. One can never get overly excited by a single day’s movement, especially in as volatile an environment as we currently sit.

Finally, the dollar, too, is having a mixed session, with kiwi the leading decliner, but weakness also seen in JPY (-0.45%) and AUD (-0.25%). Meanwhile, the ongoing rally in oil prices continues to support NOK (+0.55%), with SEK (+0.45%) rising on the back of firmer than expected CPI data this morning. (As an aside, the idea that we are in a massively deflationary environment is becoming harder and harder to accept given that virtually every nation’s inflation data has been printing at much higher than expected levels.)

EMG currencies, keeping with the theme of the day, are also mixed, with TRY (-1.3%) the worst in the world as investors and locals continue to flee the currency and the country amid disastrous monetary policy activity. IDR (-0.55%) is offered as Covid cases continue to rise and despite the central bank’s efforts to contain its weakness, and surprisingly, RUB (-0.25%) is softer despite oil’s rally. On the plus side, the gains are quite modest, but CZK (+0.3%) and ZAR (+0.3%) lead the way with the former simply adding to yesterday’s gains while the rand seemed to benefit from a positive economic survey result.

This morning brings US CPI (exp 0.7%, 1.1% ex food & energy) on an annual basis, but as Chairman Powell and his minions have made clear, inflation is not even a top ten concern these days. However, if we see a higher than expected print, it is entirely realistic to see Treasury yields back up further.

Overall, the dollar remains under modest pressure, but one has to wonder if yesterday’s gold price action is a precursor to a correction here as well. Remember, positioning is extremely short the dollar, so any indication that the Fed will be forced to address inflation could well be a signal for position reductions, and hence a dollar rebound.

Good luck and stay safe
Adf

 

Risk Assets Betray

There once was a time in the past
Ere Covid, when risk was amassed
But now every day
Risk assets betray
That fear is still growing quite fast

It is awfully hard to find the bright side of the current situation, whether discussing markets, the economy or the general state of the world. Volatility remains the watchword in markets as yesterday saw the largest US equity decline since Black Monday in October 1987. Globally, economic data that is remotely current continues to show the disastrous impact of Covid-19. The latest print is this morning’s German ZEW Survey where the Expectations reading fell to -49.5, its lowest level since the middle of the Eurozone crisis in 2011. And finally, one need only listen to the number of government pronouncements and edicts including border closures, business closures and curfews to recognize that it will be quite some time before our lives, as we knew them just a few months ago, return to some semblance of normal.

And while it is virtually certain that this situation will ebb over time, we continue to get estimates that are further and further into the future as to when that time will arrive. What had been assumed to be a six-week process is now sounding an awful lot like a six-month process.

But consider this, it is events of this nature that change the zeitgeist and will have much further reaching effects on every industry. For example, given how much of the US (and global) economy has become service oriented, outside of things like food service, I expect that we will see a much greater reliance on telecommuting going forward. Even in bank dealing rooms, a place that I always considered the last bastion of the importance of proximity of workers, we are seeing a pretty effective adjustment to working from remote locations. And you can be sure that whatever issues are currently still impeding the workflow, they will be addressed by technological fixes in short order.

But what does that do to automobile manufacturers and all their supply chains? And while fossil fuels aren’t going to disappear anytime soon, in fact given how much cheaper they have become, they will be able to supplant alternatives for now, at some point, all those industries are going to suffer as well. Ironically, the move toward urbanization that we have seen during the last decade may find itself halted as people decide that not cramming themselves into small apartments with hundreds of other people (mostly strangers) in close proximity, is really a healthier way to live. And certainly, leisure activities are likely to change their nature as well. While the future remains unknown, it certainly does appear that it will look very little like the recent past. Food for thought.

Turning to the markets more specifically, we continue to see a combination of central bank and government activity in increasingly strident efforts to ameliorate the negative economic impacts of Covid-19. So last night the BOJ bought a record amount (¥121.6 billion) of equity ETF’s to help support the stock market. To their credit, the action was able to prevent a further decline in prices there, as the Nikkei closed unchanged on the day. However, it is still lower by 32% since early February’s recent high. In addition, we have seen equity short-selling bans by France, Italy, Spain, South Korea and Belgium as of this morning in an effort to prevent further market declines. Spain is the only market that seems happy about it, rising 2.6% this morning, with the rest of Europe little changed generally. Risk assets are still on the block for sale, its simply a question of the available liquidity for positions to be unwound.

Of greater interest to me are global government bond markets, which are quickly losing their status as haven assets. Despite rate cuts from all over the globe, yields are rising virtually everywhere, even in the US this morning with 10-year Treasuries seeing a 9bp jump. But Bunds have been underperforming for more than a week, with yields on the 10-year there up nearly 50bps in that time. While it makes perfect sense that the PIGS are seeing yields rise in this environment, what I think we are seeing is a combination of two things for ‘safer’ bonds. First, when yields fall this low, a key haven characteristic, limited probability of losing principal, is put at risk, because any reversal in yields will result in very sharp price declines. And second, with the spending commitments that are being made by governments on a daily basis, I think bond investors are starting to price in the idea that there is going to be a massive increase in the supply of bonds starting pretty soon. And asset managers don’t want to get caught in that blitz either. It is the second of these reasons that will continue to drive central banks to promulgate QE measures, and you can be sure we will continue to see those programs coming. In fact, I think the MMTer’s have won the debate, as that is likely to be a very accurate description of monetary policy in the future.

Finally, this morning the dollar has regained its crown and is, by far, the strongest currency around. It has rallied vs. all the G10, and pretty sharply as well. For instance, CAD is the best performer of the bunch today, and it is lower by 0.75%, having found a new home with the dollar above 1.40. SEK and AUD are the worst performers, both down around 1.7%, as the krona is seeing increased speculative betting that they will be forced to go back to negative rates, while Down Under, the Lucky Country has run out of luck with a collapsing Chinese economy crushing commodity prices, and the RBA promising to do more to stop the economy’s slowdown.

In the EMG space, the dollar is also reigning supreme this morning with EEMEA currencies under the most pressure. Given their relative outperformance lately, it cannot be too surprising that we are seeing this type of price action. HUF is today’s laggard, down 2.1%, but PLN (-2.0%), RON (-1.6%) and BGN (-1.2%) are all feeling the pain. Asian currencies are also lower, but generally not by quite as much, although IDR and KRW are both lower by around 1.5%.

Ultimately, the dollar’s strength today is probably best attributed to the absolute blowout in the basis swaps market, where borrowing dollars vs. other currencies has become hugely expensive. Given the way economic activity is contracting so rapidly, and so revenues everywhere are shrinking, all those non-US companies that need to repay dollar debt are desperate to get hold of the buck. Once financing charges rise high enough, the next step is generally outright purchases of dollars on the FX market. And that is what we are seeing this morning. Look for more of that going forward.

It’s ironic, Retail Sales is released this morning (exp 0.2%, 0.1% ex autos) on the same day I received emails that Nordstrom is closing its stores for the next two weeks along with a myriad of other smaller retailers. We also see IP (0.4%), Capacity Utilization (77.1%) and the JOLT’s Jobs Report (6.40M). But again, this data looks backward and in the quickly evolving world today, I doubt it will have an impact. Rather, while risk stabilized somewhat overnight, my sense is this is a temporary situation, and that we are going to see another wave of risk reduction, certainly before the week is over. So, for now, the dollar will continue to find a lot of demand.

Good luck
Adf

 

Times of Trouble

In times of trouble
The yen continues to be
Mighty like an oak

Pop quiz! What percentage of the workforce is working at their primary site vs. home or an alternate site? Please respond with where you’re working and your guesstimates. Will publish results of this (completely unscientific) survey on Monday, March 16.

As markets around the world continue to melt down, investors everywhere are looking for a haven to retain capital. For the past 100 years, US Treasuries have been the number one destination in markets. Interestingly, the past two days saw Treasuries sell off aggressively. I think the move was initially based on the relief rally seen on Tuesday, but at this point, the fact that Treasury prices fell alongside yesterday’s stock rout can only be explained by the idea that institutions that need cash are selling the only liquid assets they have, and Treasuries remain quite liquid. And to be clear, 10-year yields are lower by 18bps this morning as that bout of selling seems to have passed and the haven demand has returned in spades.

But since the financial crisis, the second most powerful haven asset has been the Japanese yen. Despite the fact that the nation has basically been in an economic funk for two decades, it continues to run a significant current account surplus. As a consequence, Japanese external investment is huge and when fear is in the air, that money comes running back home. The evolution of the coronavirus spread can be seen in the yen’s movement as in the middle of February, when Japan itself was dealing with the growth in infections, the yen weakened to a point not seen in nearly a year. Since then, however, the yen has strengthened 7.5% (with a peak gain of 9.8% seen Monday) as flows have been decidedly one way. This morning the yen has appreciated 0.7% from yesterday’s close and quite frankly, until the pandemic starts to ebb, I see no reason for it to stop appreciating. Par will pose a short-term psychological support for the dollar, but if this goes on for another two months, 95 is in the cards. With that in mind, though, for all yen receivables hedgers, zero premium collars are looking awfully good here. Let’s talk, at the very least you should be apprised of the pricing.

Interestingly, the Swiss franc has had a somewhat less impressive performance despite its historic haven characteristics. While it has appreciated 4.5% in the same time frame, it has been having much more trouble during the latest equity market decline. And I think that is the reason why. Famously, the Swiss National Bank has 20% of its balance sheet invested in individual equities. This is a very different investment philosophy than virtually every other central bank. The genesis of this came about when the SNB was intervening on a daily basis while trying to cap the franc and ultimately needed a place to put the dollars and euros they were buying. I guess the view was stocks only go up, so let’s make some money too. Whatever the reason, as of December 31 the USD value of their equity portfolio was about $97.6 billion. I’m pretty confident that number is a lot lower today, and perhaps the idea about Swiss franc strength is being called into question. The franc is unchanged today and has been generally unimpressive for the past week.

Meanwhile, all eyes this morning are on Madame Lagarde and the ECB who will be announcing their latest policy initiatives shortly. While it is clearly expected they will do something, other than a 10bp cut in the deposit rate, to -0.60%, there is a great deal of uncertainty. Expectations range from expanding the TLTRO program with much more aggressive rates, as low as -2.00%, to a significant increase in QE to capping government bond yields. All of that would be remarkably dramatic and likely have a short-term positive impact on markets. But will it last? My sense is that until the Fed announces next week, and at this point I think they cut 100bps, markets will still be on edge. After all, the world continues to revolve around USD funding, and in times of crisis, foreign entities need access to USD liquidity. Look for more repo, more swap lines and maybe even a lending scheme although I don’t think the Fed can do something like that within their mandate.

Overall, the dollar is performing as the number two currency haven, after the yen, and has rallied sharply against commodity currencies in both the G10 and EMG spaces. For example, with oil down 5% this morning, NOK has fallen 3.6%, but both AUD and SEK are lower by 1.5% as well. In the emerging markets, Mexican peso continues to be the market’s whipping boy, falling a further 3.2% as I type, which takes its decline since the beginning of the month to 12.2%. meanwhile, the RUB is in similarly dire straits (-2.75% today, -11.5% in March) and we are seeing every single EMG currency lower vs. the dollar today. These are the nations that are desperate for USD liquidity and you can expect their currencies to continue to decline for the foreseeable future.

At this point, data is an afterthought, but it is still being released. Yesterday saw CPI rise a tick more than expected but the more interesting data point was Mortgage Applications, which jumped 55.4% as mortgage rates collapse alongside Treasury yields. This morning brings Initial Claims (exp 220K) and PPI (1.8%, 1.7% core) with far more interest in the former than the latter. Consider, given the enormous economic disruptions, it would be easy to see that number jump substantially, which would just be another signal for the Fed to act as aggressively as possible.

At this point, as the equity meltdown continues, the dollar should remain well supported vs. everything except the yen.

Good luck
Adf

Those Doves

The dollar continues as king
Of currencies and that’s the thing
The Fed really loves
Especially those doves
Who want to cut rates before spring

It’s not really clear to me what else to discuss these days as everything runs through the following chain of thought: how long before the Covid-19 pandemic epidemic passes its peak; what will be the ultimate economic impact; and when will we see more aggressive monetary intervention by central banks, notably the Fed.

Since the Lunar New Year holiday (and coronavirus scare) began, back on January 24, the dollar has rallied vs. every other currency on the planet. I think it is worthwhile to consider just how big this move has been:

Swiss franc -0.70%
Japanese yen -0.95%
Canadian dollar -1.28%
British pound -1.40%
Danish krone -1.62%
Euro -1.63%
Swedish krona -2.10%
Australian dollar -4.03%
Norwegian krone -4.12%
New Zealand dollar -4.84%

Source: Bloomberg

A look at this list of currencies reveals pretty much what you would expect; those with the highest beta to China’s economy, Australia and New Zealand, have fallen the furthest, along with the currency most closely linked to the price of oil, Norway. Of course, since that day, the price of WTI has tumbled nearly 15%, on significantly reduced demand, so it is no surprise NOK has suffered. Perhaps more interestingly is that both the Swiss franc and Japanese yen, considered the two safest currencies, have both given up solid ground vs. the greenback as well. Any idea that the dollar has lost its haven status is simply incorrect. Granted, one of the key reasons the dollar is a haven is due to US Treasuries, which nobody denies as the safest of havens, and which have seen yields tumble in this same time period amidst substantial demand. In fact, 10-year Treasury yields are down by 37bps in the past month.

The emerging market picture is no different, with even HKD, the pegged currency, lower by 0.25% since the Lunar New year began. While a chart here would be too long, the highlights are as follows: commodity producing countries have seen the worst performance with ZAR (-5.6%, RUB (-5.6%), BRL (-5.0%) and CLP (-4.7%) leading the way. After those come the currencies from those nations most closely linked to China’s economy; notably THB (-4.4%), KRW (-4.0%), MYR (-3.7%) and SGD (-3.3%). The renminbi itself is down 1.1%, which all things considered is a pretty good performance, but also one that is being strictly controlled by the PBOC. As to the rest of the EMG bloc, every one of them has weakened in this time frame, many despite local central bank intervention, and quite frankly, all of their prospects are directly dependent on how the Covid-19 epidemic plays out.

Yesterday’s halting efforts at a rebound were quashed when the CDC revealed the truth that Covid-19 was coming to a city near you at some point and would likely result in significant disruptions in daily life. And of course, the market reactions to comments like these are the reason that officials, especially central bank and FinMin types, routinely lie about conditions. The truth often results in unfavorable outcomes, especially for elected officials.

So a quick recap of the overnight news is that there were more cases highlighted in Italy, South Korea, and Iran, with Brazil finally getting its first confirmed infection. The death toll continues to climb, currently at 2,715 as the official count of infections is well over 80K. As well, in the past twenty-four hours we have heard from central bank officials around the world explaining that it is too soon to react, but they are carefully monitoring the situation and primed and ready to adjust policy if it is deemed necessary. FWIW my view is that if we see US equities fall another 5% this week, we are going to see an emergency rate cut, even before the March 18 meeting. Too, futures markets are now pricing in the first Fed cut in June with two cuts by September. When all this started back at the Lunar New Year, the probability of a June cut was just 19% and a full cut wasn’t priced in until December. One important thing to remember is that the Fed has never disappointed the market on a policy move when it was fully priced by the futures market. It will take a great deal of both positive news and serious discussion by Fed speakers to avoid a real mess come the middle of March if they really don’t want to cut rates.

There was virtually no economic news overnight and this morning brings only New Home Sales (exp 718K), which is the one part of the economy that should continue to benefit from the remarkably low interest rate structure. Currently we are seeing European equity markets continuing their sell-off although US futures have stopped hemorrhaging for the time being and are essentially flat as I type. But until we see some positive news, like a cure has been found, it is difficult to expect the current momentum will change. With that in mind, I expect that equities will remain under pressure, Treasuries will remain well bid and the dollar will continue to find adherents.

Good luck
Adf

 

All Stressed

It started in China’s Great Plains
Where factories for supply chains
Were built wall to wall
But now they have all
Been shuttered to stop Covid’s gains

However, the sitch has regressed
While China, their data’s, repressed
Thus Covid’s now spreading
And everywhere heading
No shock, stocks worldwide are all stressed

I know each and every one of you will be incredulous that the G20 meeting of FinMins and central bankers this weekend in Saudi Arabia was not enough to stop Covid-19 in its tracks. I certainly was given the number of statements that we have heard in recent weeks by central bankers explaining that if the virus spreads, they will save the day!

But clearly, whatever power monetary or fiscal power has, it is not well placed to solve a healthcare crisis that is rapidly spreading around the world. This weekend may well have been the tipping point that shakes equity investors out of their dream-induced state. While the steady growth in numbers of infections and fatalities in China remains constant, something which seems to have been accepted by investors everywhere, the sudden jump in Covid cases in South Korea and, even more surprisingly, in Italy looks to have been just the ticket to sow doubt amongst the bullish investment set. And just like that, as markets are wont to do, fear is the primary sentiment this morning.

A quick market recap shows that equity markets worldwide have been decimated, although Europe (DAX -3.5%, CAC -3.5%, FTSE 100 -3.2%, FTSE MIB (Italy) -4.6%) has felt the brunt more than Asia (Nikkei -0.4%, Hang Seng -1.8%, Kospi -3.9%, Shanghai -0.3%). And US futures? Not a pretty picture at this point, with all three down more than 2.5% as I type.

Benefitting from the risk-off sentiment are Treasury bonds (yields -8bps to 1.39%) and bunds (-6bps to -0.50%), while the barbarous relic itself is up 2.4% to $1682/oz. And you thought gold was no longer important!

Finally, in the currency markets, the dollar is king once again, gaining against all comers but one, quite sharply in some cases. The yen has regained some of its haven status, rallying 0.25% this morning, although it remains far lower than just last Thursday. But the rest of the G10 is under pressure with NOK (-1.0%) falling the most as oil prices (WTI -4.0%) are getting crushed today. By contrast, CAD (-0.45%) seems almost strong in the face of the weakness in oil. But aside from the yen, the rest of the bloc is lower by at least 0.25%, and there is nothing ongoing in any of these nations that is driving the story, this is pure risk aversion.

In the EMG space, the story is more of the same, with the entire space lower vs. the dollar today although the biggest losers may be a bit of a surprise. Pesos are feeling the heat with both Mexico (-1.2%) and Chile (-1.1%) the worst performers in the space. The latter is a direct response to the weakness in copper prices, while the former has multiple problems, with oil’s decline just the latest. In fact, since last Thursday morning, the peso has fallen nearly 3.0% as we are beginning to see the very large long MXN carry position start to be unwound. It seems that long MXN had the same perception amongst currency investors as long the S&P had for equity investors. The thing is, at least according to the CFTC figures from last week, there is still a long way to go to reach neutrality. We are still more than 12% from the peso’s all-time lows of 22.03 set in early 2017, but if Covid continues to evade control, look for that level to be tested in the coming months (weeks?).

And that’s today’s story really. There are some political issues in Germany, as the ruling CDU finds itself in the middle of a leadership contest with no clear direction, while Italy’s League leader, Matteo Salvini, is hurling potshots at the weakened Giuseppe Conti government. But even under rock solid leadership, the euro would be lower this morning as would each nation’s stock market. Perhaps of more concern is the news that China, despite the ongoing spread of Covid-19, was relaxing some of its quarantine restrictions as it has become clearer by the day that the economic impact on the mainland is going to be quite substantial. President Xi cannot afford to have GDP growth slow substantially as that would break his tacit(?) deal with the people of more government control for continued material improvement. It has been a full month since virtually anything has been happening with respect to manufacturing throughout China and we are seeing more and more factories elsewhere (South Korea, Eastern Europe) shut down as supply chains have broken. Shipping rates have collapsed with more than 25% of pre-Covid activity having disappeared. This will not be repaired quickly I fear.

Turning to the data, which is arguably still too early to really reflect the impact of the virus, this week brings mostly secondary numbers, although we do see core PCE, which is forecast to have increased by a tick.

Tuesday Case-Shiller Home Prices 2.85%
  Consumer Confidence 132.1
Wednesday New Home Sales 715K
Thursday Q4 GDP 2.1%
  Durable Goods -1.5%
  -ex transport 0.2%
  Initial Claims 211K
Friday Personal Income 0.4%
  Personal Spending 0.3%
  Core PCE 0.2% (1.7% Y/Y)
  Chicago PMI 46.0
  Michigan Sentiment 100.7

Source: Bloomberg

Of course, the Fed has made it quite clear that they have an entirely new view on inflation, namely that 2.0% is the new 0.0%, and that they are going to try to force things higher for much longer to make up for their internally perceived failures of reaching this mythical target. We all know that the cost of living has risen far more rapidly than the measured inflation statistics, but that does not fit into their models, nor does it given them an excuse to continue to pump more liquidity into markets. In fact, it would not be that surprising to see them double down if today’s declines continue for several days. After all, that would imply tightening financial conditions.

But for now today is the quintessential risk-off day. Look for the dollar to remain king while equities fall alongside Treasury yields.

Good luck
Adf

Set For Stagnation

When thinking of every great nation
Regarding its growth expectation
The US alone
Is like to have grown
While others seem set for stagnation

The upshot of these circumstances
Is regular dollar advances
Within the G10
It’s euros and yen
That suffer on policy stances

Another day, another dollar rally. This simple sentiment pretty well sums up what we have been seeing for the past several weeks. And while there may be a multitude of catalysts driving individual currency movements, the reality is they all point in the same direction, a stronger dollar. Broadly speaking, data from around the world, excluding the US, has been consistently weaker than expected while the US continues to hum along nicely. Now, if China’s economy remains in its current catatonic state for another month, one has to believe that US numbers are going to suffer, if only for supply chain reasons. But right now, it is difficult for anyone to make the case that another currency is better placed than the dollar.

For example, last night we saw Australian Unemployment unexpectedly rise to 5.3% as the first measured impacts of Covid-19 make themselves felt Down Under. Traders wasted no time in selling Aussie and here we are this morning with the currency lower by 0.75%, trading to new lows for the move and touching its lowest level since March 2009. Perhaps the Lucky Country has run out of luck.

The yen keeps falling
Like ash from Fujiyama
Is an end in sight?

At this point in the session, the yen has seen its largest two-day decline since November 2016, in the immediate wake of President Trump’s election, and has now fallen more than 2.0% since Tuesday morning. It has broken through a key technical level at 111.02, which represented a very long-term downtrend line. This has encouraged short-term traders to add to what is believed to be significant outflows from Japanese investors, notably insurance companies. One of the other interesting things is that Japanese exporters, who are typically sellers of USDJPY, seem to be sitting this move out, having filled orders at the 110 level, and are now apparently waiting for 115. While it is unlikely that we will see the yen continue to decline 1% each day, I have to admit that 115 seems quite realistic by the end of the Japanese fiscal year next month.

And those are just two of the many stories that seem to be coming together simultaneously to encourage dollar buying. Other candidates are ongoing weak Eurozone economic data (Eurozone Construction output falling and reduced forecasts for tomorrow’s flash PMI data), rate cuts by EMG central banks (Indonesia cut by 25bps last night), and more confusion from China regarding Covid-19 and its spread. Last night, they changed the way they count infections for the second time in a week, and shockingly the result was a lower number indicating the spread of the disease is slowing. However, at this point, the virus count seems to be having less of a market impact than little things like the announcement that Hubei province is keeping all factories shuttered until at least March 10. Now I don’t know about you, but that hardly seems like the type of thing that indicates things are getting better there.

There is a new tacit contest in the market as well, trying to determine just how big a hit the Chinese economy is going to take in Q1. If you recall two weeks ago, the initial estimates were that GDP would grow at a 4%-5% rate in Q1. At this point 0.0% seems a given with a number of analysts penciling in negative growth for the quarter. And folks, I don’t know why anyone would think there is going to be a V-shaped recovery there. It is going to take a long time to get things anywhere near normal, and there has already been a lot of permanent demand destruction. On top of that, one of the things I had discussed last week, the idea that even if companies aren’t generating revenue, they still need to pay interest on their debt, is starting to be seen more publicly. The news overnight that HNA Group, a massively indebted conglomerate that had acquired trophy assets all around the world (stakes in Hilton Hotels and Deutsche Bank amongst others) is unable to pay interest on its debt and seems to be moving under state control. While the PBOC cut rates slightly overnight, the one-year loan prime rate is down to 4.05% from 4.15% previously, it appears that the Chinese government is going to be fighting the Covid-19 fight with more fiscal measures than monetary ones. That said, the renminbi has been falling along with all other currencies and has traded back through 7.00 to the dollar after a further 0.35% decline overnight.

The point is that you can essentially look at any currency right now and it is weaker vs. the dollar. Each may have its own story to tell, but they all point in the same direction.

I would be remiss to ignore other markets, which show that other than Chinese equity markets (Shanghai +1.85%), which rallied last night after news of further stimulus measures, risk is mostly on its back foot today. European equity markets are generally lower (DAX -0.1%, CAC -0.1%) although not by much. US futures are pointing lower by 0.2% across the board, again, not significant, but directionally the same message. Treasury yields continue to fall, down another 2bps this morning to 1.54%, and gold continues to rally, up another 0.3% this morning.

Yesterday’s FOMC Minutes explained that the Fed was pretty happy with current policy settings, something we already knew, and that they are still unsure how to change their ways to try to be more effective with respect to achieving their inflation target as well as insuring that there are no more funding crises. On the data front, yesterday’s PPI data was much firmer than expected, although most people pretty much ignore those numbers. Today we see Philly Fed (exp 11.0), Initial Claims (210K) and Leading Indicators (0.4%). Monday’s Empire Mfg data was stronger than expected and the forecasts for Philly Fed are for a solid increase. Yet again, the data picture points to a better outcome in the US than elsewhere, which in the current environment will only encourage further USD buying. For now, don’t get in front of this train, but if you need to hedge receivables, sooner is better than later as I think we could see this run for a while.

Good luck
Adf

Simply Too Fraught?

The question whose answer is sought
‘Bout what should be sold or be bought
Is will GDP
Rebound like a V
Or are things just simply too fraught?

Risk is neither on nor off this morning as investors and traders continue to sift through both the recent changes in coronavirus news from China and the economic releases and choose a direction. Thus far this morning, that direction is sideways.

In one way, it is a bit surprising there is not a more negative viewpoint as on top of the surge in reported cases of Covid-19 (the coronavirus’s official name), we have heard of more companies closing operations outside of China for lack of parts. The latest is Fiat Chrysler, which closed a manufacturing facility in Serbia due to its inability to source parts that are built in China. While the Chinese government is seemingly trying to get everyone to believe that things are going to be back to normal soon, manufacturers on the ground there who have reopened, are running at fractions of capacity due to an inability of workers to get to the plant floor. Huge swaths of the country remain in effective lockdown, and facemasks, which are seen as crucial to getting back to work, are scarce. Apparently, the capacity to make face masks in China is just 22 million/day. While that may sound like a lot, given everyone needs a new one every day, and that there are around 100 million people under quarantine (let alone 1.3 billion in the country), there just aren’t enough to go around. I remain skeptical that this epidemic will come under any sense of control for a number of weeks yet, and that ultimately, the hit to global economic growth will be far more severe than the market is currently pricing.

Another sign of trouble came from Germany this morning, where Q4 GDP was released at 0.0% taking the annual growth rate to 0.6% in 2019. Eurozone GDP turned out to be just 0.9% in 2019, and that was before the virus was even discovered. In other words, it appears that both those numbers are going to be far worse in Q1 as the Eurozone remains highly reliant on exports to grow, and as the Fiat news demonstrates, exports are going to be reduced.

Keeping this in mind, it is easy to understand why the euro remains under so much pressure. While its decline this morning is just 0.1%, to 1.0830, the euro is trading at its lowest level vs. the dollar since April 2017. The single currency has fallen in 9 of the past 10 sessions and is down 2.4% this month. And let’s face it, on the surface; it is awfully difficult to make a case for the euro to rebound on its own. Any strength will require help from the dollar, meaning either weaker US economic data, or more aggressive Fed policy ease. At this point, neither of those looks likely, but the impact of Covid-19 remains highly uncertain and can easily derail the US economy as well.

But for now, the narrative remains that Chinese GDP growth in Q1 will be hit, but that by Q2 things will be rebounding and this will all fade from memory akin to the SARS virus in 2003. Just remember, China has effectively been closed since January 23, three full weeks, or 6% of a full year. While manufactured goods demand will certainly rebound, there are many services that simply will never be performed and cannot be recouped. The PBOC is already tweaking leverage policies on property lending in an effort to help further support growth going forward, and there is discussion of allowing banks to live with a greater proportion of non-performing loans that are due to the coronavirus. One can only imagine all the garbage loans that will receive that treatment!

Switching to a view of the markets, equity markets are +/- 0.2% generally speaking with US futures in a similar position. Treasury yields have fallen back a few bps, giving up yesterday’s modest gains, and the FX market, on the whole, is fairly benign. Away from the euro’s small decline this morning, we are seeing slight weakness in the pound, Aussie and Kiwi, with the rest of the G10 doing very little. The one gainer today is CAD, +0.15%, which seems to be benefitting from WTI’s ongoing bounce from Monday’s low levels, with the futures contract there higher by 1.4%.

In the EMG space, ZAR is today’s big winner, up 0.65%, in response to President Cyril Ramaphosa’s State of the Nation speech, where he outlined steps to help reinvigorate growth and fix some of the bigger problems, like the state-owned power producer Eskom’s debt issues. Of course, speeches are just that and the proof will be in what policies actually get implemented. The other key gainers here are BRL (+0.6%), which saw the central bank (finally) intervene yesterday to try to stop the real’s dramatic recent plunge (it had fallen more than 4% in the past 10 days and nearly 10% in 2020 so far). After announcing $1 billion in swaps, the market turned tail and we are seeing that continue this morning. HUF also continues to benefit, rallying a further 0.55% this morning, as the market continues to price in growing odds of a rate hike to help rein in much higher than expected inflation.

On the data front, this morning brings Retail Sales (exp 0.3%, 0.3% ex autos) as well as IP (-0.2%), Capacity Utilization (76.8%) and Michigan Sentiment (99.5). Yesterday’s CPI data was a touch firmer than forecast, simply highlighting that the Fed’s measure of inflation does not do a very good job. Also yesterday, we heard from NY Fed President Williams who told us the economy is in a “very good place”, while this morning we hear from uber-hawk Loretta Mester. This week the doves have all cooed about letting inflation run hot and cutting if necessary. Let’s hear what the hawks think.

So as we head into the weekend, I expect traders to reduce positions that have worked as the potential for a weekend surprise remains quite large, and nobody wants to get caught. That implies to me that the dollar can soften ever so slightly as the day progresses.

Good luck
Adf

Coming Up Short

All week what the market has said
Is fears in re China are dead
But last night it seems
The latest of memes
Showed fear is still somewhat widespread

This morning the payroll report
If strong, ought, the dollar, support
The US this week
Has been on a streak
While Europe keeps coming up short

After a week where early fears about the spread of the coronavirus morphed into a belief that any issues would be contained and have only a short term impact on the global economy, it seems that some investors and traders are having second thoughts. For the first time since last Friday, equity markets around the world have fallen, albeit not very far, and risk is starting to be unloaded. Certainly, this could well be short-term profit taking. After all, since Friday’s close on the S&P 500, the index was higher by nearly 4% as of last night, and pretty much in a straight line. The remarkable thing about the equity rally, which was truly global in nature, was that it very studiously ignored the ongoing growth of the epidemic and its economic impacts.

Last night, however, it seems the announcements by Toyota and Honda that they would extend their mainland Chinese factory shutdowns by another week, as well as the force majeure declarations by Chinese energy and copper companies have served to highlight just how severely economic activity in China is slowing. Alas, the human impact continues its steady climb higher, with more than 600 deaths now attributed to the virus and more than 31,000 cases confirmed. It certainly appears as the situation has not yet reached anything near a peak, which implies that more market impacts are still to come.

One of the things we are beginning to see is a more significant reduction in expectations for Chinese economic activity this year. Last night, several more analysts reduced their expectations for Q1 GDP growth there by more than 2%. Given the fact that China has quarantined some 90 million people at this point, which is a remarkable 6.5% of the population, I expect that before all is said and done, Q1 GDP growth in China is going to be much lower, probably on the order of 2% annualized. In fact, I would not be surprised if the Chinese don’t release a Q1 number at all. There is precedent for this as just last night, the customs administration there announced that there would be no January trade data release, and that the numbers would be merged with February’s data to smooth out the impact of the Lunar New Year. Assuming the virus situation is under control by the end of Q1, it would be well within the Chinese prerogative to do the same with that data, hopefully masking just how bad things were.

In the end, there was nothing positive to be learned from Asia last night, which was confirmed by weakness in both equity markets throughout the region as well as the FX markets, where every currency in the APAC group fell. And all of this movement is directly attributable to the virus story.

Moving westward to Europe, things are looking no better there this morning, with equity markets lower across the board and their currencies also under pressure. NOK is the worst performer, down 0.6% as fears over further weakness in the oil market are weighing on the currency. But, the euro is feeling more heat today as well; down 0.25% after IP data from everywhere in the Eurozone was markedly disappointing. Germany (-3.5%), France (-2.8%), Spain (-1.4%) and the Netherlands (-1.7%) demonstrated that a risk of a recession remains quite real on the continent. In fact, you may recall how Germany barely dodged that recession status in Q4, when GDP rose 0.1% in a bit of a surprise. Well, right now, Q1 looks like it is going to be negative again. It seems to me that if a country has three negative GDP prints in six quarters, with the other three quarters printing around +0.1%, that could easily be defined as a recession. But regardless of how it is described in print, the reality is that Germany has not come out of its funk yet, and it may be dragging the rest of Europe down with it.

But there is something else ongoing in the euro which is likely to have been a significant part of the currency’s recent weakness. Recall that LVMH has agreed to buy Tiffany’s for ~$16.5 billion. Well, LVMH issued both EUR (7.5 billion) and GBP (1.5 billion) bonds this week to pay for the purchase, which means that there was a massive conversion in both currencies that is a one-way flow. And as large as these markets are, a significant dollar purchase like that is going to have a major impact. As I wrote earlier this week, the euro is leaning heavily on support at 1.0950, and if it manages to break through, there is nothing technically in the way until 1.0850. If you are a payables hedger, this could be an excellent opportunity.

Turning to the US, this morning is payrolls day. After Wednesday’s blowout 291K number for ADP Employment, expectations are running high that things are going to be quite good. The current median forecasts are as follows:

Nonfarm Payrolls 165K
Private Payrolls 155K
Manufacturing Payrolls -2K
Unemployment Rate 3.5%
Average Hourly Earnings 0.3% (3.0% Y/Y)
Average Weekly Hours 34.3
Participation Rate 63.2%

Source: Bloomberg

A quick look at the revisions in NFP estimates since the ADP number shows that the average is now 180K. As I said, expectations are running high. And given the strength of US data we have seen all week, if we do get a strong number, I expect to see the dollar break higher, likely taking out technical resistance in a number of currencies.

To recap, we have a risk-off session leading up to a key economic indicator. It will be interesting to see if strong US data can offset the growing fear of further negative news from china, but ironically, I think that the dollar is likely to be in demand regardless of the outcome. A weak number implies a potential negative impact from the virus, and risk-off which helps the dollar. A strong number means that the US remains above the fray, and that US investments are poised to continue to lead the world, thus drawing in more dollar buyers. Either way, the dollar seems primed to rally further today.

Good luck and good weekend
Adf

Strength in Their Ranks

Around the world, all central banks
Are to whom we need to give thanks
By dint of their easing
All shorts they are squeezing
Who knew they’d such strength in their ranks?

Every day that passes it becomes clearer and clearer that central banks truly are omnipotent. Not only do they possess the ability to support economies (or at least stock markets), but apparently, easing monetary policy cures the coronavirus infection. Who knew they had such wide-ranging powers? At least that is certainly the way things seem if you look through a market focused lens.

Let’s recap:

Date # cases / # deceased S&P 500 Close 10-Year Treasury EURUSD USDJPY
31 Dec 1 / 0 3230 1.917% 1.1213 108.61
6 Jan 60 / 0 3246 1.809% 1.1197 108.37
10 Jan 41 / 1 3265 1.82% 1.1121 109.95
20 Jan 219 / 3 3320 1.774% 1.1095 110.18
22 Jan 500 / 17 3321 1.769% 1.1093 109.84
24 Jan 1320 / 41 3295 1.684% 1.1025 108.90
28 Jan 4515 / 107 3276 1.656% 1.1022 109.15
30 Jan 7783 / 170 3283 1.586% 1.1032 108.96
3 Feb 17,386 / 362 3248 1.527% 1.1060 108.69
4 Feb 24,257 / 492 3297 1.599% 1.1044 109.59

Sources: https://www.pharmaceutical-technology.com/news/coronavirus-a-timeline-of-how-the-deadly-outbreak-evolved/and Bloomberg

Now obviously, they are not actually creating a medical cure for this latest human affliction (I think), but once it became clear that the coronavirus was going to have a significant impact on the Chinese, and by extension, global economies, they jumped into action. While it was no surprise that the PBOC immediately eased policy to head off an even larger stock market rout upon the (delayed) return from the Lunar New Year holidays, I think there was a larger impact from Chairman Powell, who at the Fed press conference last week, made it clear that the Fed stood ready to react (read cut rates) if the coronavirus impact expanded. And then, just like that, the coronavirus was relegated to the agate type of newspapers.

What is really amazing is how the narrative has been altered from, ‘oh my gosh, we are on the cusp of a global pandemic so sell all risky assets’ to ‘the flu is actually a much bigger problem globally and this coronavirus is small potatoes and will be quickly forgotten, so buy those risky assets back’.

The point here is that market players lead very sheltered lives and really see the world as a binary function, is risk on or is risk off? And as long as the central banks continue to assure traders and investors that they will do whatever it takes to prevent stock markets from declining, at least for any length of time, those central banks will continue to control the narrative.

So, with that as preamble, what is new overnight? In a modest surprise, at least on the timing, the Bank of Thailand cut rates by 25bps to a record low 1.00%. The stated reason was as a prophylactic to prevent economic weakness as the coronavirus spreads. Too, the MAS explained that they have plenty of room to ease policy further (which for them means weakening the SGD) if they deem the potential coronavirus impacts to call for such action. It should be no surprise that SGD is today’s weakest link, having fallen 0.75% but we also saw immediate weakness in THB overnight, with the baht falling nearly 1.0% before a late day recovery on the back of flows into the Thai stock exchange. As to the rest of the EMG space, PHP is also modestly weaker after the central bank there indicated that they would cut rates as needed, but we have seen more strength across the space in general. RUB is leading the pack, up 0.8% on the back of a strong rebound in oil prices (WTI +2.3%), but we are also seeing strength throughout LATAM as CLP (+0.7%), BRL (+0.55%) and MXN (+0.4%) all rebound on renewed risk appetite. ZAR has also had a banner day, rising 0.7% on the positive commodity tone to markets.

In the G10 space, things are a bit less interesting. It should be no surprise that AUD is the top performer, rising 0.4%, as it has the strongest beta relationship to China and risk. NOK is also gaining, +0.25%, with oil’s recovery. On the other side of the blotter, CHF (-0.3%) and JPY -0.15%, but -1.0% since yesterday morning) are taking their lumps as haven assets no longer hold appeal to the investment community. This idea has been reinforced by the 10-year Treasury, which has seen its yield rise from 1.507% on Friday to 1.63% this morning.

And don’t worry, your 401K’s are all green again today with equity markets around the world back on the elevator to the penthouse.

Turning to today’s US session, we start to get some more serious data with ADP Employment (exp 157K), the Trade Balance (-$48.2B) and ISM Non-Manufacturing (55.1). Earlier this morning we saw Services PMI data from both Europe and the UK. Eurozone PMI data was mixed (France weak and Italy strong), while the UK saw a strong rebound. We also saw Eurozone Retail Sales, which were quite disappointing, falling 1.6% in December, and seemingly being the catalyst for the euro’s tepid performance today, -0.2%. Remember, Monday’s US ISM data was much better than expected, and there is no question that the market is willing to believe that today’s data will follow suit.

In sum, continued strong performance by the US economy, at least relative to its peers, as well as the working assumption that should the data start to falter, the Fed will be slashing rates immediately, will continue to support risk assets. At this point, that seems to be taking the form of buying high yield currencies (MXN, ZAR, INR) while buying the dollar to increase positions in the S&P500 (or maybe just in Tesla ). As such, I look for the dollar to hold its own vs. the bulk of the G10, but soften vs. much of the EMG bloc.

Good luck
Adf