Global View October 2015: Another Upward Lurch in the US Dollar?

by Michael J. Howell1. November 2015 18:20

Our models continue to favour the US dollar against the European currencies. Admittedly, we also see risks to the tempo of the US economy. However, a major factor driving the US dollar higher is the general shortage of US dollar funding. This makes this an unusual cycle. Similar factors were behind the 2008 surge in the US dollar as major investors sought to close leveraged loan positions. Looking ahead, we see Sterling as particularly vulnerable, given this deteriorating global financing backdrop and Britain’s large current account deficit.On top, a Chinese RMB devaluation also still looks likely to us. For those more wary of an upcoming US recession, hedging into gold makes sense. We have always argued gold is the obvious beneficiary of a new QE4 policy, and such a monetary inflation looks highly likely ..… sometime ahead.

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Global View October 2015: Is A Coming Chinese RMB Devaluation Deflationary?

by Michael J. Howell26. October 2015 14:17

We are convinced that China will have to devalue the RMB currency over coming months. This is likely to deliver another psychological shock to markets, with many investors fearing a further round of deflationary pressures. But is a RMB devaluation really deflationary for financial markets or for the World and Asian economies? We argue in this report that a weaker RMB will reinforce cost deflation, but it is more likely to be associated with monetary inflation, not monetary deflation. In other words, the medium-term impact of a Chinese devaluation could be bullish for risk assets and particularly for Asian markets.

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Global Liquidity Conditions (Liquidity) Emerging Markets, October 2015

by Michael J. Howell23. October 2015 10:40

Latest Emerging Market Liquidity readings confirm persistently poor numbers for end-September 2015. The Emerging Market component of our broader GLI™ series (Global Liquidity Index) remained soft, testing a sub-par index level of 31.2 (‘normalised’ range 0-100).

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Global Liquidity Conditions Major Markets, October 2015

by Michael J. Howell23. October 2015 10:35

Liquidity risks remain elevated. Our Global Liquidity Index (GLI) for September 2015 is stuck at low levels of 39.0 (‘normal’ range 0-100), or close to the low August reading. Such poor liquidity underscores a ‘Risk Off’ investment environment characterised by high volatility and by the likelihood that economic activity levels will weaken noticeably over the next 6-12 months. We have already warned that low and falling US liquidity levels already point to a modest economic recession by early 2016.

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TSS - Emerging Markets Report, October 2015

by Michael J. Howell23. October 2015 10:27

Emerging Market liquidity remains fragile, again because of the weak Chinese economy and further signs that the People’s Bank is tightening, and not easing, policy. EM Liquidity (31.2 Index ‘normal range’ 0-100) is rising but at a slow rate across the EM universe, paced by equally weak liquidity in the oil-dependent Frontier Markets (27.9).

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TSS - Major Markets Report, October 2015

by Michael J. Howell20. October 2015 15:41

The course of the US dollar over coming weeks remains, for us, the major uncertainty. Our models are poised between predicting a bit more strength, based on shortages of US dollar funding in cross-border markets, and growing fears of a fast-approaching 2016 US recession. These concerns likely outweigh other key issues, namely the path of the Chinese economy and whether or not the US Fed tightens this December? The latter anyway may be derivative.

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Global View October 2015 - 2016: The First Recession Involving Falling Not Rising Interest Rates

by Michael J. Howell16. October 2015 10:32

Deteriorating US corporate finances are already curtailing new orders and depressing industrial activity. Negative economic surprises are building. Near-zero short-term interest rates and even falling long-term rates seemingly have little punch. In fact, could this be the first recession heralded by a fanfare of falling, not rising, interest rates? This seems a puzzle, but it may not be. The issue for markets is always weak funding, not high interest rates.

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Emerging Markets Latest GLI, October 2015

by Michael J. Howell13. October 2015 12:03

Latest Emerging Market Liquidity readings confirm persistently poor numbers for end-September 2015. The Emerging Market component of our broader GLI™ series (Global Liquidity Index) remained soft, testing a sub-par index level of 31.2 (‘normalised’ range 0-100). EM Liquidity conditions have now been depressed for approaching four years.

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Global View October 2015: The Collapse of Global Liquidity and the Eclipse of Central Banking

by Michael J. Howell12. October 2015 10:52

In a darkening replay of 2007/08, there is an escalating lack of ‘liquidity’ across global markets. The echo of the Lehman Crisis can be heard in Figure 1, since Eurodollar balances are similarly being pulled back to US banks. Does this warn of funding problems? Bond investors’ most-talked-of fear is a lack of  ‘price and size’. Perhaps, because they sit at the front of the feeding-chain, bond markets are more sensitive to a bigger problem concerning the drying up of the World’s flows of money and credit?

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Global Liquidity Latest, October 2015

by Michael J. Howell12. October 2015 10:50

Liquidity risks remain elevated. Our Global Liquidity Index (GLI) for September 2015 is stuck at low levels of 39.0 (‘normal’ range 0-100) or close to the low August reading. Such poor liquidity underscores a ‘Risk Off’ investment environment characterised by high volatility and by the likelihood that economic activity levels will weaken noticeably over the next 6-12 months. We have already warned that low and falling US liquidity levels already point to a modest economic recession by early 2016.

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