Global View September 2015: Where Are US Bonds Heading?

by Michael J. Howell15. September 2015 17:33

Two burning questions are: (a) will a pending US Fed Funds rate hike and (b) continued selling of US dollars and Treasuries by China cause US bond yields to spike higher? Our answer is ‘no’ largely because the safe haven attractions of US Treasuries will keep yields low. A 25 bp rate hike could add 15 bp to 10-year Treasury yields. But another couple of months of capital flight from China could push them down by 50 bp because of lower term premia.

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TSS - Major Markets Report, September 2015

by Michael J. Howell14. September 2015 12:31

In the upcoming weeks, investors will focus on whether the Fed will hike rates and whether Chinese data will deteriorate further? US monetary tightening is inevitable, but in many ways it has already occurred through the Fed’s ‘silent tightening’ as it enacts further reverse repo operations to curtail liquidity in preparation for a likely September interest rate rise.

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TSS - Major Markets Report, September 2015

by Michael J. Howell14. September 2015 12:31

In the upcoming weeks, investors will focus on whether the Fed will hike rates and whether Chinese data will deteriorate further? US monetary tightening is inevitable, but in many ways it has already occurred through the Fed’s ‘silent tightening’ as it enacts further reverse repo operations to curtail liquidity in preparation for a likely September interest rate rise.

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Global View September 2015: Is America Heading for Recession?

by Michael J. Howell10. September 2015 18:27

Could 2016 be a US recession year? Still probably unlikely, but never say never. Latest US liquidity data suggest that the trends still point down. The US Fed is engaging in a ‘silent tightening’ of liquidity ahead of its likely September rate move; net foreign flows are reversing, admittedly more through Americans buying overseas assets, and private sector liquidity is on a downwards trajectory.

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Emerging Markets Latest GLI, September 2015

by Michael J. Howell10. September 2015 18:24

China continues to weigh down heavily on EM. The big message we get from our latest data is that China will have to devalue the RMB further. We still predict a 10% drop for 2015. In August 2015, EM Liquidity remained soft testing a sub-par index level of 32.4 (‘normalised’ range 0-100). Chinese Liquidity, which dominates, hit the lower index level of 25.6.

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Global Liquidity Latest, September 2015

by Michael J. Howell10. September 2015 18:22

Global Liquidity remains sub-par. End-August 2015 saw our monthly GLI™ (Global Liquidity Index) touch 39.2 (‘normal’ range 0-100). This was a small rise from July and occurred only because that reading was revised down.  Markets are being pulled in two directions: downwards by China and upwards by US liquidity. August’s market volatility may be a teaser for the future: as US liquidity loses its impetus over coming months, so China will weigh more negatively.

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Global View September 2015: Latest China Data... Not Good News

by Michael J. Howell10. September 2015 18:18

In this report, we focus on three August data releases: (1) Chinese Central Bank Activity: (2) Private Credit Growth and (3) Net Financial Flows. All three are disappointing monthly numbers. Together they are inputs to our China Liquidity index, which remains depressed and indicative of continuing economic weakness.

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Global View August 2015: CE1, CE2 and CE3? Will the PBOC Be Forced to Triple Its Balance Sheet?

by Michael J. Howell10. September 2015 18:14

This report argues that August 2015 is China’s Lehman moment. Extrapolating forward, expect a Chinese ‘QE’ solution – dubbed here CE – a further 5-10% weakening in the RMB this year; spreading Asian inflation and Western deflation, and wild swings in the US Treasury market. If the PBoC fails, global bonds will rally, but if it succeeds, bonds could sell-off, much as they did in America’s QE periods.

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Global View August 2015: Capital Flows To Emerging Markets

by Michael J. Howell21. August 2015 14:32

Is it time to buy EM? Two indicators we watch closely are: (1) investors’ risk appetite and (2) cross-border flows. Great buying opportunities are often signalled when investors in general are downbeat – measured by a low exposure to risk assets (e.g. equities) and a high proportion of safe assets (e.g. cash) in portfolios – and when foreign money is flooding out. With the screens currently blazing red, is this a time to buy?

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TSS - Emerging Markets Report, August 2015

by Michael J. Howell21. August 2015 14:30

Emerging Market liquidity took a major step down last month largely because of signs of renewed weakness in China. EM Liquidity (41.4) is rising, but at a reduced pace across the EM universe and it is only keeping pace with similarly rising measures of Investors’ Risk Appetite, suggesting few investment opportunities.

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