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Category: emerging markets

currencies

The Cost of Maintaining a Currency Peg

Hong Kong needs to mimic the US in raising short-term interest rates in order to maintain the currency peg with USD. This is causing strain on the Hong Kong economy as exemplified by 3m HIBOR climbing more briskly than it would independent of the peg. Some of the world’s most sky-high real estate prices are rolling over. This will accelerate […]

central banks

Bond Rally to Be Limited by Incoming Data and Treasury Issuance

Safe-haven sovereign bonds are experiencing a counter-trend snapback rally as the focus has shifted to a slew of troubling yet still mostly second-tier geopolitical events. The incoming populist Italian Five Star Movement/right-wing League political coalition is pursuing a shift away from painful austerity back toward the type of popular but damaging heavy borrowing and spending regime that led to Italy […]

central banks

Inflationary Upside Surprises Are on the Way and Still Underestimated

Oil, Sticker Shock, and Upward Pressure on Yields A perfect three-pronged storm is brewing:  oil, the labor market, and fiscal policy in the US will soon propel inflation notably higher than appreciated by overly complacent economists and analysts stuck in a delusion of “low-flation” recency bias. Just this past Friday afternoon–Friday afternoons being the most notorious time to quietly dump […]

central banks

Current Global Macro Backdrop: A Sea of Debt and Monetary Base Expansion

Global Macro Backdrop: Absolutely remarkable and historically unprecedented Developed market equity indexes are scorching higher across the board. New all-time highs or multi-decade highs are being reached nearly every day in the US, Japan, Germany, and elsewhere. Bond yields are constrained across the duration and risk spectrum near multi-decade lows. European sovereign 2-year notes in periphery nations such as Italy, Portugal, and Spain are negative and continuing to hit new lows. Bond spreads between Germany and the periphery are generally narrowing to new lows, pricing in similar levels of risk between EU nation states. European high yield bonds are trading below 2%. Equity, bond, and currency market volatility are all at or near historic lows. This is the least volatile […]