I currently view long gold and miners as perhaps the strongest near term trade(s) if you believe the “Trump trade” is unwinding for the time being.
Although combined production cuts resulting from the OPEC deal are said to be greater than combined production increases from the US and others, meaning inventories should be into balance, global inventories keep rising–particularly in the US.
Dovish hike of 25bp
Energy trader positioning has been heavily long oil and that trade seems to be unwinding.
Real interest rates are deeply negative in much of the Eurozone due to the combination of interest rate repression by the ECB’s bond buying program plus above-target inflation.
Something has to give, and it will be reflected in an even weaker GBP.
Macro Theme: Higher Oil on OPEC/non-OPEC Production Cut Implementation Exceeding Expectations with Historic Cooperation
The most important inflation chart to focus on right now is producer prices in China.It provides a depiction what is happening with prices at the early stage of production in the largest exporter nation.
The politics of trade protectionism, nationalism, and anti-immigration are the match which will ignite dormant inflationary gasses bubbling underneath the surface after years of short-sighted monetary policy experiments.
It’s all fun and games until everyone tries to sell their government bonds at the same time. Markets have only begun seriously thinking about what the impacts of a more nationalistic, populist, reflationary economic climate might look like should the same political forces which caused the UK to vote itself out of the European Union and Donald Trump to become […]
“Our companies can’t compete with them now because our currency is too strong. And it’s killing us,” Trump told The Journal, referring to competition from China. The Trump Administration wants to make America great again by transforming it into a manufacturing powerhouse like it was in the Post War glory days. Buy America, hire America. That’s not so bad really. Most Americans are generally on board with this patriotic slogan as long as its implications stop there. But then Mr. Trump takes things a step further with nonsense about the “strong dollar killing us.” By “us,” he means the 13% of the US economy reliant upon goods exports (as opposed to the other 87% more reliant upon domestic services and consumption). Mr. Trump surely isn’t referring to the more […]
The Eurozone Consumer Price Index registered an increase of 1.8% year-over-year in January versus December’s reading of 1.1%. This means the ECB’s inflation target mandate of “close but below 2%” has effectively been satisfied at least a year earlier than intended. Next comes a series of goal post moving exercises. Policy makers and central bankers in Europe desire continued stimulus pumping to help limp past the banking crisis in Italy, the ongoing debt crisis in Greece, and significant political risk posed by elections in France, Germany, and the Netherlands. Expect central planners in Europe to disregard the steepening inflation trend for as long as possible. Public discourse will gravitate toward new arguments downplaying headline CPI. These will include shifting focus to core CPI, blaming […]
Mario Draghi is one of the better communicators in modern central banking. Everything he conveyed during the ECB’s 19th of January press conference was intentional. Each time he was presented with questions about whether the ECB should consider winding down its bond buying program faster in light of strengthening economic and inflation data he repeatedly stated, “it wasn’t discussed.” The last thing the native Italian central bank chief wants is a market eager to front run an accelerated QE taper, causing an unstable spike in Eurozone bond yields and in the value of the euro. Any tiny crumb of hope tossed to the hawks risks massive market repercussions similar to the Bernanke-inspired taper tantrum of 2013. Maintaining ultra loose monetary policy risks a rubber band snap back toward tightening […]
If you must limit yourself to only two macro risks worthy of flaring up your insomnia they are these: 1.) Trade war contagion – Globalization and open borders are going out of style in mainstream developed market politics. Fast. In theory, trade reform can be targeted to narrow trade deficits, increase wages for the middle class, and make every developed country great again. In reality, there are tremendous risks of unintended consequences shaking the foundation of modern global economies. Modern economies function with tightly intertwined international supply chains. What would happen if every US import from Mexico, China, or even Germany rose in price by 15-20% at the stroke of a legislative pen? Would it really stop there? Would it not spark a wave of […]
US GDP Grows by 1.6% in 2016 – Why It Doesn’t Matter