On June 18, 2014, the Federal Open Market Committee (FOMC) voted to keep the federal funds rate unchanged at 0.25% and for the 5th consecutive meeting to reduce the pace of monthly asset purchases by $10 billion (bn) to $35bn. The tone of the statement and Chairwoman Yellen’s press conference was more dovish than expected. The market responded accordingly, as equities and 10-year yields rallied and the U.S. dollar (USD) sold off. Continue reading
The Taylor Rule is a formula widely used by central banks to determine how interest rates should change based on inflation, output, economic conditions and other factors. Since the start of the Great Financial Crisis in 2008, the world’s “G4” central banks – U.S., Japan, UK, and Europe have injected over $5 trillion of liquidity into the global economy. The U.S. Federal Reserve began “tapering” in December 2013, starting the process of exiting its quantitative easing program designed to keep rates low, stimulate borrowing and promote investing. Amidst signs that the global economic recovery is broadening and becoming more sustainable, market attention has begun to shift to whether less overall monetary accommodation is needed.
We applied the Taylor Rule to test the monetary policy stance of the G-4 central banks – testing each of them individually and making the results available below and conclude that policy for all but the Eurozone is too accommodative and that central bankers may have to respond more swiftly than many expect. Continue reading
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Macroeconomics, Paresh Upadhyaya, U.S. Dollar, United States | Tagged: Bank of England, Bank of Japan, BOE, BoJ, Central Banks, ECB, European Central Bank, Fed, Federal Reserve, Interest rates, raise rates, Taylor Rule | Leave a comment »
China’s currency, the renminbi, depreciated 1.4% in February 2014, essentially tying the record for the largest monthly drop since the Chinese government’s “peg” policy officially ended in 2005. This jump raised the question of whether or not the renminbi has come to some turning point or just another road bump before resuming a 9-year modest bull rally. We believe the recent depreciation of China’s renminbi is government-engineered and potentially signals a change in China’s exchange rate policy.
In 2013, the renminbi (abbreviation CNY), also called the yuan, was among the top 5 best performing emerging market currencies to appreciate against the U.S. dollar (USD), rising 2.9%. The seeming one-way trend in the currency, and, more importantly, the widening interest rate differentials between China’s onshore version of its currency (CNY) and its offshore version (CNH) has led to capital inflows domestically and from offshore investors.
Filed under: Equity Market Insights, Europe, Fixed Income Market Insights, Macroeconomics, Paresh Upadhyaya, U.S. Dollar | Tagged: China, China Central Bank, China economy, China GDP, Exchange Rate, Foreign Exchange, FX, PBoC, Renminbi, Yuan, yuan forwards | Leave a comment »
I recently participated in a webinar where I was asked a few questions regarding the U.S. dollar and Japan, which I think are on many people’s minds right now. I wanted to pass along my thoughts on both subjects.
What are the chances of the U.S. dollar losing its reserve currency status and what might replace it? Continue reading
Last night Congress reached an agreement to raise the debt limit and end the 16-day shutdown. After all the acrimony and tense negotiations, the deal passed by a comfortable margin with 81-18 vote in the Senate and 285-144 in the House.
Key details of the deal:
- The government reopens on October 17, 2013.
- Congress will provide spending authority through January 15, 2014 at the same spending level in effect prior to the shutdown.
- The debt ceiling is extended until February 7, 2014.
- Reality check: the real deadline will be sometime in mid-March, according to Goldman Sachs. The agreement allows the U.S. Treasury to utilize bookkeeping strategies known as “extraordinary measures” once the debt limit is breached on February 7th. Continue reading
Filed under: Equity Market Insights, Fixed Income Market Insights, GDP, Macroeconomics, Mutual Fund Industry, Paresh Upadhyaya, Political | Tagged: Fed policy, Interest rates, rate expectations, sequester | Leave a comment »
In an interview on Bloomberg Radio with Tom Keene and Ken Prewitt, I shared my thoughts on the Fed’s recent announcement that it would continue its QE efforts for the time being. If you missed the segment, I’ve summarized that conversation here for you. (Note that this is not an official transcript of our conversation).
Filed under: Fixed Income Market Insights, Macroeconomics, Paresh Upadhyaya, Uncategorized | Tagged: Central Banks, EM, Fed Action, FOMC, global growth, Interest rates, Paresh Upadhyaya, rising interest rates | Leave a comment »