monetary policy

One Less Reason For A Rate Hike: March NFP Misses Big

One Less Reason For A Rate Hike: March NFP Misses Big

So much for speculation of a June or September Fed Funds rate hike. After our exhaustive commentary on the FOMC's latest statement on 19 March 2015, we concluded that a "September rate "liftoff" was extremely unlikely".

Just so happened on Easter Friday, the monthly non-farm payrolls (NFP) report for March came out to be their worst since December 2013.

For a long while now, we have been bullish on the US dollar. Our premise was mainly based on the relative strength of the US economy, and on the Fed's guidance and propensity towards monetary tightening while most of the world's other central banks have embarked on their respective paths of loosening monetary conditions.

However, having been through the volatility in both the financial markets and on the economic front, we are on the precipice of shifting our stance to being intermediately bearish the dollar.

Britain On Brink Of Deflation, BoE Expects It Even Lower

Britain On Brink Of Deflation, BoE Expects It Even Lower

First it was Europe that was mired in its coldest deflationary winter ever, then America promptly caught on. It was only a matter of time when cheap energy prices claimed its next victim - Britain. Unlike the Eurozone whose February CPI change settled at -0.3%, the UK saw no change in its price index from a year ago, missing estimates of a 0.1% rise and down from January's 0.3% change. The core figure (excluding food and energy) missed expectations of 1.3%, coming in at 1.2% from January's 1.4%. The market collectively expects deflation to officially strike in March. This comes on the heels of the BoE's Governor Mark Carney's comments about inflation dropping below zero in the next couple of months. Earlier in March, the Bank of England's MPC voted to keep interest rates at a record low of 0.5%, but foresaw a rate hike somewhere in 2016. The BoE is expected to trail the Fed in terms of monetary policy.

Euro Parity, Coming Sooner Than You Expect

Euro Parity, Coming Sooner Than You Expect

The time from when we last published our latest addition of the Daily Grail has been rather eventful. From the blistering jobs report 2 weeks ago that propelled market's expectation for a June rate hike even higher, to the continuation of monetary policy bifurcation by the world's central banks that will soon see the Euro trading at par to the Dollar, the month of March has so far endowed the financial markets with much needed cross-asset volatility.

On 22 January, the ECB unveiled something the world had never seen before. Mario Draghi, President of the European Central Bank, announced that for the first time in the 14 years of the Euro's existence, the ECB was going to monetize debt securities to the tune of €60bn/month. Just 2 short months ago, the ECB termed this open market operation the EAPP (Expanded Asset Purchase Program).

2 months and 1000 pips later, the ECB has coined a new term - the PSPP (Public Sector Purchase Program).The big question on the minds of currency traders across all trading desks is when will parity be attained on EURUSD. Not if but when.

US Economy Officially In Deflation

US Economy Officially In Deflation

We spoke, we warned, and it has now happened. For reference, we have included a bevy of links documenting our explanation of why deflation was going to be the elephant in the China room.

With the significance of this being the first deflationary headline figure 6 years after Lehman collapsed, low oil prices have conveniently been cast as the straw man. There is some truth to this - the energy index fell 9.7% while the gasoline index fell 18.7% in January, both over December. This marks the fiercest plunge in the 7 consecutive negative prints; the report also noted that the decline in the gasoline was "overwhelmingly the cause" for broad weakness in overall prices. When annualized, the energy index and gasoline index fell 19.6% and 35.4% respectively. Staggering figures!

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

Swiss Franc Rises Most On Record As SNB Kills Currency Peg

We are shocked, shell shocked in utter dismay; while we were still updating our memorial piece on the Charlie Hebdo attacks news so big and unprecedented broke, that we had no choice but to shelve all immediate plans and cover this extremely nerve wrecking story. In our more than 6 years in the financial markets, we have NEVER seen anything as ginormous as the move in the Swiss Franc has been. Something as innocuous as decoupling one's currency after 3 years of the status quo has turned out to be what will go down the history books.

The bottom line is crystal clear, almost nobody had guessed the SNB's hand in today's shocking move; and we suspect the SNB better gear up with some physical protection as we smell Molotov cocktails and napalm bombs when trading closes later and the full scene of the vicious carnage is laid fully bare for all to see.

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

23-28 December: Record Highs on Santa Rally; Russia Say Ruble Crisis Over; Japanese Prices Slip Yet Lower

The S&P 500 index closed at a record high of 2083 at Friday's close, capping what has been an ebullient Christmas week where equities have historically enjoyed outsized returns relative to volatility. Indeed, the S&P 500 was joined by the Russell 2000 index of stocks and the DJIA (Dow Jones Industrial Average of 30 stocks) to close Friday at their respective record highs.

Trading volumes have been thin across the board, perhaps not so in China where people apparently are told not to celebrate the festivities of Christmas, as markets there remained opened for the entire week. Apart from American markets, the Shanghai Composite surged to a record high this past week. Reason? Mainstream media has been blaring more stimuli from the PBoC. If indeed true, that the PBoC is indeed gearing up for more stimulus come 2015, it would indeed be trying to balance a very tricky scale. Readers will recall that earlier in December, the PBoC reigned in on shadow banking by tightening collateral rules; and now wants to prop up asset prices by introducing more stimulus via other conduits? Seems like some central bankers over there are a little confused on what they actually wish to achieve with their Schrödinger policies.

17-18 December: Negative Swiss Rates; FOMC Shows Resolve Despite Risks; Russia Goes Full Frontal Amid Crisis

17-18 December: Negative Swiss Rates; FOMC Shows Resolve Despite Risks; Russia Goes Full Frontal Amid Crisis

It just keeps coming. In this week alone we have already seen 4 central bank events starting with Russia's immense 6.5% rate hike and other policy accessories that eventually led to the chaos we saw on Tuesday; the ECB then dropped hints that it might extend its QE to sovereign bonds instead of the covered securities it currently purchases; the the planned FOMC statement and press conference with the chair woman yesterday; and then the SNB (Swiss national bank) unexpectedly cut its deposit rate.