Some interesting currency moves today

[JR8]

Interesting comment [at the end] on this morning's open from a respected analyst, Craig Erlam at Oanda:

' While a further fall in CPI [UK Core Price Inflation - the number is due for release today, plus also in the US!] will spark hyperbolic headlines about a descent into pernicious deflation, Pantheon Macroeconomic's Sam Tombs said these should be ignored. "October’s print will almost certainly represent the nadir and we think it will take only a year for CPI inflation to return to the MPC’s 2% target."

"The key concern of the BoE appears to be that core inflation is showing little sign of improving despite tighter labour market conditions but I don’t think it would take too much for the concern to shift from few signs of inflationary pressures to fears that it will rise too rapidly once it starts, which appears to be the fear at the Fed," added Craig Erlam, senior market analyst at Oanda.'

http://www.digitallook.com/news/market- ... 31991.html

So both the US and UK are trying to get out of the rate-rise blocks perhaps even before there is full clarity that they have to. That explains the markets recent and ongoing volatility, the signs are so subtle but numerous, it's very difficult to read.

[JR8]

UK CPI figures are due out in ten minutes. Meanwhile here is one analysis from this morning's papers.
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http://www.theguardian.com/business/201 ... n-negative
'The UK’s inflation rate is expected to have remained in negative territory when official figures are released on Tuesday, leaving the Bank of England in little hurry to start raising interest rates.

Economists expect data for October to show the inflation rate as measured by the consumer prices index (CPI) held at -0.1%, according to the consensus in a Reuters poll.' [continues].
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Meanwhile reported this morning, Finland are considering a referendum on leaving the Euro-zone!
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'Finland's parliament will debate next year whether to quit the euro, a senior parliamentary official said on Monday, in a move unlikely to end membership of the single currency but which highlights Finns' dissatisfaction with their country's economic performance. ' ... [continues]
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http://www.telegraph.co.uk/finance/econ ... ebate.html

Perhaps Germany will redirect it's political tanks away from Athens, and motor north for Helsinki

[Primrose Hill]

I received this from one of the expat wealth advisors this week
"An International Monetary Fund executive member has warned that the world could fall into another financial crisis leading to a global recession as governments are not paying enough attention to the current market instability.

IMF head of financial stability says the effects of high risk premiums, corporate defaults rising in emerging markets and a general decline in appetite for riskier assets could likely lead to a global recession.

In its most recent growth report, the IMF cut its forecast for global growth by 0.2% for 2015 and 2016 to 3.1% and 3.6% respectively amid slow growth from emerging markets.

The report states: “Shocks may originate in advanced or emerging markets and, combined with unaddressed system vulnerabilities, could lead to a global asset market disruption and a sudden drying up of market liquidity in many asset classes.”

The IMF has recently urged the leading central banks to hold back on hiking interest rates amid slower global economic growth.

At the same time the Bank of England’s monetary policy committee has again voted to maintain the base rate at 0.5% making it 6.5 years since the last change. They also voted unanimously to maintain quantitative easing at £375 billion.

Only one of the nine monetary policy committee members was the only dissenter, arguing the base rate should climb by 0.25% to counteract the risk that inflation could leap up beyond its 2% target.

The monetary policy committee also stated that the annual private sector pay growth now exceeds 3% and signs of improvement in productivity growth have limited the impact on business costs, and therefore inflation more broadly.

Please let me know if you have any questions.

Regards,

[Strong Eagle]

^^^^^^^^

OK... when is it time to get into cash to ride the downside, only to re-invest at the bottom?

[JR8]

One theory (given broad credence) is that rising interest rates in the West will hit emerging economies the hardest. The thinking being when said rates rise core household costs [Fixed expenses] increase, leaving less surplus [Variable expenses] for discretionary buying of 'Made in China' tat.

My wife has a modest position in Jimmy Choo stock. CHOO sees almost a secondary impact, a derivative of the above.
1) Rates rise in the West, the West buys less from emerging economies ['ee'].
2) Ee export companies suffer -> employee income reduces.
3) These ee employees have less discretionary funds for buying luxury goods, impacting the mostly western companies that produce them.

[JR8]

I was skimming a summary of overnight action in Asia-Pac markets and was interested to read...

'The buying in gold and oil driven by market uncertainty in the wake of the Paris attacks unwound dramatically overnight. This went hand-in-hand with major falls in iron ore and copper. This was also partly driven by a strong performance in the US dollar overnight as US CPI came in slightly stronger-than-expected at 0.2% year-on-year against expectations for 0.1%. This helped drive the WIRP bond market implied probability of a December Fed rate hike back up to 68% from 66%.'
http://www.ig.com/uk/market-update/2015 ... ocks-29089

I was wondering what WIRP is, and how might I keep an eye on it, since it seems a reflection of the perceived belief in an impending rate move. Hmmm... right now it seems to be proprietary Bloomberg function/key, so I'm not sure if it's published or accessible to the man on the street.

Google brought up this from 9-Nov.
'GUNDLACH: The Fed is on the 'knife's edge'
DoubleLine Capital's Jeff Gundlach thinks an interest rate hike from the Federal Reserve in December is a 50-50 proposition. "The message of the market is more suggestive of the Fed raising rates in December," Gundlach said in a webcast Monday.
He continued: "We had a 50-50 setup at the short-end [of the bond market] a few weeks ago, and now it's up to around 70%, which I think is right on the knife's edge." Gundlach noted that the market reaction to Friday's October jobs report put the chances of a December rate hike right around 70% as measured by the WIRP, or "world interest rate probability," function on Bloomberg Terminals.
But in his view, Gundlach thinks that this probability would probably need WIRP to increase for the Fed to be comfortable raising rates. "The Fed probably needs to see WIRP higher than 70%, but certainly 70% is more likely to have the Fed comfortable than 50%," Gundlach said. [continues]
http://www.businessinsider.com/jeff-gun ... ed-2015-11

This might explain why the US FOMC-members have been relentlessly jaw-boning re: a Dec interest rate interest rate rise. I.e. They believe it is probable and needed, but before they can make a hike they want to see that the market is expecting it with a 70%+ conviction.

[JR8]

The 'Yellen Call'. I had to look it up. I suspect it's a term that will become more common.
So.... er, each time the stock-market perks up, then the US Treasury will get out the fire-hoses? If so, I reckon the inflection point on this interest rate cycle might mark the end of the best returns... US => 6 months left, UK 1 year? ..... hmmmm... time to start de-risking in those markets?


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http://www.digitallook.com/news/interna ... 35845.html
Goldman Sachs recommends top themes and trades for 2016 -
...Other themes include a "limited upside" to US equities in 2016 as rallies in risk sentiment may be met by less accommodative monetary policy, aka the ‘Yellen call’. Other themes include a "limited upside" to US equities in 2016 as rallies in risk sentiment may be met by less accommodative monetary policy, aka the ‘Yellen call’.
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Goldman Sees Yellen Call Limiting 2016 U.S. Stock Market Gains
http://www.bloomberg.com/news/articles/ ... rket-gains
The "Yellen call" may soon replace the Bernanke put as standard operating procedure at the Federal Reserve. And that’s not great news for the U.S. stock market.
So say strategists at Goldman Sachs Group Inc. in reports for clients this week. With the Yellen call, the central bank would be inclined to raise interest rates as the economy and stock market improve, limiting gains in equities. That’s the flip side of the Bernanke put -- the idea that equity investors were protected against big market slumps because the Fed would ease policy to limit the damage.
"The inflection point for this shift to a tightening bias will arguably arrive in 2016," chief credit strategist Charles Himmelberg and other Goldman analysts said in a report Thursday.
Under a scenario which they named for Fed Chair Janet Yellen, rallies in equities and other risky assets "may be met by less accommodative monetary policy." That contrasts with the Fed’s perceived reaction function under Yellen’s predecessor, Ben S. Bernanke.
Partly as a result, Himmelberg and his colleagues see "limited upside" for U.S. equities in 2016. [conts]

[Primrose Hill]

Following Mr. Osbourne's Autumn Statement, it was interesting in that what wasn't said resounded louder than what was said. We now seem to have a govt aim at punishing middle class, people that work hard, save, prudent with their finances and prepare for a rainy day, have the foresight to think about their children's future and their own retirement plan.

http://www.dailymail.co.uk/news/article ... ement.html

So, 70% tax on fuel isn't enough. Does this mean that petrol will rise in the next Budget? It doesn't affect me much as I now live here.

http://sites.herbertsmithfreehills.vutu ... t-2015.pdf
http://www.dailymail.co.uk/news/article ... arket.html

So, this BTL stamp duty, you think it will be the death of BTL?

[Wd40]

China crashed 5%. Just when there is a glimmer of hope somewhere in the world(ECB QE this time), China comes and spoils it.

[earthfriendly]

The game changer. My Vanguard . From their very inception, they play by a different set of rules. I love you, Vanguard .

https://finance.yahoo.com/news/vanguard ... 17972.html

[JR8]

So, this BTL stamp duty, you think it will be the death of BTL?

For the amateur, it's the beginning of the end for new entrants to the market IMO. Primarily because when you make a purchase you are stretching your finances as much as possible, and if your upfront transaction costs are going to be increased so much then viability is lost.

I've seen the writing increasingly on the wall in recent years. property investment is fixed, static, easy for the govt to identify and tax - unlike say financial instruments in an offshore bank account.

So, easy target. Stamp duty, new regulations (all the fire, asbestos and gas and electrical safety checks etc., Minimum Room Size laws etc, and on and on), CGT on foreign ownership. B2Ling is now being hit like a sin-tax, and it's not going to get easier...

For me B2L is finished for new purchases. And I've sold the last of my outright B2L flats. Just the one left now, my former London home, where I expect to return in a couple of years.

It's surprising in a way to see the Tories taxing enterprise/initiative in a way that you'd usually expect of Labour. But then the Tories are still having to work to fill the financial black-hole left by the last Labour government, what, circa 10 years ago now!?

[JR8]

... and 1/2 hr later... here's the latest warning-shot, from this morning...

'Buy-to-let in BoE's sights, deputy governor says'
http://www.digitallook.com/news/news-an ... 50491.html

[Barnsley]

I wouldnt worry about your Buy To Let .....

We are off to Bomb some region in Syria...

Need to pay for it somehow.

[Primrose Hill]

to me it is rather surprising that the tories are now becoming and behaves like labour, taxing the middle classes as it is easy target.

[JR8]

It's disappointing. I think B2L, born just 20 years ago, is now so mainstream they can't ignore it any longer. Also look at all the foreign investors in say UK property. I reckon there is a lot of money being invested and earned, and a material amount is probably not '''appropriately taxed'''.

This leads on to the next question, in a post-B2L era, where has the fresh block of cheese moved to... hehe...