Posts Tagged ‘Euro’

Notes From Underground: Mario the Magnificent Keeps the Crowd Enthralled

July 23, 2017

Let me be perfectly clear: THE ECB’s THURSDAY PRESS CONFERENCE WAS DOVISH.

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Notes From Underground: The BOJ and the ECB Provide the Recipe For … ?????

July 19, 2017

Before I preview the BOJ and ECB I want to expound on the piece that I mentioned in the previous post written by Bloomberg reporter Alexandra Harris, who cites the thoughts of JPMorgan strategists Alex Roever and Kim Harano. The piece lists four arguments for bringing forward the FOMC‘s announcement to shrink its balance sheet:

  1. Economic conditions are supportive of balance sheet run-off;
  2. The vast amount of discussion has already prepared the market and September won’t make it any clearer;
  3. Starting NOW buys a “few extra months” of the measurement of the market impact of normalization;
  4. Finally,September is an “awkward time” because of the murky outlook for addressing the debt limit before funding runs out in October.

I agree with all these arguments and would HOPE the FED announces its intention to start shrinking the balance sheet at next week’s meeting, press conference be damned.

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Notes From Underground: And a Honey Pot Is Stuck On His Nose

July 17, 2017

Wow! The Chinese President doesn’t appreciate being caricatured as children’s character Winnie the Pooh so it’s censored from Chinese social media. A Financial Times article noted “attempts to post the Chinese characters for Winnie’s name on Weibo returned the message ‘content is illegal’ although some users appeared able to circumvent the block.” Regardless of whether some of the posts were able to avoid the censors, the point is the same I have been making for eight years on Notes From Underground. A country that does not allow Google to freely operate makes me suspect of all official government data. The greatest comedy was that the financial media was poking at President Xi and the ruling Communist Party Politburo while at the same time citing the most recent economic data as if it was “truth.” The GDP data came in at 6.9%, exceeding guesstimates of 6.8%. Retail sales followed GDP and also beat consensus guesses.

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Notes From Underground: Brainard’s Speech Was So Significant She Delivered It Again

July 13, 2017

Yes, Fed Governor Lael Brainard actually delivered Tuesday’s speech, “Cross-Border Spillovers of Balance Sheet Normalization,” AGAIN. This time it was to the National Bureau of Economic Research Summer Institute in New York City. Of course I jest as to why she redelivered it. Brainard was overshadowed by Chair Yellen’s testimony to the Senate Banking Committee, even though the Fed Chair deviated very little from Wednesday’s House testimony. The interesting thing was that Yellen backtracked on her hubristic statement she made last week about not experiencing another systemic financial crisis in her lifetime. A brazen statement like that is Greenspanish but certainly out of character for the demure Janet Yellen.

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Notes From Underground: Month-End, Quarter-End … Oh My

June 29, 2017

In Thursday‘s post I am reissuing part of a post from June 11 in which I cited a very important signal from the Nasdaq 100 futures. The signal suggests the equity markets have been in a much more defensive mode as rallies have failed and new selling has emerged. Well tonight I warn of a possible new development and that is in the DAX FUTURES. The German index has been my favorite long equity position because the fundamentals are most positive for Germany: negative interest rates, current account surplus and a very strong fiscal position. The strong EURO this week seems to be a potential drag for German stocks, but the biggest factor is that the continued use of negative interest rates at the Draghi-led ECB makes the high-yielding German equity market a desirable choice for investors. HOWEVER, IF THE DAX DOES A MONTHLY OUTSIDE REVERSAL THIS WILL SIGNAL A MAJOR WARNING FOR ALL GLOBAL EQUITY MARKETS.

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Notes From Underground: Disabusing You of an ECB Tapering

June 28, 2017

On Tuesday, Mario Draghi, the Magician of Frankfurt, created a temporary maelstrom in global bond markets by hinting at a possible end to the ECB’s current QE program. While Draghi suggested that low rates were still a necessity to ensure that the European recovery remains on pace, the ECB president raised the issue that deflation was no longer a threat for the EU. Sovereign debt YIELDS rose dramatically as volatile hedge fund positions were liquidated and speculators sold bund, oat and BTP futures. On Wednesday, the ECB “explained” that Draghi’s statements were misconstrued and did not deviate from current ECB policy. ECB Vice President Vitor Constancio claimed Draghi was “totally” in line with existing ECB policy.

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Notes From Underground: Wake Up! Wake Up! For Your Light Has Come

June 11, 2017

This line comes from the Jewish liturgy of welcoming the Sabbath. I use it here to make a note to my readers about a possible signal that the NASDAQ 100 sent on Friday. Now I don’t hold myself out as anything but a third-rate TECHNICIAN (reader of chart formations), but having been taught by one of the greatest technical minds (thanks H.G.), I know to watch certain formations for signals in a POSSIBLE change in sentiment. THE CHART THAT CAUSES CONCERN NASDAQ 100 made ALL TIME HIGHS LAST WEEK BUT CLOSED BELOW THE PREVIOUS WEEK’S LOWS. Do I know when the market will reward a short position?

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Notes From Underground: Is the Yield Curve Taunting the Fed?

June 6, 2017

There were many responses to last night’s post regarding one of my favorite topics: the yield curve. The airwaves have been filled with opinions about the impact of the 2/10 curve on bank stocks and other financial asset valuations. Long-time readers know that I often note the significance of the shape of the curve for hinting at possible investment opportunities. Last year the 2/10 curve FLATTENED (a relative term) to long-term support levels at 74.8 basis points and then steepened out to about 150 basis points as the market feared a Trump inflation scenario.

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Notes From Underground: Angela Merkel Finally Faces Facts

May 22, 2017

Angie Angie

where will it lead us from here

Oh, Angie don’t you wish

Oh your kisses still taste sweet

I hate that sadness in your eyes, but Angie Angie

Ain’t it time we said goodbye  [Richards and Jagger]
Today, German Chancellor Angela Merkel openly admitted that the German trade surplus was large because the ECB‘s monetary policy rendered the EURO to a bout of severe weakness, which helped make “German products cheaper.” It continually amazes me how forthright politicians become once the political storm clouds have lifted. When President Trump noted a similar view he was criticized for trying to force a break-up of the European Union. What was Angie’s angle in challenging the policies of the ECB and Mario Draghi? As I have written for the last six months, the ECB was going to become an issue in the upcoming German national elections. It appears that the Chancellor is getting ahead of the AfD and other challengers about the negative impact of Draghi’s policies that punish and financially repress German savers.

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Notes From Underground: This Is a Vinny Barbarino Market (Or, I Am So Confused)

April 25, 2017

The global reaction to the first round of the French presidential election was not confusing. Capital was sitting on the sidelines as the polls reflected a possibility of a second round Le Pen/Melenchon faceoff, which would have been devastating for global investors because fear of an EU break-up would have led to a massive repricing of risk premia. The avoidance of such an outcome led to a rush of capital into European markets, which provided support to Asia and the U.S. The German/French 10-year spread reacted as expected. The yield differential narrowed by a significant 20 basis points. The BUND yields rose against all European sovereign debt as Berlin’s haven status was rendered null and void for at least another two weeks. The GOLD and YEN also performed as expected as money rushed to purchase a risk on profile in a global zero interest environment. The EURO rallied by 2% as global capital flows into European stocks forced previous short euro positions to the sidelines. There’s nothing confusing about any of these outcomes. But let me throw some confusion onto some of the other geopolitical events making the front pages:

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