What the BOJ’s conversion to negative rates policy did change and what it did not change

Posted on 02. Feb, 2016 by Jean Jacques Ohana in Weekly Focus | 0 comments

February 2, 2016

The BOJ surprised markets on Friday by adopting a negative interest-rate strategy requiring financial institutions to pay the central bank in order to park their cash beyond required reserve levels.

The “pay-to-save strategy” has now been adopted in Sweden, Denmark, Switzerland, and by the European Central Bank. The pretext behind this policy is to [...]

2016 vs. 2008: similarities and differences

Posted on 26. Jan, 2016 by Jean Jacques Ohana in Weekly Focus | Comments Off

Eight years after the Lehman default, the financial system has become unstable once again. Since September 2014, liquidity has tightened on every systemic link following the collapse of commodities’ prices and emerging currencies (figure 1). Similar tightening of liquidity was observed in 2007-2008 before the Lehman default. Meanwhile, in 2007, the epicenter of the financial [...]

The impact of the emerging crisis on the developed world: the “reverse QE” effect

Posted on 12. Jan, 2016 by Jean Jacques Ohana in Weekly Focus | Comments Off

Since the Federal Reserve ended its purchase program (the so called “QE3″) in November 2014, liquidity has tightened in almost every systemic link of the financial system (figure 1).
Emerging currencies have been severely hit by capital outflows (figure 3). As a matter of fact, the Brazilian real, the South African rand, the Russian ruble and [...]

Perspectives in 2016: financial markets may get worse before they get better

Posted on 06. Jan, 2016 by Jean Jacques Ohana in Weekly Focus | Comments Off

2015 was a year of discontinuities in many financial markets:

The drop of the EUR/CHF cap by the Swiss National Banks triggered an unprecedented rise of 13% of the Swiss Franc, the largest daily move of any G10 currency since the end of the Bretton Woods system in 1973.

The rise of 3% of EUR/USD and the [...]

Deflationary trend in global financial assets

Posted on 28. Dec, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

December 28, 2015

We build on Figure 1 the rolling average Sharpe Ratio of all assets inside a large, diversified universe (including equities, sovereign bonds, corporate credit (investment grade and high yield) debts, emerging bonds, currency carry trades). The indicator clearly highlights the two latest episodes of financial deflation over the last 15 years: the corporate [...]

Positive premium on stocks indices volatility futures

Posted on 16. Dec, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

December 16, 2015

Figure 1 illustrates that financial stress is spreading again in the system, in the wake of a sharp deterioration of the liquidity of commodities, corporate debt, emerging debt and forex carry trades.

As short-term interest rates have fallen to record lows in the euro zone and Japan, investors currently lack of safe havens, particularly [...]

ECB disappoints over quantitative easing: what consequences?

Posted on 08. Dec, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

December 8, 2015

On the last ECB meeting, Mario Draghi lowered the deposit rate to -0.20% and announced an extension of the purchase of assets from September 2016 (as planned initially) to March 2016.

After weeks of dovish talking, market expectations were disappointed and the simultaneous following moves were observed:

Rise of 20 bps in 10 years German [...]

The euro devaluation is the main driver of euro zone equities’ rise

Posted on 01. Dec, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

December 1, 2015

The effective euro currency rate dropped 13% since Mid-2014 (figure 1). The euro went into free fall not only vs. the dollar but also vs. the Chinese yuan, the Swiss franc and the British Pound.

This depreciation is a direct consequence of the ECB quantitative easing (and the subsequent euro zone bonds reflation). Furthermore, [...]

Some doubts on financial reflation, some cracks in financial stability

Posted on 24. Nov, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

November 24, 2015

As the Federal Reserve is ready to proceed to the first interest rates hike since 2006, the dollar surge has accentuated (+11% year to date) and the commodities collapse continued further (oil down 20% and copper down 27% year to date).

As showed in figure 1, there has been a significant gap between long [...]

The dismal outlook of commodities and its consequence on financial markets

Posted on 10. Nov, 2015 by Jean Jacques Ohana in Weekly Focus | Comments Off

The dollar accelerated its upward pace (figure 1), boosted by the release of the positive surprise in the Non-Farm Payroll on the 5th of November 2015. At the same time commodities dropped even further, especially precious and industrial metals (figure 2).

At a time of increased correlation between commodities and other financial markets (notably AUD/USD, Emerging [...]