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 [...]
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 [...]
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 [...]
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 [...]
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 [...]
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 [...]
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 [...]
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, [...]
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 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 [...]