Why is the euro starting to trend lower?

Posted on 22. Jul, 2014 by Jean Jacques Ohana in Weekly Focus

We have anticipated the euro’s strength for more than a year against the consensus.
The main forces behind the euro’s strength are still at work:

Current account in the Eurozone is still progressing due to uncooperative and simultaneous policies of competitiveness. The Eurozone current account is nearing 3% of GDP, implying recurrent repatriation of foreign currencies by [...]

Do not forget to hold Japanese stocks!

Posted on 24. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

As showed in figure 1, Japanese equities are coming back to the forefront with a remarkable positive dynamic. Since the beginning of 2014, the USD/JPY used to offer better perspectives than Japanese equities. This trend has however reversed since May 2014 so that Japanese equities now present better risk/reward than the short position on the [...]

Increase in equities + decrease in yields: what is behind this joint dynamics?

Posted on 03. Jun, 2014 by Jean Jacques Ohana in Weekly Focus

Since the start of the year, interest rates drifted lower including in core sovereign debts (US, UK, Japan, Germany) while global equities rose. As a matter of fact, the US 10 years rates dropped around 50 bps, the German 10 years Bund rate tumbled 60 bps whereas the MSCI World index increased by 3.3% before [...]

Financial markets directionality and Global Macro opportunities

Posted on 05. May, 2014 by Jean Jacques Ohana in Weekly Focus

Markets directionality may be defined as the propensity of financial assets to trend.

To compute this directionality on a dynamic basis, we first compose a basket comprising an equal number of stocks indices, commodities, currencies and bonds futures. We then calculate, on this set of markets, the average absolute Sharpe Ratios over a three-month horizon. We [...]

How to clone commodity indices for the better

Posted on 01. Apr, 2014 by Jean Jacques Ohana in Weekly Focus

Commodities’ performance has been lackluster since 2006 (Figure 1). On table 1, we note that, even though the spot performance was very good, it was eaten up by the negative roll return. This is due to the steep contango of commodities’ forward curves from 2006 to 2012.

However, Figure 2 shows a revival of the commodities’ [...]

The FOMC will not suffice to provoke a global interest rates rise

Posted on 24. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

As analyzed by the Fed watcher, Tim Duy, the FOMC was perceived significantly more hawkish than expected. The unemployment trigger (6.5%) was dropped but the FOMC has also renounced to accept an inflation rate 0.5% above the long term objective of 2%. Tim Duy thinks that the 2% inflation level is no longer a target [...]

ECB’s exchange rate guidance: a game changer? Probably not.

Posted on 17. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

Last week, we experienced an interesting turnaround in the ECB communication. For the first time, the ECB expressed its concern regarding the level of the exchange rate, arguing that the euro strength aggravates the problem of insufficient inflation. The speech has had the desired effect on the euro but the impact has been quite short-lived, [...]

All emerging countries are not equal: look at India and Taiwan

Posted on 10. Mar, 2014 by Jean Jacques Ohana in Weekly Focus

Among the most fragile countries, the currency plays a crucial role on financial stability. As showed in our previous research, emerging currencies serve as a link between emerging equities and emerging bonds.

Figure 1 shows that, while the currencies of Turkey, South Africa and Russia are still depressed, those of Indonesia and Brazil are stabilizing and [...]

Is EUR/USD heading to 1.40?

Posted on 17. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

The outlook of the dollar has been indecisive since Mario Draghi’s pledge to “do whatever it takes to save the euro” and the subsequent announcement of the QE3 Federal Reserve program. For sure, the emerging currencies have been hardly hit but the euro has served too as a repatriation currency during market stresses.

As showed in [...]

Playing the Eurozone disinflationary trend

Posted on 03. Feb, 2014 by Jean Jacques Ohana in Weekly Focus

The current emerging markets rout happens at the worst moment for Europe. As Eurozone countries have made the choice to export their way out of debt, they have made themselves increasingly vulnerable to the growth prospects in emerging economies.

The ongoing landing of the Chinese credit bubble and the sudden stop experienced by emerging countries running [...]