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 [...]

Why UK 10 years yields may stay low in the face of the BOE rate increase

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

When Bank of England Governor Mike Carney hinted that the first interest rates rise could come sooner than expected, UK 2 years rates rose 15 bps whereas UK 10 years rates barely moved.

The flattening of the yield curve (showed in figure 1) characterizes a cycle of monetary tightening. When Central Banks tighten monetary policy, short [...]

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 [...]

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 [...]

Risk comes back in force

Posted on 27. Jan, 2014 by Jean Jacques Ohana in Weekly Focus

The contagion of emerging markets woes to other developed markets has changed the course of the financial system. The equities’ slide is not only the effect of the unexpected contraction of the Chinese PMI data. It also reflects the forced unwindings of overcrowded speculative equity positions. Riskelia’s bubble score indeed exceeds 70% on several US [...]

Reading the 2014 financial scenarios through the lenses of 2013

Posted on 30. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

A bird’s eye view of 2013 History will help us design some financial scenarios for 2014.
The main financial event of 2013 has been the remarkable decline in financial integration (figure 1) which translates a greater confidence in the financial system. Equities of developed countries have steadily risen whereas emerging markets have tumbled. Commodities-linked currencies have [...]

Financial consequences of the ECB’s impotence

Posted on 09. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Before the last ECB meeting, we could wish that several ECB council members were determined to fight the deflationary threat in the Euro zone southern countries (figure 1). For instance, the last surprise move of the ECB refi rate down to 0.25% seemed to show that the ECB wanted to move towards a proactive quantitative [...]