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 [...]

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 [...]

The revival of emerging markets: a W or a just the pursuit of the L?

Posted on 08. Apr, 2014 by Jean Jacques Ohana in Weekly Focus

Emerging markets have been engulfed in a vicious spiral since the Fed’s tapering last year (Figures 1 and 2). The rise of US rates has triggered important outflows from deficit countries, resulting in depreciation of their currencies and debt/equity assets.

A first tentative bounce had occurred in the fall of 2013, but, unfortunately, it has been [...]

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 [...]

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 [...]

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 integration, safe havens and diversification

Posted on 17. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

We have already highlighted the paradox of the sharp decrease in correlation combined with the waning of diversification within asset allocation portfolios.

As the systemic decreases, risk premiums get less integrated and returns of assets get more diversified. As showed by figure 1, Riskelia’s Financial Integration indicator has sharply decreased which foretells a decrease in systemic [...]

Why active risk balanced strategies make sense

Posted on 02. Dec, 2013 by Jean Jacques Ohana in Weekly Focus

Risk Parity strategy or more accurately risk balanced allocation is a methodology which consists in allocating risk to assets classes rather than capital.

An example is presented below for an unleveraged portfolio. A leverage (for example multiplying all allocations by a factor 2) may be used to match the performance of traditional asset allocation portfolios.

Risk allocation

Capital [...]

What to expect from emerging markets?

Posted on 04. Nov, 2013 by Jean Jacques Ohana in Weekly Focus

Since 2011, equities from emerging markets have been the poorest assets performers together with commodities. They are the only assets which have not benefited from the monetary stimulus undertaken by developed central banks. Ironically, emerging assets are also the most exposed to the withdrawal of quantitative easing policies, notably the so called “tapering” hinted by [...]

Why will the yen depreciate?

Posted on 12. Apr, 2011 by Christophe Lerolle in Weekly Focus

The yen is rated among the most bearish recommendation against a basket of G10 currencies and there are three main reasons why yen is likely to depreciate against the other currencies:

Risk Aversion has markedly evolved towards negative territory which bodes well for risk taking. In particular, figure 3 shows that filtering the short yen when [...]