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Analysis and Charts of Global Markets

written by Gary Dorsch, Editor and Publisher
China aims to Weaken the Yuan; Rattles markets
Aug 20, 2015
On August 11th, the Chinese Politburo surprised the global financial markets, by unilaterally devaluing the yuan against the US$, without any advance notice. Beijing quickly engineered a -3% devaluation of the yuan against the US$ in two days, in what it called a “one-off” operation. Still, the surprise move sent various financial markets around the world into a tizzy.
Bonds and Currencies Brace for BoE and Fed rate hikes
Jul 16, 2015
The Federal Reserve poised to hike short-term interest rates for the first time in nearly a decade, “The actual raising of policy rates could trigger further bouts of volatility, but my best estimate is that the normalization of our policy should prove manageable,” said the Fed’s “Shadow” chief Stanley on May 26th. Fischer gave no time frame for when the Fed will start its first tightening cycle since 2004-06, but he made it clear that higher rates are coming.
China’s Stock market Mania; How high can Red-chips fly?
Apr 2, 2015
According to the Chinese Zodiac, the year 2015 is called the “Year of the Goat.” People born in a Year of the Goat are generally believed to have strong inner resilience and excellent defensive instincts. Though they prefer to be in groups, they do not want to be the center of attention. They are reserved and quiet, most likely because they like spending much time in their thoughts. However, the share of good fortune for those born in a “Year of the Goat,” is not be very good. Instead, they often get involved in financial difficulties. Therefore, it’s advised that they should adopt conservative strategies when dealing with investments. They should try their best to increase their income, decrease their expenditure, and live within their means. They are advised to restrain themselves from gambling too much in order to avoid big losses.
The Raging “Currency Wars” across Europe
Jan 29, 2015
The theater of the absurd became even more bizarre on Jan 22nd, when the European Central bank desperate to extract the Euro-zone’s economy from the quagmire of deflation and stagnation, decided it would try its hand at the magic elixir of “quantitative easing,” (Q€). Starting on March 1st, the ECB will inject €60-billion of liquidity into the Euro-zone’s money markets, each month until the end of Sept 2016. The ECB is the last of the Big-4 central banks to unleash the nuclear option of central banking – QE, - starting about six years after the Bank of England, the Bank of Japan, and the Fed began flooding the world markets with $7-trillion of British pounds, Japanese yen and US$’s.
How to Recognize a “Bear Raid” on Wall Street
Oct 30, 2014
Wall Street has seen more than its fair share of so-called “Bear Raids” or sudden, sharp panic attacks, that frighten many investors into selling their shares in order to avoid losses to their retirement accounts. During a “Bear Raid,” quick footed short sellers seize upon news reports, such as a sudden and unexpected financial crisis that is rocking markets overseasThe objective of a “Bear Raid” is to make windfall profits within a brief time period through short sales. If operating in the US’s centrally planned market, where the Fed is actively intervening to prevent sharp downturns, the Bear Raider knows the gains from the short sale trade will eventually be reversed, and usually within short order. Once Bullish investors begin to realize that they were hoodwinked, and scared out at the lows, - they begin to pile back into stocks again at higher prices. What usually follows is an eventual recovery of all the previous losses that were engineered by the Bear Raiders.
To view more articles click on Archive
Bank of Japan Errs with Baby step rate hike in August 2000, Reverses Gears and Shifts to QE and ZIRP
Updated10:25 PM, Nov-24, Tue
Next month, the Federal Reserve is expected to take the next step towards "normalizing" its monetary policy, by hiking the fed funds rate +25-basis points higher to 0.375%. ------------------------- A little over one year ago, the Fed finally mothballed its massive liquidity injection scheme, dubbed Quantitative Easing, or QE, after purchasing $3.8-trillion in Treasury bonds and mortgage back securities over the previous six years. The next step towards extracting itself from the emergency measures that were put into place during the "Great Recession," is to start raising short term interest rates, and move away from the Zero Interest Rate Policy . ----------------------------- The last time the Fed raised the fed funds rate was in June 2006, when it was increased +25-bps higher to 5.25%. It was the seventeenth rate hike over a 2-year time frame that lifted the key overnight loan rate by a total of +425-bps. It was the second biggest rate hiking campaign, since the days of the inflation fighter - Paul Volcker. Very few, if any traders, believe the Yellen Fed will raise the federal funds rate to more than 1.25% in the year ahead. ----------------------------- As Fed chief Janet Yellen wrote on Nov 24th, 2015; "Most of us expect the pace of that normalization to be gradual. An overly aggressive increase in rates would at most benefit savers only temporarily. Rather, it would undercut the economic expansion, necessitating a lasting return to low interest rates. Other countries have paid a heavy price for being forced to reverse course. Japan, where interest rates have remained near zero for most of the past 25 years, serves as a cautionary tale.------------------------------------ What Fed chief Yellen is referring to is the Japanese experience of 15-years ago, in the Summer of 2000, when the Bank of Japan started to talk about exiting from its Zero Interest Rate Policy . Many economists and government officials questioned the basis of a BoJ policy change. After-all, Japan´s economy was still on a fragile recovery path, and the external environment was turning sour, namely the high tech bubbles on the Toronto, Frankfurt, and US-stock exchanges were imploding. The US-economy was descending into a mild recession due to trillions of dollars of investors´ losses on the Nasdaq index. However, the BoJ pushed the agenda anyway, and said it wanted to hike the discount rate. ---------------------------- On August 11, 2000, Tokyo sent officials to attend the BoJ’s meeting and they argued that it was premature to hike the interest rate. However, the BoJ voted 7-to-1 to raise the overnight call rate from 0% to 0.25%. In turn, the yield on the 1-year T-bill rate rose to as high as 0.45%. Thus, the BoJ raised interest rates for the first time in 10-years, and rejected a strong armed demand from the government for a delay and ended its 18-month experiment with virtually free money. In a declaration of independence, it stated; “The BoJ feels confident that Japan´s economy has reached the stage where deflationary concern has been dispelled, the condition for lifting the zero interest rate policy.” The BoJ stressed the rate hike was “a small adjustment to the degree of monetary easing” and vowed to continue to support growth. ------------------------------------The decision was extraordinary considering its political context. In a remarkable battle of wills, a string of government ministers, including the Prime Minister, were demanding the BoJ hold off raising rates. But the bank was keen to demonstrate its independence, and would not be pressured and bullied by the ruling politicians. . The ministry of finance was extremely worried that tighter liquidity would kill off Japan’s fragile economic recovery. --------------------------------------- What followed in the Fall of 2000 confirmed the fear of the BoJ’s critics. A recession started two months after the interest rate hike, and the CPI inflation rate sharply turned negative. Yet the cause of the downturn actually emanated from outside Japan. The implosion of the Nasdaq index in the US pulled down the Nikkei-225 index from as high as 21,000, in March of 2000, and towards 13,000 at the end of the year. --------------------------------------------------- The timing of the BoJ’s rate hike of August 2000 was snake bitten by bad luck. With the US-economy sliding into a mild recession, Japan’s economy also slipped into a recession only two months after the BoJ rate hike to 0.25%. The growth rate registered four consecutive quarters of negative growth rate thru Q’2 of 2002. Deflation became worse in the following months. The BoJ reversed course eight months later. In March 2001, the BoJ returned to ZIRP and started Quantitative Easing (QE) to provide vast sums of excess liquidity into the banking system. The target for the amount of excess reserves in the banking system became the BoJ’s main policy instrument. The BoJ’s target was raised several times to a target band of ¥30 to ¥35-trillion, while the banks were only required to hold ¥6 or ¥7-trillion at the central bank. --------------------------------------------------- For the Yellen Fed, the hope is to avoid the BoJ´s bad luck in the second half of 2000. As Atlanta Fed chief Dennis Lockhart has surmized; "The key for the Fed is that when it begins "Lift-off" to raise rates, it needs to be confident it can move forward with that effort. The basic approach to making an important decision is that we´re making a decision that will begin an orderly process, that should not be reversed in short order," he said. ------------------------------------------- To read this article in bigger print, click on the hyperlink below;
Archived Comments:
Bank of Japan Errs with Baby step rate hike in August 2000, Reverses Gears and Shifts to QE and ZIRP
US$ Climbs above 700-Chilean pesos, - a 12-Yr high; as Copper Tumbles to Six Year Low
Updated 5:30 PM, Nov-24, Tue
The US$ rose to its highest level against Chile´s peso in 12-years, after the price of copper, the country’s main export, tumbled to its lowest in more than six years. The US$ fetched 715-pesos at the close of trading in Santiago on Nov 24, 2015,, its weakest closing level since June 2003. Copper futures slumped to $2.02 /pound on the Nymex in New York amid signs of weak demand in China. Speculation of an impending Fed rate hike to 0.375% on Dec 16, is also underming Emerging-market currencies. ------------------------------- Chile´s peso has weakened -20% against the US$ in the past 12 months as the price of copper, which makes up almost half of Chile’s exports, slumped -33%. Data was gathered on a daily basis over a period from July 7 to September 7, 2015, showed a staggering 93% degree of positive correlation between the Chilean peso /US$ exchange rate and and copper prices. -----------------------------That helped push consumer prices above Banco de Chile´s target range of 2% to 4%; in 10 of the last 12 months. The central bank reserves the right to act in the foreign-exchange market if it’s concerned about the effect the currency is having on local inflation, Banco de Chile chief Rodrigo Vergara warned. ------------------------------------- Inflation, especially inflation excluding food and energy, was running at a +5.2% annual rate in October, the central bank said in its Nov. 12 policy statement. The bank said in its latest quarterly inflation report that monetary policy would take into account the impact of a weakening currency on prices. --------------------------------- On Oct 28, 2015, Chile´s central bank chief said in order to lower the consumer inflation rate to the midpoint of the central bank´s 2 percent to 4 percent target range will require reducing monetary stimulus, or in other words, hiking the key interest rate, central bank president Rodrigo Vergara said. "The monetary policy scenario has not changed and as such one should think that over the next 10 months, through September next year, we should have one or two more hikes in the monetary policy rate," said Vergara. Banco de Chile hiked its overnight loan rate by 25 basis points to 3.25% on Oct. 15 and said further hikes were likely as it tries to rein in stubbornly high inflation. ----------------------------------------------- As the world´s top copper exporter, Chile´s fortune is closely tied to the prices for the red metal. On this front, there isn´t much good news. Copper prices, at $2.05 /pound in New York is trading at their lowest level since 2009. The effect this is having on Chile´s once high-flying economy was underscored by recent reports showing Chile´s economy recorded no growth during the the second quarter, compared with Q´1. Chile´s Corporacion del Cobre, or Codelco, the world´s largest copper mining firm, said it planned to cut capital spending by up to $4 billion. Codelco "accounts for 10% of global production (of copper) and has 8% of the world´s copper reserves. Tax Revenues from copper sales are crucial for Chile´s government and the country´s population of 17.6 million people.
Archived Comments:
US$ Climbs above 700-Chilean pesos, - a 12-Yr high; as Copper Tumbles to Six Year Low
Crash in Crude Oil knocks Canada $ to 11-Yr Low; Traders think bottom is near 75-cents
Updated10:10 PM, Nov-24, Tue
When it comes to figuring out what happens next with the Canadian dollar, checking the price of oil might be a good guide. Werner Antweiler, a trade economist and an associate professor at the University of British Columbia, said in a recent interview that the Loonie is a Petro-currency. That´s because Canadian oil production has increased, surpassing its peak production in the mid-1970´s. By 2014, energy’s share in Canadian trade had tripled to about 15%. When looking at just exports, the energy share in Canadian trade was at 25% last year. As long as oil exports remain a strong component of Canada’s exports, oil prices will influence the value of the Canadian dollar. If the share of oil and gas exports increases further, the link between oil prices and the exchange rate may become even stronger. ------------------------------------------------------------------- He analyzed the tie between oil prices and the Canadian dollar and found that every $1 increase in the price of Texas Sweet crude oil; translates to a nearly half-cent increase in the Loonie compared to the US$. If the oil price is $100 a barrel, the Canadian dollar should buy about US$1, he said. If crude oil prices are at $60 a barrel, the Canadian dollar should be around 83-cents. If crude oil is around $50 /barrel, the Canadian dollar shoul dbe around 79-US-cents. At $40 /barrel, the Canadian dollar should be around 75-US-cents. Empirically, the correlation is very strong. Roughly nine-tenth of the variation in the exchange rate can be accounted for by changes in the price of crude oil. -------------------------------------------------------------------------- The fall in the Canadian dollar has been an important factor in helping the economy adjust to lower oil and commodity prices, and the Bank of Canada must not stand in the way, says BoC chief Stephen Poloz. "We can´t do much about resource price shocks. But our monetary policy can help the economy adjust to them. In particular, our floating exchange rate helps absorb some of the impact of the price movements," he said. ----------------------------------------------------------------------- This past summer, Nymex crude futures touched a low near $38 in late August before moving back to $50 per barrel on Oct. 9th. Since then, oil has tumbled to the lower $40´s. Russia and Saudi Arabia are the world´s biggest oil producers, and both of them have taken a full-throttle approach to lower prices in an effort to gain or hold share. Saudi Arabia led OPEC in its plan to use market pricing as a weapon to slow overproduction. When OPEC meets in early December, analysts see little chance of a change in policy. In fact, rhetoric around that meeting could add downward pressure on prices. -------------------------------------------------------------------------------- "The Saudis are producing more than 10 million-barrels-a-day. They continue to be open to a cut in production, if other producers are willing to cut first. They want to see a plan and a credible plan before doing anything. The strain of sharply lower prices is wearing on both Russia and Saudi Arabia. The Saudis can shield the blow by issuing more debt, which they have done. The amount of debt they are issuing this year is basically the equivalent of a $10 bump in oil prices. Another factor that could weigh on oil prices is once Iran brings an extra 1-million bpd of crude back onto the market. ----------------------------------------------------------------------------------- The latest forecast from Bank of Nova Scotia suggests the Loonie is poised to tumble to as low as 72-US-cents. Not only that, when it recovers it won’t crack the 80-cent mark even by the end of next year. Interest rate differentials will move against the Canadian dollar, - as the Fed hikes short-term interest rates, while the Bank of Canada does nothing on that front for some time yet. “Low energy prices through later in 2016 amid a continued supply glut, implies continued downside pressure in the Loonie through 2016.” Scotiabank forecasts the Loonie at 73 cents at the end of 2015, with a further drop to 72 cents through most of next year. The bank sees it perking back up to 74 cents early in 2017 and then continuing to climb, but only to 79 cents by the end of the year. Merrill Lynch predicts the Loonie will dip to about 74 cents by early 2016 and stay there throughout the year. ------------------------------------------------------------------------------------ Starting on Nov 24, crude oil futures jumped as much as +$3 /barrel, after Saudi Arabia pledged to work toward oil price stability, while a stronger US$ and an expected rise in U.S. crude stocks limited the price rally. Saudi´s cabinet says it is ready to cooperate with OPEC and non-OPEC countries to achieve market stability, - just a few days before OPEC meets to review its year-long policy on Dec 4th, of not supporting prices. Venezuelan oil minister said OPEC cannot allow an oil price war and must take action to stabilise the crude market soon. When asked how low oil prices could go in 2016 if OPEC doesn´t change its policy, he said: "Mid-20s."
Archived Comments:
Crash in Crude Oil knocks Canada $ to 11-Yr Low; Traders think bottom is near 75-cents

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