Currencies

Calm in the eurozone has come at a cost to the havens. James Mackintosh, investment editor, points to the sliding Swiss franc and sterling, and warns the premier haven of choice, London property, could be next.

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The yen’s collapse was rudely interrupted on Tuesday. James Mackintosh, investment editor, points out that the yen’s premium as a haven from the global crisis has now evaporated, and examines the implications for the carry trade.

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James Mackintosh

The US is about to get a new Treasury secretary, assuming the White House can steer Jack Lew through the painful nomination process in Congress.

One question that’s sure to come up: is he in favour of a strong dollar? Read more

Reasons to be fearful are everywhere: Greece, triple-dip Japan and the looming fiscal cliff in the US. Yet, as James Mackintosh, investment editor, points out, share, bond and currency volatility are all extremely low. Is this complacency or have central banks disconnected the volatility sensors?

Japan brought the world quantitative easing, but by today’s standards it would be rated QE-lite. Now political pressure on the Bank of Japan to weaken the yen is rising, encouraging speculation on QE max. James Mackintosh, investment editor, says there are good reasons for caution

James Mackintosh

Market outlooks for the US election were clear: an Obama victory would be bad for shares and good for bonds, as the incumbent president would have less chance of cutting a deal with an intransigent Congress than his challenger.

Barack Obama would also be bad for the dollar, as there would be no pressure on the Federal Reserve from a hawkish Republican to tighten monetary policy, meaning the easiest monetary policy ever would remain in place. Read more

James Mackintosh

The currency wars are under way again and Brazilian Finance Minister Guido Mantega, who coined the term, is miffed.

Mr Mantega is worried that QE3 will do what QE2 did and lead to an “avalanche” of dollars hitting emerging markets, driving up prices and currencies, helping US exports and creating troubling inflation. If it prompts the Brazilian Real to strengthen, he warned of action – although he did not say what the Brazilians might do this time:

This is going to force the Brazilian government to adopt additional measures to prevent the Real being overvalued.

Brazil imposed a series of taxes and restrictions on foreign inflows over the past three years in an effort to stop speculative cash pushing up the currency, but relaxed many of them after the renewed eurozone crisis led the Real to plunge.

Still, it isn’t obvious that Brazil is losing the currency war, as these charts show: Read more

John Authers

Marc Chandler of Brown Brothers Harriman is always  interesting. His take on the QE3 debate, ahead of the FOMC’s next decision, might startle many in the US: the US economy is in an enviable position – why is there any need for dramatic new exceptional measures?

Evidently many Americans do not feel as though they are much to be envied, and unemployment has dragged on at levels that are politically unacceptable. But America’s post-Lehman economic trajectory, with the recovery looking ever more firmly founded, should certainly be the envy of western Europe and Japan. Read more

James Mackintosh

The argument for gold is very simple: it is hard money at a time when every other major currency is being watered down by central bank money printing.

On that basis, Europeans should have been panic-buying gold this summer as the European Central Bank prepared its plan to hoover up peripheral country bonds (although it will try to “sterilise” the plan, taking in deposits in some form to keep net money issuance stable, even as its balance sheet expands). Read more

James Mackintosh

Short View explored the lost-half decade and the returns on leading asset classes since the credit crunch began on August 9, 2007 (including the surprise that high-yield bonds did so well).

Deutsche Bank has produced a more comprehensive look across pretty much all tradeable assets, adjusted (in line with the Short View approach) into dollar terms to remove currency changes.

Asset returns

Asset returns since credit crunch began, in dollar terms

Given the attention that is paid to nominal (local currency) returns, I thought it might be worth an explanation of why it makes sense to look in constant currency terms. Read more