FX Update: Today’s close important for cementing recent developments
Commodities have generally beat a path back higher this week, and most commodity-linked currencies have responded with a break higher. Even the ruble is back on the recover path despite US sanctions. If commodities and pro-cyclical currencies post a solid close today to end the week on a strong note for the reflationary theme, we could be set for a further significant upswing in everything from G-10 smalls to select EM currencies.
Podcast: Cognitive dissonance as super-strength US data sees treasuries rally
Today we delve into the incredibly strong US data yesterday, which the US treasury market not only shrugged off, but rallied on, which could suggest a cautious stance on the view that strong data will ease quickly once the stimulus sugar rush fades - but why then do US equities remain on fire. Also on the call, the yield crush helps gold tease pivotal resistance as key pro-cyclical commodities are up almost across the board recently, some thoughts on GBP and FX and more. On today's call were Peter Garnry on equities, Ole Hansen on commodities and John J. Hardy hosting and on FX.
Demystifying emerging market sovereign debt as a reflation trade
In this analysis, we look at emerging markets sovereign bonds to understand whether they can be a better investment than junk corporate bonds amid an economic recovery. Although we find that China, Russia, India and Mexico offer good opportunities, we remain cautious of EMs as a whole. Indeed, EM sovereigns are exposed to high refinancing risk amid rising interest rate in the United States. Yet, Chinese local currency government debt might provide diversification in ones' portfolio while the yuan renminbi becomes one of the largest reserve currencies.
FX Update: Commodity currencies play catch-up
The EURUSD has retraced nearly all the way back to 1.2000 and neutralized the downside risk and more powerful momentum has now arrived in commodity-linked FX since yesterday against the big dollar, whether in G10 or in EM, the Russian ruble loudly excepted on new US sanctions incoming. More strong US data expected today, but the reaction to the CPI data earlier this week suggests that the market has already priced strong near-term numbers.