UBS | Improved EM asset performance this year has been driven by a) the tremendous credit stimulus from China, b) a change in the reaction function of the Fed, which helped EM currencies rally against the USD, and, c) the rebalancing in the oil market. Investors are already questioning the first two, but oil has continued to trade very well.
The recent disclosure of the April FOMC minutes has come as a shock. Investors expected a cautious wait-and-see stance by the Federal Reserve at that meeting. But now we discover that a majority of its members openly supported a rate hike at the June gathering, should macro-economic delivery prove reasonably upbeat.
It feels likely that markets will be waiting for more certainty on Fed hikes to push USD higher, especially given years of post-crisis overpricing of higher interest rates.
James Alexander via Historinhas | As the FOMC increasingly avers that it is data-driven the demand to have better data has led to greater focus on aggregated current data. Whether the FOMC really looks at it, given it is ignoring its own Labour Market Conditions Index, is hard to say.
BofAML | No surprises. We do not expect any ECB action this week. After the package in March, we think the ECB will have a few months before going back to the drawing board. Dovish Fed tones and EUR appreciation do not help the ECB, but action beyond a reiteration of forward guidance seems very unlikely.
James Alexander via Historinhas | What is more important the short, medium or long term? The recent gyrations of the EUR/USD exchange rate have grabbed a lot of attention since the start of the year. In theory the strong easing bias of the ECB versus the confusing position of the Fed should mean the EUR weakens versus the USD
James Alexander via Historinhas | Hamlet without the Prince would not be a very good play. Janet Yellen’s March 29th speech features a world economy without the Fed. It’s not a very good description of the world economy.
Benjamin Cole via Historinhas | It is too bad in some regards that Richard “Inspector Clouseau” Fisher, the former president of the Federal Reserve Bank of Dallas, in no longer ensconced in that position. For one, he was always great copy. For seconds, he was one of the most infallible reverse indicators of Post War Era, and economic soothsayers could bet against a Fisherian proclamation with a rare calm.
Caixin | The 2008 global financial crisis thrust Ben Bernanke into the spotlight as his every move drew unprecedented attention, scrutiny continued until he stepped down as chairman of the U.S. Federal Reserve in 2014.
Both main central banks face a challenging outlook. The ECB may have saved the day recently by showing it still commands enough firepower to support the economy, even if its room for manoeuvre seems hopelessly narrow. The Federal Reserve seems caught in a nasty trap.