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Misguided

The Repo RicochetRecent repo rate spikes are a warning of another 2007/08 Crisis, but not a guarantee of one. Markets are becoming illiquid. Despite FOMC rate cut in September, policy needs to focus far more on balance sheet expansion, i.e. QE. This will push bond term premia higher, cause yield curves to steepen and underpin outperformance from value over growth stocks.

The Most Interesting Chart in the World?

The Most Interesting Chart in the World?  The underlying World economic backdrop is not as bad as it initially appears from a ‘normal’ assessment of financial market indicators. The inverted US yield curve and skidding inflation-adjusted interest rates (TIPS) are largely liquidity phenomena that are distorting markets through unusually depressed term premia. There is a shortage of ‘safe’ assets in global financial markets caused by fiscal austerity policies, compounded ironically by Central Bank quantitative policies and worsened by flight capital from Emerging Markets. These forces have triggered an excess demand for ‘safe’ assets which has driven up US Treasury prices and, simultaneously, hammered down term premia. Assuming that the recent Global Liquidity upturn continues, this may be enough to reverse the downtrend in term premia and normalise market.

Much More Easing Has To Come

Up, Up and Downnnnnnnn… Why Our Problems Are Financial (Again) and Not EconomicWorld Central Banks are again easing Global Liquidity conditions. More QE has to be the persistent message. Policy-makers have, in practice, run out of interest rate cuts, since low and negative rate undermine the credit mechanism. This will likely cause bond yield curves to steepen, and gold and cryptocurrencies to rally more.

Beijing’s New Power?

Does China Control The World Gold Price?Gold prices may have broken higher in US dollars, but they also appear to have broken their traditional relationship with Federal Reserve policy since they seem to be ahead of the curve of Fed easing. The puzzle may be explained by the current jump in liquidity injections by the People's Bank of China. The PBoC is a key international policy-maker and must be correctly seen as part of the US dollar system. This easing move is equivalent to Fed action, so why wait for Washington? Beijing is already driving gold higher.

Steeper Yield Curves Coming

How Central Banks Steepen Yield CurvesTwo things matter for yield curves – Central Bank policies and yield volatility. Both are set to expand. Over the next few months, it is highly likely that the US Treasury curve could steepen, but that still means that 10-year yields first test 1.50%. US policy rates look set to drop to 1%.

China eases first

Forget The US Fed For Now, The Real Monetary Action Is Happening In ChinaChina injects RMB 1.1 trillion into money markets in last six weeksJune to date sees RMB 557 billion injected: biggest jump since November 2017PBoC's October to April mini-tightening has now been reversed‘PBoC (People's Bank)-Watching’  set to rival 'Fed-Watching'

Why US Rates Could Hit 1%?

Bonds Are Screaming A Big WarningUS bond yields have tumbled over the past few months. But analysis of the US term structure and using data from a ‘new’ and more robust parameter warns that they could tumble further. US 10-year Treasury yields could fall by 100bp and deliver near-15% returns over the next 12 months. Another implication is that US manufacturing industry slips into recession