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

A Surging or Slumping US Dollar?

Could China Dump Its Dollars In Some ‘Trade’ Retaliation? Or Will US Dollar Strength Continue?There are growing concerns that an escalation in the US-China tariff spat will trigger retaliation from China in the form of forced sales of US Treasury debt, thereby triggering a lower US dollar. This not only seems impractical and so unlikely, but fundamentals, namely a global shortage of ‘safe assets’, the tight US Fed and rebounding US private sector cash generation, all should underpin a moderately strongly US unit. EM currencies are exposed to this threat, but a significant improvement in EM currency risk since mid-2018 suggests that any sell-off will be limited.

Do 0% US Treasury Yields Lie Ahead? Buy Bond Convexity: Renewed US Slowdown Fears

The Yield Curve Warns Of US Recession, But Is The Term Structure Now Confirming It?Flattening Yield Curve has been warning about a slower US economy for monthsTrack-record of yield curve predictions is poor, but the US economy does now appear to be slowingPattern of term premia (D-star) proves a far better predictor of US business cycleThe skew in Treasury term premia warns of USmanufacturing recession by mid-2019Investors need to add convexity to portfolios for protection

Has The Fed Really Changed Policy?

Has the US Fed Fallen Behind the Curve Again? Does the ‘December 2018 Mini-Crash’ Warn of Approaching Troubles?Despite assumed ‘major’ Fed policy change, money market flows remain negativeMoney markets are ‘tight’ and there is a structural shortage of ‘safe’ assets Shortages of ‘safe’ assets warn that financial markets are vulnerable to shocksPolicy-makers have fallen ‘behind the curve’ in terms of preventing financial stressPortfolios need protection through more bond convexity and wider diversification