The CrossBorder Capital Blog

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.  

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 months •       Track-record of yield curve predictions is poor, but the US economy does now appear to be slowing •       Pattern of term premia (D-star) proves a far better predictor of US business cycle •       The skew in Treasury term premia warns of US manufacturing recession by mid-2019 •       Investors need to add convexity to portfolios for protection    

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 negative •       Money markets are ‘tight’ and there is a structural shortage of ‘safe’ assets •       Shortages of ‘safe’ assets warn that financial markets are vulnerable to shocks •       Policy-makers have fallen ‘behind the curve’ in terms of preventing financial stress •       Portfolios need protection through more bond convexity and wider diversification