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The world’s largest pension may be hedging euro and USD risk

Japan’s GPIF said to putting on hedges

Japan’s $1.5 trillion public pension fund has begun to put on hedges to protect against USD and EUR declines, according to a Nikkei report published yesterday.
The GPIF “has begun a transaction to avoid (hedge) losses associated with fluctuations in foreign exchange rates through fund management with foreign bonds. The target is US dollar and euro denominated bonds, and the balance at the end of March is approximately 1,300 billion yen,” the report says.
A hedge of that size will be swallowed up by the market but the signal it sends may lead others to follow. It also makes me wonder what the GPIF is seeing and why they’re worried about sudden yen strength.
A contrarian might also argue that a move like this comes at the bottom for EUR/JPY and USD/JPY, but I’m not sure I’d make that argument.
Japan's GPIF said to putting on hedges

Search for IMF leader down to three names

Three Europeans in the race

The race to replace Christine Lagarde has been narrowed to 3 names, according to a Bloomberg report.
Former Dutch Finance Minister Jeroen Dijsselbloem, World Bank Chief Executive Kristalina Georgieva of Bulgaria and Bank of Finland Governor Olli Rehn are the finalists.
The race isn’t necessarily closed. In fact, the process only opened today and closes on September 6, with October 4 as the internal deadline to complete the process.
It would require a change in IMF bylaws to appoint Georgieva because she is over 65.

Trump keeps up his attack on the Federal Reserve

More of the same from the President

A couple tweets from Trump as Fed week gets underway:
The Fed “raised” way too early and way too much. Their quantitative tightening was another big mistake. While our Country is doing very well, the potential wealth creation that was missed, especially when measured against our debt, is staggering. We are competing with other…countries that know how to play the game against the U.S. That’s actually why the E.U. was formed….and for China, until now, the U.S. has been “easy pickens.” The Fed has made all of the wrong moves. A small rate cut is not enough, but we will win anyway!
Think he will ease up after a cut? After two cuts? Or not until the Fed is back to zero and buying trillions of bonds?

Boris Johnson: There is every chance we can get a deal

More from the UK PM

  • We are going to come out on Oct 31, deal or no deal
  • With common sense, we can get a deal
  • There is a big incentive to get this thing done
  • We need a new free trade deal with EU
  • If our partners won’t move on the backstop then we have to get ready for no-deal
  • Says UK is talking to the Irish government on Brexit today
Irish minister Donovan earlier reiterated that the EU cannot change its position on the Brexit backstop.
More GBP selling on these headlines and a fresh low in GBP at 1.2261.

SNB total sight deposits w.e. 26 July CHF 581.2 bn vs CHF 579.5 bn prior

Latest data released by the SNB – 29 July 2019

  • Domestic sight deposits CHF 477.1 bn vs CHF 477.5 bn prior
Prior week’s release can be found here. A mild increase in overall sight deposits but really nothing too notable in my view as it doesn’t look like the SNB is too actively intervening despite EUR/CHF lingering close to (and even falling briefly below) the 1.10 handle.

Japanese government downgrades economic growth forecast for current fiscal year

A foreshadow to the BOJ meeting tomorrow perhaps?

Japan
  • FY 2019 real GDP growth estimate lowered from 1.3% to 0.9%
  • FY 2020 real GDP growth estimate of 1.2%
  • FY 2019 consumer inflation estimate of 0.7%
  • FY 2020 consumer inflation estimate of 0.8%
The government cites weaker exports i.e. weakening global demand as the main reason for the downgrade and says that the impact from the planned sales tax hike in October may also further weigh on growth in the current fiscal year.
They estimate export growth to be at +0.5% now compared to the +3.0% assessment back in January. That would mark the weakest growth in exports since fiscal year 2012.

Former Fed Chair Yellen endorses a 25 bp cut in rates this week.

FOMC decision on Wednesday

With the FOMC all but certain to cut rates by 25 basis points on Wednesday, the former Fed chair Janet Yellen is endorsing the move.
Citing worries of global growth and low inflation, Yellen said:
“I would be inclined to cut a bit.  I wouldn’t see this as the beginning – unless things change – of a major easing cycle. But I do think it’s appropriate.”

 

  • She thinks inflation is too low
  • Global economy was weakening because of trade conflicts that have created uncertainty for business investment
  • US interest rate increases have contributed to slower growth abroad
  • The US is not an island. When the US tightens policy it has repercussions in many parts of the world.
  • The Fed’s tightenings appeared to be weakening financial markets and the prospects for growth globally
Yellen made the comments at an event kicking off the Aspen Economic Strategy Group meeting in Aspen, Colorado today.