Archives of “August 17, 2020” day

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Decide the type of person you want to be. Prove it to yourself with small wins.

  
Analysis, Education
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Why the US dollar continues to fall

  
  Analysis
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USD/JPY declines below 106.00

USD/JPY is at a six-day low as the pressure on the US dollar mounts. There is some broad-based weakness taking hold. It’s increasingly becoming the default mode in the market to sell US dollars, so long as there isn’t genuine risk aversion.
There’s nothing particularly negative for the US dollar today but there are headwinds:
  1. US election risk
  2. Lack of US stimulus will hurt relative growth
  3. Equity market valuation is richer in the US, better value elsewhere
  4. Long-term monetization/inflation worries
Here’s chart on M2 from Nordea comparing the US and Europe:
USD/JPY declines below 106.00
In the smaller picture, risk sentiment is good today and that’s good enough to undercut the US dollar.
As for USD/JPY, it’s not time to worry yet but the drop in late July is starting to look like a warning shot.
USDJPY

Heads up: OPEC+ JMMC meeting scheduled to start at 1400 GMT on 19 August

  
  Analysis
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Bloomberg with the headline, citing OPEC on the matter

Just a heads up to the meeting later this week, in case we hear of how the compliance issue is going or any possible plans for future production cuts and what not.
The latest reports are suggesting that OPEC+ sees ~95% compliance to its production cuts in July and I reckon that is somewhat of a satisfactory figure, so there shouldn’t be too much complaints despite that being down from ~107% in June.

The coming debt and population problem

  
  Analysis
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Death and taxes

Debt levels are set to rise to unprecedented levels. According to the International Monetary Fund in June the public debt, as a share of GDP in advanced economies, is set to come in at over 130% for this year and next. To put that into perspective that surpasses the debt levels from the second world war.If you look at the chart below you can see that the double whammy of the Global Financial Crisis, followed by the present pandemic is pushing debt to record levels.

Death and taxes

 

The population problem

The general thinking now is that the present crisis is a one in a hundred years kind of event (what if it isn’t) and that future generations will be able to claw back the debt levels over time. However, a publication from the Lancet in the UK suggests that there is a falling population that could fall by 9% at the end of the century. So, this means that there will be a large decline in numbers of working age adults. There are some countries which are projected to be particularly badly hit. Japan, Spain, Portugal, and Thailand are expected to see their populations halve by the end of the century. The countries which are projected to see 25% population declines are also projected to see a higher ration of older to younger people. So, more of this debt is going to be shouldered by fewer as an ageing population raises further spending considerations.

What will happen next?

There will be moves by governments to start to cap this debt problem. It will not be allowed to continue unless we get into worst disasters than we presently are in. The main concern is that of default. As long as willingness to repay remains, then the debt pile can be reduced. The main risk is if the debt becomes too great and the easiest solution is to just walk away…

SNB total sight deposits w.e. 14 August CHF 698.6 bn vs CHF 695.8 bn prior

  
  Analysis

Latest data released by the SNB – 17 August 2020

  • Domestic sight deposits CHF 632.4 bn vs CHF 628.5 bn prior
Another week, another modest increase in Swiss sight deposits. This once again just reaffirms that the SNB is actively intervening in the market to limit franc strength, as they continue to keep their policy stance since March of stepping into the market more often.
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