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Justin had the news on Friday of the imminent retirement of Japanese Prime Minister Abe.
- the end of an era for Japanese politics
- economists say Japan’s next leader will likely maintain he basic Abenomics framework
- “For sure, markets will be watching the continuity. I think many are assuming that things won’t change a lot, but the new prime minister will need to clearly explain that,” said Daiju Aoki, chief investment officer at UBS Wealth Management Japan.
- “The government will need to continue to deal with the pandemic and do what’s necessary to contain it while limiting the economic damage … whoever becomes the prime minister, he or she will have to face the same issue and take the same necessary steps”
A lot of the big names are still ahead but some interesting names reporting next week
- United Airlines
- Capital One
- Johnson & Johnson
- Texas Instruments
- American Airlines
- American Express
The headline is the in summary version of a client note from UBS on the US dollar.
- longterm dollar trend … As of last month, it was still levying upward pressure … did not appear to be waning materially
- medium term trend … duration of 2-5 years … more or less mirrors intra business cycle growth surges and slowdowns
- shorter term one that averages about a year…. seems to relate to shocks caused by politics and supply disruptions to commodities … a modest dollar drag today … could reflect the … trade war coming home to roost and the drag on Chinese leading indicators passing, as fiscal stimulus from tax cuts and modest credit easing have begun to filter through
UBS are citing the US slowdown to potentially arrive sooner than expected
- Which, they say, opens the door to a Fed funds rate cut in October.
- tarfifs weakening employment in manufacturing, retail
- January, March and June 2020
- And also say that due to the run of recent data there is risk is to the downside for the Fed to cut more.
The lessons of equity markets don’t apply universally
For foreign exchange investors there’s nothing more exasperating than the euro at the moment. Having fallen from above 1.51 against the dollar in December to below 1.19 in June, the euro has since bounced smartly back to above 1.30. Defying predictions of a Eurozone break-up or a further perilous decline to parity, the euro has instead wrong-footed many in the currency market.
Indeed, exasperation explains one of the factors behind the euro’s correction, as investors had become increasingly bearish on the currency. The belated bailout of Greece, sharp bond spread widening within the Eurozone, concerns about competitiveness, and political tensions within Europe all convinced foreign exchange participants that the euro had become a one-way bet. Hence, the euro’s summer recovery has been the clear pain trade in the currency markets, forcing investors to close their shorts.
The reversal in the exchange rate has been driven by stronger data in the Eurozone and renewed concerns about the health of the US economy. In particular Germany’s super-competitive exporters have benefited from the slide in the euro in the first half of the year. An excellent reflection of this is the continuing strength of the Swiss franc. As Switzerland sends 20% of its exports to Germany, the franc is a proxy for the largest economy in Europe. In many ways it is a substitute for the old German mark.
In contrast, the dollar has fallen this summer as weaker US growth has forced Federal Reserve officials to consider resuming quantitative easing. As last year’s inventory bounce has begun to wear off, structural concerns about the health of the US housing and labour markets have come to the fore again.
In the near term the euro is likely to keep its gains; there are still shorts in the market and fears about the Fed will keep the dollar on the back-foot. But the longer-term picture remains bearish. The structural problems of high debts, low growth and diverging current account imbalances remain stubbornly high. Fiscal austerity will undermine Eurozone growth this year and next. The European Central Bank won’t be in a position to raise interest rates until well into 2011, at the earliest.
What are the risks to our long-term bearish euro view? The major concern of course is the Fed resuming asset purchases in order to expand US money supply. This would undermine the dollar as it did in March 2009 when the Fed started a year-long programme of buying Treasuries and mortgage-backed securities. The other concern is that the consensus among foreign exchange participants remains bearish on the euro. As a result, their positioning would keep the markets vulnerable to further exasperating rallies in the currency.
Federal prosecutors are conducting a preliminary criminal probe into whether several Wall Street banks misled investors about their roles in mortgage-backed deals, The WSJ reports.
The banks in the early stages of scrutiny are: JPMorgan, Citigroup, Deutsche Bank and UBS. Under similar preliminary criminal scrutiny are Goldman and Morgan Stanley, as The WSJ reported yesterday.
The focus of the inquiry are mortgage-backed collateralized debt obligations or CDOs and whether banks misled investors about these bets.
So why the focus on these specific derivatives?
“Presumably what’s closest to home, no pun intended, for a lot of people is their mortgages and foreclosures that we’re seeing,” Todd tells Aaron in the accompanying segment. “So those are the instruments that kicked Main Street in the groin pretty much. That’s where the line was drawn for a lot of the populace anger to really start to percolate.”
Harrison, who warns against the unintended consequences of Wall Street reform in an earlier segement, says policymakers risk going down a “slippery slope” by attacking financial instruments they don’t understand in an effort to score political points.
(Reuters) – UBS on Wednesday joined the growing list of brokerages lowering India’s 2011/12 economic growth forecast, paring Asia’s third-largest economy’s growth to 7.7 percent from 8 percent, as interest rate rises and higher oil prices start to bite.
Morgan Stanley and Bank of America-Merrill Lynch had last week lowered their growth forecast for the Indian economy in the next fiscal year that begins in April to 7.7 percent and 8.2 percent.
UBS also cut the world’s second-fastest growing major economy’s gross domestic product forecast for the current fiscal year to 8.7 percent from 9 percent on weak December-quarter growth and continuing weakness in the industrial output growth.
“The reason for the slowdown is as before: lagged impact of todays tight money on demand plus effect of higher oil prices,” Philip Wyatt, an economist at UBS wrote in a note, adding he sees the economy recovering to 8.6 percent growth in 2012/13.
India’s economy grew at a slower-than-expected 8.2 percent in the December quarter from a year earlier, after expanding at 8.9 percent in the previous two quarters.
Industrial output in January topped forecasts, but was still weak at 3.7 percent annual rise.
“We expect WPI (wholesale price index) inflation to accelerate from 7 percent in March 2011 to 7.7 percent a year hence,” Wyatt wrote.
India’s headline inflation unexpectedly quickened in February on rising fuel and manufacturing prices, raising expectations for aggressive central bank tightening beginning later this week. (more…)