The VP Blog
A blog about financial markets and our investing framework
Cost of FX Hedging Pushing Yen Higher for Now
One of the strongest performers against the USD lately has been the yen, with USDJPY now probing 15-month lows. One of the main drivers has been the surging cost of FX hedging (assume rolling 1 year FX forwards). The top-left chart shows the pick-up for a yen investor...
read moreUS/Global Growth Multiplier Drags USD Lower
This post is taken from our January 30th weekly report. The dollar broke through the critical 90 level on the DXY, after comments from US Treasury Secretary Steven Mnuchin supporting a weaker dollar. (The timing of the comments at such an important level we don’t...
read moreUS Stock-Bond Ratio Reaching Extreme
This post is taken from our weekly report dated January 23rd 2018. We are seeing a rotation into equities and out of bonds at the start of this year. BAML, using EPFR data, noted that equity fund flows over the past 4 weeks are up to $58 billion, the largest ever, and...
read moreFig Leaves For Raising Interest Rates
Central banks are increasingly altering the perception of their reaction functions to allow tighter (or less easy) monetary policy. At the ECB, discussion of so-called “supercore” inflation has re-emerged. This consists of the components of the HICP basket that have a...
read moreVulnerabilities in Europe
Sentiment in Europe has soared to its highest level since 2001. However, in Europe as elsewhere, such lofty sentiment should be taken as a warning for markets, not a green light. As we can see from the top-left chart, previous peaks in economic sentiment have...
read moreTurkey: A Recipe for Inflation
On a structural basis, Turkey has consistently been one of the most vulnerable economies to a currency crisis in light of considerable external vulnerabilities, and was flagged again in VP’s September thematic update of our debt and currency crisis framework. However,...
read moreMLP Diverges from Crude and Credit Markets
There is a notable divergence between how energy Master Limited Partnerships (MLPs) are trading in the US compared with the crude oil and high yield markets. Energy MLPs tend to be highly sensitive to credit market conditions as well as commodity prices. The top two...
read moreMaintain Bearish Idea on EURUSD
Real rate differentials continue to suggest EURUSD has more downside. We have two ways of looking at real rate differentials. The top left chart shows the 2 year rate differentials deflated using CPI. The top right chart takes the same data but also divides the real...
read moreUS Homebuilders: Tactical Short Against Consumer Staples
Anticipated rebuilding after the US hurricanes have helped push up bullish sentiment on US homebuilders to very high levels, offering a tactical relative-value opportunity. The top-left chart shows VP’s Sentiment Z-score on US homebuilders, which have hit 5-year...
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