The VP Blog
A blog about financial markets and the VP investing framework
Money markets show no faith in ECB to hike
This post was taken from our December 4th weekly report. While attention will inevitably be focused on the upcoming ECB monetary policy meeting in December and the expected end to asset purchases, money markets are increasingly pushing back against higher policy...
Markets Repricing for Eurozone Lowflation
Market-based measures of euro area inflation expectations have shifted lower, which could point to a delay in monetary policy normalisation. The first chart below shows the EUR 5Y5Y forward inflation swap, which has dropped sharply in recent weeks. A few years ago,...
Support for Gold rally is building
Gold has been in a narrow range since mid-August, and is down about 6% YTD in USD terms. It has had several opportunities to sell off more given a hawkish Fed, a rising USD and speculators going net short, but tellingly it has remained quite well supported. Today...
Locals see Opportunity in LATAM
We have previously highlighted that despite the global equity selloff there has been only a marginal decline in flows to emerging market equity ETFs, which suggests that investors remain committed for the time being. We have dug further into fund flows for Brazil and...
Swedish Housing Market Starting to Crumble
We have previously flagged Swedish property as both a precariously overvalued asset and a risk to systemic stability given the high degree of household leverage. The scale and intensity of the Swedish property bubble is reflected in the two charts below. In real terms...
The Italian Doom Loop
With Rome appearing to square off with Brussels over its contentious budget, BTPs have faced considerable pressure and bank stocks have been hammered. This is the nefarious doom loop: Italian banks own a large chunk of Italian government debt and, given the lack of...
Dollar Funding Shortage set to Continue
The widening of the cross-currency basis (JPY, EUR and GBP, in particular) against the US dollar provides further evidence of a structural dollar-funding shortage, which is set to worsen as the Fed tightens. Although the spread typically widens towards year end, the...
Australian Housing showing further weakness
Since 2016, our structurally bearish thesis on Australian housing has taken a while to play out as cyclical data often managed to hold up as the RBA kept policy loose and as the global economy was awash with liquidity. Now, however, as global-liquidity headwinds are...
Lower Earnings have little to do with Dollar Strength
We have previously discussed that we see the end of the dollar’s rally coming into view, and that further reasonably-sized rallies (~2-3%) over the next 1-3 months should be used to take profits on long dollar positions. The DXY has rallied over 7% this year, and a...
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