Capital Leak from China Stemmed for Now

China’s FX reserves stabilized for the third month running, in a sign that China has made some serious headway in tightening capital controls. The top chart shows that PBoC selling of FX reserves has not been significant since January this year. The bottom-left chart...

Stretched Sentiment Leaves EM Vulnerable

Liquidity conditions have deteriorated meaningfully for EM equities. The left chart below shows that the steep drop in G7 Excess Liquidity points to a risk of much lower EM equity prices in about 3-4 months’ time. This materially worse backdrop for EM equities is...

Reflation in Danger Due to Low Liquidity

Over the past few weeks we have expressed scepticism on the Trump reflation trade and we have argued that bank stocks should underperform. We have shown previously that when you look at the 3 and 6 month change in Commercial & Industrial lending as well as the...

Short AUDCAD As Proxy China Trade

Although both AUD and CAD are commodity currencies, given Australia’s outsized exposure to China, AUDCAD can be used as a proxy trade on the Chinese economy. AUDCAD is approaching the top of its range just as Chinese liquidity is rolling over. In our March Leading...

Oil Goes from Tailwind to Headwind

In most economic cycles, commodities rally very late in the business cycle, and often oil doubles in price before downturns.  Our leading economic indicators are not forecasting an immediate economic downturn, but we are very definitely late cycle on a lot of...

Financial Conditions Ease, but Growth to Remain Weak

Two of the best global leading indicators tools we have are VP’s Business Cycle Financing Index (BCFI) – which tracks financial conditions, eg are central banks easing or hiking, credit spreads widening or tightening (first chart) –  and the global yield...

Financial Conditions Keep Tightening

Financial conditions are slowly but surely tightening.  We have had one actual rate hike by the Fed, but conditions had begun to tighten before this. This is primarily a developed market phenomenon. Real M1 for the G7 has been trending down for the past 6 months....

The Remorseless Logic of Capital Outflows from China

China is in the midst of a debt-deflationary bust.  It is an ongoing process that has gathered pace recently.  Capital outflows are a symptom of this, and a weaker yuan is an integral part of the attempted cure.  We expect more of this to come. We wrote back in the...

EM Money Growth Improving

Capital outflows from emerging markets continued into the second quarter of 2015.  Once again the outflows mainly emanated from China and from CEE and Russia.  The flipside is growth Treasuries held in custody for foreign accounts is stuck at zero percent.  This is a...
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