Dollar to come under growing pressure

Our view on the USD for 2019 was that it would face modest downwards pressure. The pressure has been modest, but it has been to the upside. Nonetheless, overall the dollar (DXY) has been in a tight range this year (~4.5%). Every attempt to the upside has been met by...

Yield Curve: Forwards Hold some Clues

The 2s10s yield curve continues to grind incrementally lower, but negative carry is becoming a formidable headwind. One year carry on this part of the curve is a punitive 28bps. We are also seeing the forward yield curve struggling to flatten any more (top-left...

Watch the Real Yield Curve

A real yield curve is an indicator of risk appetite. Persistently negative real yields are often a precursor to extended levels of leverage and credit bubbles. When they start to rise they point to tightening financial conditions which stresses firms’ equity, causing...

The Yield Curve and Volatility

Falling liquidity was one of the principal reasons behind our call for a flatter US yield curve this year. Excess liquidity often drops towards the end of an expansion. At the same time the relative demand for credit falls, while the central bank is reacting to...

Flatter Yield Curves a Headwind for Risk Assets

The US and global yield curves steepened briefly last summer and steepened further after Trump’s election, but it has been rolling over almost all year. This has a negative read through to growth and key risk assets. The yield curve is one of the key things we track...

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...