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2017-05-22
What’s next for the Fed?

When the FOMC decided to leave rates on hold earlier this month, Yellen cited slowing growth in the first quarter of 2017 as “transitionary” leaving the market with the belief that tighter policy will be forthcoming in the months ahead amid “solid” job gains and continued growth in consumer spending. The median forecast of Fed officials was for an additional two quarter point hikes this year and the markets increased the odds of a June hike from 70% to 90%.

 

After May’s payroll figures (see chart below) showed a stronger than expected +211k increase in April  exceeding the consensus forecast for a gain of +185k and suggesting that the previous months’ reading of a downwardly revised 79k was just a blip in what has otherwise been a gradually improving trend, the futures market now has a hike next month as a certainty. Despite this, the dollar has continued to remain under...



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2017-05-15
Household indebtedness at its peak?

We spoke a couple issues back about the dramatic reversal the Canadian dollar has seen against its US namesake over the last couple of months. As was mentioned in this All Eyes are on Canada issue, CAD went from one of the best performing currencies in the G10 in 2016, to trading at near 2 year lows. As was rightfully pointed out, much of this weakness can be attributed to a couple of key factors; notably the NAFTA/trade-war between the two nations, falling energy prices, and general USD strength as market participants expect US interest rates to continue to rise.

 

On the back of this issue, I wanted to take this opportunity to dig a little deeper into another issue afflicting not only the Canadian economy, but many other developed markets which have found themselves sustaining growth with substantially accommodative monetary policy – a rampant rise in personal debt levels, unsupported...



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2017-05-08
Macron and the EUR

Does Emmanuel Macron’s victory in the French election signal a turning point for the single currency?

 

Macron’s decisive victory in the French presidential election yesterday, in which he garnered 66% of the vote, was met with indifference by the currency markets.  At the time of writing, EURUSD is trading at about 1.0950, the exact same level it rallied to following the 1st round of the election two weeks ago.   For many, a Macron triumph over the Marine Le Pen signifies nothing less than the decisive defeat of the Eurosceptic forces which brought us Brexit, and threatened to collapse the entire European project, including the euro itself.  If the high-water mark of European populism has now been reached, and the existential political risks facing the euro are in retreat, why has the currency not strengthened more dramatically?

 

Aside from the short-term reality that a Macron victory was largely priced in anyway, there are...



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