Euro/USD: things look pretty stable

The euro has remained relatively stable relative to the US dollar in the wake of the European Central Bank (ECB) and US Federal Reserve (Fed) September policy meetings. Growth and interest rate differentials, two key drivers for the EUR/USD rate, suggest things could stay this way. The growth differential (based on leading indicators) has barely […]

Goodbye quantitative tightening

One measure of the USD overnight repo rate (there exist several) spiked to 6% on Tuesday 17 September, probably due a scarcity of bank reserves at the Fed at a time when US corporates needed cash to pay their taxes as did investors/banks (probably to absorb strong US Treasury issuance. Hence, cash became dearer, and […]

MMT, la nouvelle théorie en vogue à Washington

La nouvelle théorie monétaire (Modern Monetary Theory/MMT), théorie macroéconomique défendue par des économistes hétérodoxes, commence à faire son chemin aux Etats-Unis. Cette théorie adopte une approche expérimentale de l’économie, basée sur la conviction fondamentale que la monnaie est créée par le gouvernement à travers les dépenses budgétaires, et non par les banques centrales et privées, […]

Powell plays the ‘insurance’ card again

The Federal Reserve (Fed) cut rates by 0.25% on Wednesday, as widely anticipated. The new fed funds target range is 1.75%-2.00%. The interest rate on banks’ excess reserves was cut by 0.30% to 1.80%. Fed Chairman Jerome Powell again justified this second rate cut since July as “insurance” against risks to the US outlook – […]

What more QE means for Bund yields

The 10-year Bund yield moved up from its recent lows of -0.71% to -0.45% on September 16, driven mostly by an element of disappointment regarding the European Central Bank’s (ECB) latest stimulus measures and some renewed hopes for a US-China trade truce. In particular, we suspect the rebound in yields was triggered by the ECB’s […]

Modern Monetary Theory

Modern Monetary Theory (MMT), a macroeconomic theory advocated by heterodox economists, is gaining traction in the US. The theory adopts an experimental approach to economics, underscored by the fundamental belief that money is created by the government via budget spending – and not via money creation by central and private banks, as per traditional theory. […]

September Fed meeting preview

The Federal Reserve (Fed) is very likely to cut rates again on 18 September, a follow-up to its 25-basis point (bp) rate cut at its last meeting in July. The explanation is likely to again be the need to take “insurance” against growing downside risks to the outlook, including from President Trump’s erratic trade policy as […]

Oil market: supply disruption is here

After this weekend’s drone attack on the world’s most important crude oil facility, the Saudi Arabian authorities have announced that 5.7 million barrels per day (mbd), half of its daily oil production and 5% of the world total, will be taken off-line. Iran-aligned Houthi rebels in Yemen have claimed responsibility. Brent futures jumped by 20% […]

Weekly View – The ECB’s last bazooka

Mario Draghi has now done (nearly) all that it takes to support the euro area economy. With only weeks left in his term as ECB president, Draghi deployed almost all that remains in the central bank’s toolkit. Following last Thursday’s meeting, he confirmed not only the expected interest rate cut, but also the relaunch of […]

US-China – Towards a trade truce?

President Trump is considering offering a ‘limited’ or ‘interim’ trade agreement to China as his advisors prepare the ground for face-to-face talks scheduled for October. He has notably announced that the additional 5% tariffs on Chinese goods scheduled for early October were being pushed back to the middle of the month. This initiative marks a […]

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