Posts

G4 vs Emerging Markets: where are we in the economic cycle?

• After nearly a decade in decline, the growth gap between emerging markets and developed markets is rising once more, but where is each group in its respective economic cycle?
• Although both groups were synchronised before the crisis, their respective economic cycles have since diverged. G4 economies appear to be well into their cycle, but EMs could be at the beginnings of a new cycle – a positive signal for EM currency investors.

Terminating NAFTA: What would the impact on Canada be?

• As NAFTA negotiations become increasingly fraught, the risk of a complete termination by US President Donald Trump is increasing
• The long-run impact of such a termination is likely to be limited, based on the MFN tariffs the US could apply
• The most likely impact would be in terms of the real economy, as the shock generated would hit consumption, spook investment and delay the Bank of Canada’s hiking cycle.
• To investigate the magnitude of this effect, we model the impact on real economic variables and interpret the impact on the Canadian dollar. Our results suggest that a 6% depreciation of the Canadian dollar against the US dollar could be justified.

Brexit: how bad could it get?

In April we noted the uncertainty that a Brexit vote would bring to the British economy.
In this post, we examine how the economic risk the UK now faces may be manifested in a post-Brexit UK. In particular, we look at a “worst case scenario”, and what this might mean for the economy, and the currency.

JPY: Has Japan lost the Currency War?

The currency war “truce” at the G20 meeting in February of this year has effectively placed political pressure on Japan to refrain from further depreciation of the yen. We investigate whether this has frozen USDJPY at its “fair value”. Although a naïve reading of PPP figures suggests that the outcome is reasonable, adjustment for productivity differentials suggests that the yen is now heavily overvalued versus the dollar, with attendant negative consequences for the Japanese economy.