We’ll have a (not so) Blue Christmas without you, Trump

Summary In the quiet after the storm, this blog post hopes to take stock of what happened in the US election, why markets were surprised, what the results means for US policy (fiscal, monetary, foreign, climate) going forward, and the implications of this for US and global growth, equities and FX markets. What happened? The …read more

Dollar Dominance in the Age of COVID

This article was co-authored with Dominique Dwor-Frecaut (bio below). This article can also be found on the Macro Hive platform here. Macro Hive is a leading producer of macro and financial market research and strategy.  The virus has catalysed more, perhaps, than it has caused. Established trends in geopolitics, economics, financial markets, public policy, and social …read more

COVID-19 and Currency Risk

From 2008 to COVID-19, currency market volatility trended down. Volatility was elevated in 2015-2017 after its 2014 record low (measured by CVIX), but this fit within the trend, as December 2019 levels tested the previous record. This trend can be attributed to: convergence in the drivers of currency value like growth and inflation aligned monetary …read more

Sky-high equity valuations here to stay?

• Have we witnessed the formation of a US equity bubble on the verge of bursting? Or can current valuations be justified by a shift in macro fundamentals?
• We model an S&P 500 fair value range and attribute medium-term price changes to their fundamental drivers. We find that the nine-year bull run can be largely explained by rising dividends and falling real yields. Elevated valuations are consistent with compressed discount rates and, without a significant repricing of real yields, they could be here to stay.

International borrowing and the US dollar

• Some market participants are worried about the ever rising market value of US borrowing vis-à-vis the rest of the world – as measured by the Net International Investment Position
• Currency depreciation can function as an effective method of adjustment following an increase in external borrowing
• However, there are reasons to be cautious about this line of thinking, especially with respect to the US dollar. These include asset valuation effects, and the role of the US as a global facilitator of excess saving.