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- 🔔 Currency Wars: When Stronger Is Better
🔔 Currency Wars: When Stronger Is Better
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We've all heard about currency wars, usually in the context of competitive devaluations.
A weaker currency is favoured because it 'helps exports' by making them cheaper.
ING zeroes in on the opposite effect: stronger currencies for cheaper imports.
Especially in the current context of high energy/commodity prices. 👇
Leading the pack amongst the major currencies this year is the renminbi. The broad, trade-weighted renminbi is up nearly 6%.
The move seems at odds with China slowdown fears, the People's Bank of China reserve requirement cut and Evergrande related concerns in the Chinese financial sector.
When Evergrande dominated the headlines, you couldn't move for forecasts of China devaluing the yuan (again) to remain competitive.
Maybe they will, maybe they won't. For now at least it makes no sense to do so.
Back to ING:
Most recently, Chinese policy makers have instructed major energy companies to secure energy supplies for this winter at all costs. A stronger renminbi certainly helps in this exercise.
Surging energy prices are also starting to question FX policy preferences elsewhere in the world. Central banks where tightening cycles are underway, especially in emerging markets, would welcome more stable or stronger currencies. And in the developed space, both Norway and New Zealand have already started tightening cycles and would not be averse to currency strength.
At completely the other end of the spectrum are the central banks in the eurozone, Sweden, Switzerland and Japan which all retain their fears of disinflation and show no signs of switching to a less accommodative stance.
This brings us to the dollar. Here, expectations of Fed policy are on the move and we are now bringing forward our forecast rally in the dollar.
Continuing dollar strength is also dependent on strong progress towards the Fed's full employment goals...
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It looks like the first jobs test has been met and the Fed will taper QE in November...
NFP is always a big event for markets, and today was seen as a taper test: strong report, and the taper is ON!
The 500k consensus forecast always looked optimistic, and when the print of 194k hit the wires, it looked like a big miss.
Combined upward revisions (of 169k) to the prior two readings saw a net gain of 363k jobs.
Should be enough to meet the taper test.
Then it's all about the rate hikes.
The Fed have been clear that they're looking for 'full' employment, and they still believe this is some way off being achieved.
That said, it's very difficult to define full employment currently as labour participation rates have fallen across-the-board. People are retiring, can't work or don't want to work.
Pre-Covid, there were always 'enough' workers and the question was whether there were enough jobs.
Right now, that position is entirely reversed 👇
We have spent 20 years trading NFP as a demand side number but now it's a labor supply story so the framework for trading should change. A low number e.g., +160k with a UR of 4.8% is a labor tightness story and not dovish. Participation, UR, headline all matter in combination.— ʎllǝuuop ʇuǝɹq (@donnelly_brent) October 8, 2021
If inflation persists at high levels and wage growth continues to strengthen, hikes may be necessary to slow inflation and protect against wage spiral effects.
If inflation eases in the coming months, the Fed will likely maintain their low rate policy and continue the search for maximum employment.
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Business is business, and football is business...
Newcastle United FC are now owned by the Saudi sovereign wealth fund, but there's nothing morally wrong because the Premier League have received legally binding assurances that there is a clear separation between the Kingdom of Saudi Arabia and the Saudi sovereign wealth fund (PIF).
Even though the sovereign wealth fund is chaired by the Saudi Crown Prince (MBS) himself...
It doesn't have to make sense.
Money talks, and where there's a will $500bn sovereign wealth fund, there's a way.
That's all we need to know.
The deal was delayed due to a dispute with BeIN sports over piracy and commercial rights.
All of the handwringing about human rights was just media noise.
Ethics doesn't even come into it.
It's always been the same.
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